Filed electronically with the Securities and Exchange Commission on
June 30, 2000
File No. 2-78724
File No. 811-1444
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 39
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 39
--
VALUE EQUITY TRUST
------------------
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
-----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-1000
--------------
John Millette
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/___/ Immediately upon filing pursuant to paragraph (b)
/___/ 60 days after filing pursuant to paragraph (a) (1)
/___/ 75 days after filing pursuant to paragraph (a) (2)
/_X_/ On July 1, 2000 pursuant to paragraph (b)
/___/ On _________ pursuant to paragraph (a) (1)
/___/ On _________ pursuant to paragraph (a) (2) of Rule 485.
If Appropriate, check the following box:
/___/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
VALUE EQUITY TRUST
Scudder Select 500 Fund
Scudder Select 1000 Growth Fund
1
<PAGE>
SCUDDER
INVESTMENTS(SM)
[LOGO]
Scudder Select 500 Fund
Scudder Select 1000 Growth Fund
Supplement to Prospectus dated July 1, 2000
On October 2, 2000, this prospectus will offer two classes of shares of each
fund to provide investors with different purchase options. The two classes are:
Class S and Class AARP. Each class has its own important features and policies.
In addition, as of the date noted above, all existing shares of Scudder Select
500 Fund and Scudder Select 1000 Growth Fund will be redesignated Class S shares
of their respective funds. Class AARP shares have been especially designed for
members of the American Association of Retired Persons ("AARP").
<PAGE>
From July 1, 2000 to August 27, 2000, the following information replaces the
information in the "How Much Investors Pay" section on page 5 of the prospectus:
Scudder Select 500 Fund
This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses* 1.29%
-----------
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.99%
--------------------------------------------------------------------------------
Expense Reimbursement 1.24%
-----------
--------------------------------------------------------------------------------
Net Annual Operating Expenses** 0.75%
--------------------------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
** By contract, expenses are capped at 0.75% through 6/30/2001.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above (including one year of expenses contractually capped at
0.75%), this example is designed to help you compare this fund's expenses to
those of other mutual funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns, reinvested all
dividends and distributions and sold your shares at the end of each period. This
is only an example; your actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$77 $504 $958 $2,217
--------------------------------------------------------------------------------
In the event that the proposed acquisition by the Scudder Select 500 Fund of the
Scudder Tax Managed Growth Fund (currently scheduled for August 27, 2000) does
not occur, this information replaces the information in the current prospectus
until further notice.
2
<PAGE>
From July 1, 2000 to October 1, 2000, the following information replaces the
information in the "How Much Investors Pay" section on page 10 of the
prospectus:
Scudder Select 1000 Growth Fund
This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses* 1.67%
-----------
--------------------------------------------------------------------------------
Total Annual Operating Expenses 2.37%
--------------------------------------------------------------------------------
Expense Reimbursement 1.61%
-----------
--------------------------------------------------------------------------------
Net Annual Operating Expenses** 0.76%
--------------------------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
** By contract, expenses are capped at 0.75% through 6/30/2001. Net annual
operating expenses, excluding interest, to average net assets would have
been 0.75%.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above (including one year of expenses contractually capped at
0.75%), this example is designed to help you compare this fund's expenses to
those of other mutual funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns, reinvested all
dividends and distributions and sold your shares at the end of each period. This
is only an example; your actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$78 $585 $1,119 $2,582
--------------------------------------------------------------------------------
3
<PAGE>
From July 1, 2000, to July 13, 2000, the following information supplements the
"Main Risks To Investors" section on page 7 of the prospectus:
Scudder Select 1000 Growth Fund
The Board of Trustees of the fund has approved, subject to shareholder approval,
a change to the fund's classification under the Investment Company Act of 1940.
The fund is currently classified as "diversified" and the change will make the
fund "non-diversified." A fund that is classified as diversified may not, with
respect to 75% of total assets, invest more than 5% of total assets in the
securities of a single issuer or invest in more than 10% of the outstanding
voting securities of such issuer. A non-diversified fund is not required to
comply with this provision of the Investment Company Act.
Because a non-diversified fund may invest in securities of relatively few
issuers, it involves more risk than a diversified fund since any factors
affecting a given company could affect performance of the fund to a greater
degree.
Proxy materials relating to the proposed change were mailed to the fund's
shareholders in April. A Special Meeting of Shareholders to vote on the proposed
change is expected to be held on July 13, 2000.
July 1, 2000
4
<PAGE>
SCUDDER
INVESTMENTS (SM)
[LOGO]
--------------------------------------------------------------------------------
DOMESTIC EQUITY
--------------------------------------------------------------------------------
Select Funds
Class AARP and Class S Shares
Scudder Select 500 Fund
Scudder Select 1000
Growth Fund
Prospectus
July 1, 2000
Class AARP is available for investment beginning October 2, 2000
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
Select Funds
How the funds work
2 Scudder Select 500 Fund
6 Scudder Select 1000 Growth Fund
11 Other Policies and Risks
12 Who Manages and Oversees the Funds
15 Financial Highlights
How to invest in the funds
18 How to Buy and Sell Class AARP Shares
20 How to Buy and Sell Class S Shares
22 Policies You Should Know About
26 Understanding Distributions and Taxes
"Standard & Poor'sO," "S&PO," "S&P 500O," "Standard & Poor's 500," and "500" are
trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by
Scudder Kemper Investments, Inc. The Scudder Select 500 Fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the fund.
The Russell 1000 a Growth Index is a trademark/service mark of the Frank Russell
Company. RussellO is a trademark of the Frank Russell Company. These trademarks
and service marks have been licensed for use by Scudder Kemper Investments, Inc.
Frank Russell Company is the owner of the copyrights relating to, and the source
of, the Russell 1000 a Growth Index. Scudder Select 1000 Growth Fund is not
promoted, sponsored or endorsed by, nor in any way affiliated with Frank Russell
Company. Frank Russell Company is not responsible for and has not reviewed
Scudder Select 1000 Growth Fund nor any associated literature or publications
and Frank Russell Company makes no representation or warranty, express or
implied, as to its accuracy, or completeness, or otherwise.
Additional information may be found in the funds' Statement of Additional
Information.
<PAGE>
How the funds work
These funds invest mainly in stocks as a way of seeking growth of your
investment. Each fund combines an active investment management method with
analysis and selection of stocks from its benchmark index. Each fund follows its
own goal.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.
This prospectus offers two classes for each of the funds described. Class AARP
shares have been created especially for AARP members and will become available
for investment beginning October 2, 2000. Class S shares are available to all
investors. Unless otherwise noted, all information in this prospectus applies to
both classes.
You can find Scudder prospectuses on the Internet for Class AARP shares at
aarp.scudder.com and for Class S shares at www.scudder.com.
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class S SSFFX fund number | Class AARP 110
Class S 310
Scudder Select 500 Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth and income by investing at least 80% of total
assets in common stocks of companies that are included in the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index). This index is widely used as a
measure of the performance of mid- and large-cap U.S. stocks.
The fund's portfolio managers use a multi-step process to select portfolio
securities from its benchmark index. This process includes the following steps:
Ranking -- using a proprietary computer model, the stocks of companies in the
particular benchmark index are evaluated and ranked based on their growth
prospects, relative valuation, and history of rising prices.
Selection -- the 20% lowest ranking stocks in the index are generally excluded
from the portfolio.
Portfolio Construction -- from the remaining 80% of stocks, a subset is selected
and weighted to ensure portfolio diversification and attempts to create a
portfolio that is similar to the benchmark index. Factors to be considered in
the allocation of the remaining stocks include: level of exposure to specific
industries, company specific financial data, price volatility and market
capitalization.
Ongoing Active Management -- the fund's portfolio is rebalanced on an ongoing
basis as the rankings of the stocks in the benchmark indices change over time.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's investments are common stocks, the fund may also invest
up to 20% of total assets in investment-grade debt securities.
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies or securities), the
managers don't intend to use them as principal investments, and may not use them
at all.
--------------------------------------------------------------------------------
2 | Scudder Select 500 Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund is designed for long-term investors who want a fund that
takes a "modified index" approach to investing in mid- and large-cap
stocks.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the mid-size and large company portion of the
U.S. stock market. When mid-size and large company stock prices fall, you should
expect the value of your investment to fall as well. Large company stocks at
times may not perform as well as stocks of smaller or mid-size companies.
Mid-size company stocks tend to be more volatile than stocks of larger
companies, in part because mid-size companies tend to be less established than
larger companies and more vulnerable to competitive challenges and bad economic
news. Because a stock represents ownership in its issuer, stock prices can be
hurt by poor management, shrinking product demand and other business risks.
These may affect single companies as well as groups of companies.
The fund's index-related strategy involves several risks. The fund could
underperform the index during short periods or over the long term, either
because its selection of stocks did not perform well or because of the effects
of expenses or shareholder transactions.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
industries, companies or other matters
o the computer model may eliminate stocks that perform well, or fail to
eliminate those that perform poorly
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
3 | Scudder Select 500 Fund
<PAGE>
The Fund's Track Record
Because this fund does not have a full calendar year of performance to report as
of the date of this prospectus, no bar chart and performance table are provided.
4 | Scudder Select 500 Fund
<PAGE>
How Much Investors Pay
This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.
--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.50%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses* 0.26%
------------
--------------------------------------------------------------------------------
Total Annual Operating Expenses 0.76%
--------------------------------------------------------------------------------
Expense Reimbursement 0.01%
------------
--------------------------------------------------------------------------------
Net Annual Operating Expenses** 0.75%
--------------------------------------------------------------------------------
* Includes a fixed rate administrative fee rate of 0.25%.
** By contract, expenses are capped at 0.75% through 6/30/2001.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above (including one year of reduced expenses in each period
due to the contractual management fee waiver), this example helps you compare
this fund's expenses to those of other funds. The example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; your actual expenses will be
different.
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$77 $242 $421 $941
5 | Scudder Select 500 Fund
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class S STHGX fund number | Class AARP 211
Class S 311
Scudder Select 500 Fund
--------------------------------------------------------------------------------
Scudder Select 1000 Growth Fund
Investment Approach
The fund seeks long-term growth by investing at least 80% of total assets in
common stocks of companies that are included in the Russell 1000 Growth Index.
This index is widely used as a measure of the performance of mid- and large-cap
U.S. stocks that have above-average prospects for growth.
The fund's portfolio managers use a multi-step process to select portfolio
securities from its benchmark index. This process includes the following steps:
Ranking -- using a proprietary computer model, the stocks of companies in the
particular benchmark index are evaluated and ranked based on their growth
prospects, relative valuation, and history of rising prices.
Selection -- the 20% lowest ranking stocks in the index are generally excluded
from the portfolio.
Portfolio Construction -- from the remaining 80% of stocks, a subset is selected
and weighted to ensure portfolio diversification and attempts to create a
portfolio that is similar to the benchmark index. Factors to be considered in
the allocation of the remaining stocks include: level of exposure to specific
industries, company specific financial data, price volatility and market
capitalization.
Ongoing Active Management -- the fund's portfolio is rebalanced on an ongoing
basis as the rankings of the stocks in the benchmark indices change over time.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's investments are common stocks, the fund may also invest
up to 20% of total assets in investment-grade debt securities.
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies or securities), the
managers don't intend to use them as principal investments, and may not use them
at all.
--------------------------------------------------------------------------------
6 | Scudder Select 1000 Growth Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund is designed for long-term investors interested in a
growth-oriented, "modified index" approach to the mid- and large-cap
portions of the U.S. stock market.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the mid-size and large company portions of the
U.S. stock market. When mid-size and large company stock prices fall, you should
expect the value of your investment to fall as well. Large company stocks at
times may not perform as well as stocks of smaller or mid-size companies.
Mid-size company stocks tend to be more volatile than stocks of larger
companies, in part because mid-size companies tend to be less established than
larger companies and more vulnerable to competitive challenges and bad economic
news. Because a stock represents ownership in its issuer, stock prices can be
hurt by poor management, shrinking product demand and other business risks.
These may affect single companies as well as groups of companies.
To the extent that the fund concentrates in any one sector, such as technology,
factors affecting this sector affect fund performance. For example, technology
companies could be hurt by such factors as market saturation, price competition
and competing technologies.
Since growth stocks usually reinvest a high proportion of earnings in their own
businesses, they may lack the dividends associated with value stocks that can
cushion their decline in a falling market. Earnings disappointments in growth
stocks often result in sharp price declines because investors buy these stocks
because of their superior earnings growth.
Because a non-diversified fund may invest in securities of relatively few
issuers, it involves more risk than a diversified fund since any factors
affecting a given company could affect performance of the fund to a greater
degree.
7 | Scudder Select 1000 Growth Fund
<PAGE>
The fund's index-related strategy involves several risks. The fund could
underperform the index during short periods or over the long term, either
because its selection of stocks did not perform well or because of the effects
of expenses or shareholder transactions.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
industries, companies or other matters
o the computer model may eliminate stocks that perform well, or fail to
eliminate those that perform poorly
o growth stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
8 | Scudder Select 1000 Growth Fund
<PAGE>
The Fund's Track Record
Because this fund does not have a full calendar year of performance to report as
of the date of this prospectus, no bar chart and performance table are provided.
9 | Scudder Select 1000 Growth Fund
<PAGE>
How Much Investors Pay
This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.
--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.50%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses* 0.27%
---------------
--------------------------------------------------------------------------------
Total Annual Operating Expenses 0.77%
--------------------------------------------------------------------------------
Expense Reimbursement 0.01%
---------------
--------------------------------------------------------------------------------
Net Annual Operating Expenses** 0.76%
--------------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.25%.
** By contract, expenses are capped at 0.75% through 6/30/2001. Net annual
operating expenses, excluding interest, to average net assets would have
been 0.75%.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above (including one year of reduced expenses in each period
due to the contractual management fee waiver), this example helps you compare
this fund's expenses to those of other funds. The example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; your actual expenses will be
different.
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$78 $245 $427 $953
10 | Scudder Select 1000 Growth Fund
<PAGE>
Other Policies and Risks
While the fund-by-fund sections on the previous pages describe the main points
of each fund's strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, a fund's Board could change
that fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, either of these funds could shift up to
100% of their assets into investments such as money market securities. This
could prevent losses, but would mean that the fund was not pursuing its
goal.
For more information
This prospectus doesn't tell you about every policy or risk of investing in the
funds.
If you want more information on the funds' allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (the back cover tells you how
to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
11 | Other Policies and Risks
<PAGE>
--------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for managing
the funds, takes a team approach to asset management.
--------------------------------------------------------------------------------
Who Manages and Oversees the Funds
The investment adviser
The funds' investment adviser is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds, and currently has more than $290 billion in assets under
management.
Each fund is managed by a team of investment professionals, who together develop
investment strategies and make buy and sell decisions. Supporting the fund
managers are Scudder Kemper's many economists, research analysts, traders, and
other investment specialists, located in offices across the United States and
around the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from each fund. Below are the actual rates paid by each fund for
the period through the most recent fiscal year end, as a percentage of each
fund's average daily net assets.
Fund Name Fee Paid:
--------------------------------------------------------------------------------
Scudder Select 500 Fund 0.00%*
--------------------------------------------------------------------------------
Scudder Select 1000 Growth Fund 0.00%*
--------------------------------------------------------------------------------
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
12 | Who Manages and Oversees the Funds
<PAGE>
Each fund has entered into a new investment management agreement with Scudder
Kemper. This table describes the new fee rates for each fund and the effective
date of these agreements.
--------------------------------------------------------------------------------
Investment Management Fee
--------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------------
Scudder Select 500 Fund (as of August 28, 2000)
--------------------------------------------------------------------------------
first $500 million 0.50%
--------------------------------------------------------------------------------
next $500 million 0.475%
--------------------------------------------------------------------------------
more than $1 billion 0.45%
--------------------------------------------------------------------------------
Scudder Select 1000 Growth Fund (as of October 2, 2000)
--------------------------------------------------------------------------------
first $500 million 0.50%
--------------------------------------------------------------------------------
next $500 million 0.475%
--------------------------------------------------------------------------------
more than $1 billion 0.45%
--------------------------------------------------------------------------------
13 | Who Manages and Oversees the Funds
<PAGE>
The portfolio managers
The following people handle the day-to-day management of each fund in this
prospectus.
Robert D. Tymoczko Mark A. Berroth
Lead Portfolio Manager o Began investment career in 1993
o Began investment career o Joined the adviser in 1993
in 1992 o Joined the fund team in 2000
o Joined the adviser in 1997
o Joined the fund team in 1999
Stephen Marsh
o Began investment career
in 1980
o Joined the adviser in 1997
o Joined the fund team in 2000
14 | Who Manages and Oversees the Funds
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance. The figures in the first part of each table are for a single share.
The total return figures represent the percentage that an investor in a
particular fund would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each fund's financial
statements, is included in the funds' annual report (see "Shareholder reports"
on the back cover).
Because Class AARP shares are not available until October 2, 2000, there is no
financial data for these shares as of the date of this prospectus.
Scudder Select 500 Fund -- Class S
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Period Ended February 29, 2000(b)
-------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $12.00
--------
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income (loss) (a) .07
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .64
--------
-------------------------------------------------------------------------------------
Total from investment operations .71 Less distributions from:
-------------------------------------------------------------------------------------
Net investment income (.06)
-------------------------------------------------------------------------------------
Tax return of capital (.02)
--------
-------------------------------------------------------------------------------------
Total distributions (.08)
-------------------------------------------------------------------------------------
Net asset value, end of period $12.63
--------
-------------------------------------------------------------------------------------
Total Return (%) (c) 5.95**
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 33
-------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.99*
-------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .75*
-------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .52*
-------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53*
-------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 17, 1999 (commencement of operations) to February 29,
2000.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
15 | Financial Highlights
<PAGE>
Scudder Select 1000 Growth Fund -- Class S
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Period Ended February 29, 2000(b)
-------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $12.00
---------
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income (loss) (a) .01
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 3.13
---------
-------------------------------------------------------------------------------------
Total from investment operations 3.14 Less distributions from:
-------------------------------------------------------------------------------------
Net investment income (.02)
---------
-------------------------------------------------------------------------------------
Total distributions (.02)
-------------------------------------------------------------------------------------
Net asset value, end of period $15.12
---------
-------------------------------------------------------------------------------------
Total Return (%) (c) 26.19**
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 29
-------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.37*
-------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .76(d)*
-------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .10*
-------------------------------------------------------------------------------------
Portfolio turnover rate (%) 39*
-------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period May 17, 1999 (commencement of operations) to February 29,
2000.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Ratio of operating expenses, excluding interest, to average net assets
would have been 0.75%.
* Annualized
** Not annualized
16 | Financial Highlights
<PAGE>
How to invest in the funds
The following pages tell you how to invest in these funds and what to expect as
a shareholder. If you're investing directly with Scudder, all of this
information applies to you.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.
As noted earlier, there are two classes of shares of each fund available through
this prospectus. The instructions for buying and selling each class are slightly
different.
Instructions for buying and selling Class AARP shares, which have been created
especially for AARP members, are found on the next two pages. These are followed
by instructions for buying and selling Class S shares. Be sure to use the
appropriate table when placing any orders to buy, exchange or sell shares in
your account.
<PAGE>
How to Buy and Sell Class AARP Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The AARP Investment Program."
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Class AARP First investment Additional investments
------------------------------------------------------------------------------------
<S> <C> <C>
$1,000 or more for regular $50 or more with an Automatic
accounts Investment Plan
$500 or more for IRAs
------------------------------------------------------------------------------------
By mail o For enrollment forms, call Send a personalized investment
1-800-253-2277 slip or short note that
o Fill out and sign an includes:
enrollment form o fund and class name
o Send it to us at the o account number
appropriate address, along o check payable to "The AARP
with an investment check Investment Program"
------------------------------------------------------------------------------------
By wire o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
------------------------------------------------------------------------------------
By phone -- o Call 1-800-253-2277 for
instructions
------------------------------------------------------------------------------------
With an automatic o Fill in the information o To set up regular investments
investment plan required on your enrollment from a bank checking account,
form and include a voided call 1-800-253-2277
check
------------------------------------------------------------------------------------
Payroll Deduction o Select either of these o Once you specify a dollar
or Direct Deposit options on your enrollment amount (minimum $50),
form and submit it. You will investments are automatic.
receive further instructions
by mail.
------------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-253-2277
------------------------------------------------------------------------------------
On the Internet o Go to "services and forms - o Call 1-800-253-2277 to ensure
How to Open an Account" at you have electronic services
aarp.scudder.com o Register at aarp.scudder.com
o Print out a prospectus and an o Follow the instructions for
enrollment form buying shares with money from
o Complete and return the your bank account
enrollment form with your
check
------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
[ICON] Regular mail:
AARP Investment Program, PO Box 2540, Boston, MA 02208-2540
Express, registered or certified mail:
AARP Investment Program, 66 Brooks Drive, Braintree, 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
--------------------------------------------------------------------------------
18 | How To Buy and Sell Class AARP Shares
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Class AARP Exchanging into another fund Selling shares
------------------------------------------------------------------------------------
<S> <C> <C>
$1,000 or more to open a new Some transactions, including
account ($500 or more for IRAs) most for over $100,000, can
only be ordered in writing; if
you're in doubt, see page 24
------------------------------------------------------------------------------------
By phone o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
Using Easy-Access o Call 1-800- 631-4636 and o Call 1-800-631-4636 and
Line follow the instructions follow the instructions
------------------------------------------------------------------------------------
By mail or fax Your instructions should Your instructions should
(see previous include: include:
page)
o your account number o your account number
o names of the funds, class o names of the funds, class and
number of shares or dollar number of shares or dollar
amount you want to exchange amount you want to redeem
------------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from an account,
call 1-800-253-2277
------------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-253-2277
------------------------------------------------------------------------------------
On the Internet o Register at aarp.scudder.com --
o Go to "services and forms"
o Follow the instructions for
making on-line exchanges
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Services For AARP Class Investors
----------------------------------------------------------------------------------
<S> <C>
To reach us: o Web site aarp.scudder.com
o Program representatives 1-800-253-2277, M-F, 8 a.m. - 8 p.m. EST
o Confidential fax line 1-800-821-6234, always open
o TDD line 1-800-634-9454, M-F, 9 a.m. - 5 p.m. EST
Services for o AARP Lump Sum Service For planning and setting up a lump
participants: sum distribution.
o AARP Legacy Service For organizing financial documents and
planning the orderly transfer of assets to heirs
o AARP Goal Setting and Asset Allocation Service For
allocating assets and measuring investment progress
o For more information, please call 1-800-253-2277.
----------------------------------------------------------------------------------
</TABLE>
19 | How To Buy and Sell Class AARP Shares
<PAGE>
How to Buy and Sell Class S Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Class S First investment Additional investments
------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
------------------------------------------------------------------------------------
By mail or o Fill out and sign an Send a Scudder investment slip
express application or short note that includes:
(see below) o Send it to us at the o fund and class name
appropriate address, along o account number
with an investment check o check payable to "The Scudder
Funds"
------------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
------------------------------------------------------------------------------------
By phone -- o Call 1-800-SCUDDER for
instructions
------------------------------------------------------------------------------------
With an automatic o Fill in the information on o To set up regular investments
investment plan your application and include from a bank checking account,
a voided check call 1-800-SCUDDER
------------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-SCUDDER
------------------------------------------------------------------------------------
On the Internet o Go to "funds and prices" at o Call 1-800-SCUDDER to ensure
www.scudder.com you have electronic services
o Print out a prospectus and a o Register at www.scudder.com
new account application o Follow the instructions for
o Complete and return the buying shares with money from
application with your check your bank account
------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number:
1-800-821-6234 (for exchanging and selling only)
--------------------------------------------------------------------------------
20 | How To Buy and Sell Class S Shares
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Class S Exchanging into another fund Selling shares
------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more to open a new Some transactions, including
account ($1,000 or more for most for over $100,000, can
IRAs) only be ordered in writing; if
$100 or more for exchanges you're in doubt, see page 24
between existing accounts
------------------------------------------------------------------------------------
By phone or wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
------------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800-343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
------------------------------------------------------------------------------------
By mail, Your instructions should Your instructions should
express or fax include: include:
(see previous
page) o the fund, class, and account o the fund, class and account
number you're exchanging number from which you want to
out of sell shares
o the dollar amount or number o the dollar amount or number
of shares you want to exchange of shares you want to sell
o the name and class of the o your name(s), signature(s)
fund you want to exchange into and address, as they appear
o your name(s), signature(s), on your account
and address, as they appear o a daytime telephone number
on your account
o a daytime telephone number
------------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from a Scudder
account, call 1-800-SCUDDER
------------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
------------------------------------------------------------------------------------
On the Internet o Register at www.scudder.com --
o Follow the instructions for
making on-line exchanges
------------------------------------------------------------------------------------
</TABLE>
21 | How To Buy and Sell Class S Shares
<PAGE>
--------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder representative between 8 a.m.
and 8 p.m. Eastern time on any fund business day by calling
1-800-253-2277 (Class AARP) or 1-800-SCUDDER (Class S).
--------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 4 p.m. Eastern time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
22 | Policies You Should Know About
<PAGE>
--------------------------------------------------------------------------------
[ICON] The Scudder Web site can be a valuable resource for shareholders with
Internet access. To get up-to-date information, review balances or
even place orders for exchanges, go to aarp.scudder.com (Class AARP)
or www.scudder.com (Class S).
--------------------------------------------------------------------------------
Automated phone information is available 24 hours a day. You can use your
automated phone services to get information on Scudder funds generally and on
accounts held directly at Scudder. If you signed up for telephone services, you
can also use this service to make exchanges and sell shares.
For Class AARP shares
--------------------------------------------------------------------------------
Call Easy-Access Line, the AARP Program Automated Information Line, at
1-800-631-4636
--------------------------------------------------------------------------------
For Class S shares
--------------------------------------------------------------------------------
Call SAIL^TM, the Scudder Automated Information Line, at 1-800-343-2890
--------------------------------------------------------------------------------
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-253-2277
(Class AARP) or 1-800-SCUDDER (Class S).
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The funds
can only accept wires of $100 or more.
23 | Policies You Should Know About
<PAGE>
Exchanges are a shareholder privilege, not a right: we may reject any exchange
order, particularly when there appears to be a pattern of "market timing" or
other frequent purchases and sales. We may also reject purchase orders, for
these or other reasons.
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.
How the funds calculate share price
The price at which you buy shares is the net asset value per share, or NAV. To
calculate NAV, each share class of each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.
24 | Policies You Should Know About
<PAGE>
--------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you can
always send us your order in writing.
--------------------------------------------------------------------------------
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o for Class AARP and Class S shareholders, close your account and send you
the proceeds if your balance falls below $1,000; for Class S shareholders,
charge you $10 a year if your account balance falls below $2,500; in either
case, we will give you 60 days notice so you can either increase your
balance or close your account (these policies don't apply to retirement
accounts, to investors with $100,000 or more in Scudder fund shares or in
any case where a fall in share price created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash; generally, the fund won't make a redemption
in kind unless your requests over a 90-day period total more than $250,000
or 1% of the value of the fund's net assets
o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)
25 | Policies You Should Know About
<PAGE>
--------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is unique, it's always a good
idea to ask your tax professional about the tax consequences of your
investments, including any state and local tax consequences.
--------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The funds intend to pay dividends and distributions to their shareholders in
December, and if necessary may do so at other times.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
26
<PAGE>
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
--------------------------------------------------------------------------------
o short-term capital gains from selling fund shares
--------------------------------------------------------------------------------
o taxable income dividends you receive from a fund
--------------------------------------------------------------------------------
o short-term capital gains distributions you receive from a fund
--------------------------------------------------------------------------------
Generally taxed at capital gains rates
--------------------------------------------------------------------------------
o long-term capital gains from selling fund shares
--------------------------------------------------------------------------------
o long-term capital gains distributions you receive from a fund
--------------------------------------------------------------------------------
Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before a fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.
27
<PAGE>
Notes
<PAGE>
Notes
29
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we mail one copy per
household. For more copies, call 1-800-253-2277 (Class AARP) or 1-800-SCUDDER
(Class S).
Statement of Additional Information (SAI) -- This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, please contact Scudder or
the SEC. If you're a shareholder and have questions, please contact Scudder (see
below). Materials you get from Scudder are free; those from the SEC involve a
copying fee. If you like, you can look over these materials at the SEC's Public
Reference Room in Washington, DC or request them electronically at
[email protected].
AARP Investment
Program from Scudder Scudder Funds SEC
PO Box 2540 PO Box 2291 450 Fifth Street,
Boston, MA Boston, MA N.W. Washington, D.C.
02208-2540 02107-2291 20549-6009
1-800-253-2277 1-800-SCUDDER 1-202-942-8090
aarp.scudder.com www.scudder.com www.sec.gov
SEC File Number 811-1444
<PAGE>
SCUDDER SELECT 500 FUND
A series of Value Equity Trust
A Diversified Mutual Fund which seeks
Long-Term Growth and Income through Investment in
Selected Stocks of companies in the S&P 500(R) Index.
and
SCUDDER SELECT 1000 GROWTH FUND
A series of Value Equity Trust
A Diversified Mutual Fund Series which seeks
Long-Term Growth of Capital through Investment in
Selected Stocks of companies in the Russell 1000(R) Growth Index.
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
--------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus for Scudder Select 500 Fund and of
the Scudder Select 1000 Growth Fund, dated July 1, 2000, as amended from time to
time, a copy of which may be obtained without charge by writing to Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
The Annual Report to Shareholders of each Fund, dated February 29, 2000
is incorporated by reference and are hereby deemed to be part of this Statement
of Additional Information.
This Statement of Additional Information is incorporated by reference
into the combined prospectus.
<PAGE>
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES............................................................1
Retired Persons ("AARP")........................................................................1
General Investment Objectives and Policies......................................................1
Master/feeder fund structure....................................................................3
Investments and Investment Techniques...........................................................4
Investment Restrictions........................................................................14
PURCHASES...............................................................................................17
Additional Information About Opening An Account................................................17
Minimum balances...............................................................................17
Additional Information About Making Subsequent Investments.....................................18
Additional Information About Making Subsequent Investments by QuickBuy.........................19
Checks.........................................................................................20
Wire Transfer of Federal Funds.................................................................20
Share Price....................................................................................20
Share Certificates.............................................................................20
Other Information..............................................................................21
EXCHANGES AND REDEMPTIONS...............................................................................21
Exchanges......................................................................................21
Redemption by Telephone........................................................................22
Redemption By QuickSell........................................................................23
Redemption by Mail or Fax......................................................................23
Redemption-in-Kind.............................................................................24
Other Information..............................................................................24
FEATURES AND SERVICES OFFERED BY THE FUNDS..............................................................25
The No-Load Concept............................................................................25
Internet access................................................................................25
Dividends and Capital Gains Distribution Options...............................................26
Reports to Shareholders........................................................................26
Transaction Summaries..........................................................................26
THE SCUDDER FAMILY OF FUNDS.............................................................................27
SPECIAL PLAN ACCOUNTS...................................................................................29
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals...................................................29
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed
Individuals..................................................................................29
Scudder IRA: Individual Retirement Account....................................................29
Scudder Roth IRA: Individual Retirement Account...............................................30
Scudder 403(b) Plan............................................................................30
An Automatic Withdrawal Plan request form can be obtained by calling 1-800-225-5163 for
Class S and 1-800-253-2277 for Class AARP...................................................31
Group or Salary Deduction Plan.................................................................31
Uniform Transfers/Gifts to Minors Act..........................................................32
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS...............................................................34
PERFORMANCE INFORMATION.................................................................................35
Average Annual Total Return....................................................................35
Cumulative Total Return........................................................................35
Total Return...................................................................................36
Comparison of Fund Performance.................................................................36
ORGANIZATION OF THE FUNDS...............................................................................37
INVESTMENT ADVISER......................................................................................39
Personal Investments by Employees of the Adviser...............................................43
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
TRUSTEES AND OFFICERS...................................................................................43
REMUNERATION............................................................................................46
Responsibilities of the Board -- Board and Committee Meetings..................................46
Compensation of Officers and Trustees..........................................................46
DISTRIBUTOR.............................................................................................47
TAXES ..................................................................................................48
PORTFOLIO TRANSACTIONS..................................................................................52
Brokerage Commissions..........................................................................52
Portfolio Turnover.............................................................................53
NET ASSET VALUE.........................................................................................53
ADDITIONAL INFORMATION..................................................................................54
Experts........................................................................................54
Shareholder Indemnification....................................................................55
Other Information..............................................................................55
FINANCIAL STATEMENTS....................................................................................56
</TABLE>
APPENDIX
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Scudder Select 500 Fund and Scudder Select 1000 Growth Fund (each a
"Fund" and collectively, the "Funds") are each a pure no-load diversified series
of Value Equity Trust (the "Trust"), an open-end management investment company
which continuously offers and redeems shares at net asset value. The Funds are
each a series of the type commonly known as a mutual fund and are each advised
by Scudder Kemper Investments, Inc. (the "Adviser").
On October 2, 2000, the prospectus and this Statement of Additional
Information for Scudder Select 500 Fund and for Scudder Select 1000 Growth Fund
will offer two classes of shares to provide investors with different purchase
options. The two classes are: the Class S and the Class AARP. Each class will
have its own important features and policies. In addition, as of the date noted
above for each fund, all existing shares of Scudder Select 500 Fund and Scudder
Select 1000 Growth Fund will be redesignated Class S shares of their respective
funds. Shares of the AARP class are specially designed for members of the
American Association of Retired Persons ("AARP").
General Investment Objectives and Policies
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which a Fund may engage (such as
short selling, hedging, etc.) or a financial instrument which a Fund may
purchase (such as options, forward foreign currency contracts, etc.) are meant
to describe the spectrum of investments that the Adviser, in its discretion,
might, but is not required to, use in managing each Fund's portfolio assets. The
Adviser may, in its discretion, at any time employ such practice, technique or
instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
Scudder Select 500 Fund seeks long-term growth and income through
investment in selected stocks of companies in the S&P 500(R) Index.
Scudder Select 1000 Growth Fund seeks long-term growth of capital
through investment in selected stocks of companies in the Russell 1000(R) Growth
Index.
Except as otherwise indicated, each Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in a Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then financial position and needs. There can be no assurance that the Funds'
objective will be met.
Each Fund pursues its objective by investing at least 80% of its total
assets in the stocks of companies in its respective index.
Scudder Select 500 Fund invests in selected stocks of companies in the
Standard & Poor's 500 Composite Stock Price Index, also known as the S&P 500
Index, a commonly recognized unmanaged measure of 500 widely held U.S. common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
the Nasdaq National Market System.
Scudder Select 1000 Growth Fund invests in selected stocks of companies
in the Russell 1000 Growth Index, an unmanaged index of growth-oriented large
company stocks.
Each Fund's portfolio management team will apply a multi-step
investment process to select certain of the composite stocks in a Fund's
benchmark index for its portfolio. This process includes the following steps:
o Ranking - using a proprietary computer model, the stocks of companies
in the particular benchmark index are evaluated and ranked based on
their growth prospects, relative valuation, and history of rising
prices.
o Selection - the 20% lowest ranking stocks in the index are generally
excluded from the portfolio.
o Portfolio Construction - From the remaining 80% of stocks, a subset is
selected and weighted to ensure portfolio diversification and attempts
to create a portfolio that is similar to the benchmark index. Factors
to be considered in the allocation of the remaining stocks include:
level of exposure to specific industries, company specific financial
data, price volatility, and market capitalization.
<PAGE>
o Ongoing Active Management - each fund's portfolio is rebalanced on an
ongoing basis as the rankings of the stocks in the benchmark indices
change over time.
Each Fund's sell criteria is based on an analysis of expected return
and expected risk. Securities which fall within the lowest 20% of each Fund's
respective benchmark index will generally be sold unless the portfolio
management team concludes that retaining the security is in the best interest of
the Fund, (i.e., the securities' expected return and risk characteristics
warrant its inclusion). Further, assets that move out of the investment universe
applicable to the Funds or no longer fit the Funds' investment criteria will
generally be sold.
Of course, there can be no guarantee that, by following these
investment strategies, each Fund will achieve its objective.
Each Fund may, but is not required to, invest up to 20% of its total
assets in investment grade debt securities. Each fund can purchase other types
of equity securities including preferred stocks (convertible securities),
rights, warrants, and illiquid securities. Securities may be listed on national
exchanges or traded over-the-counter.
Each Fund may, but is not required to, utilize other investments and
investment techniques that may impact fund performance, including, but not
limited to, options, futures and other derivatives (financial instruments that
derive their value from other securities or commodities or that are based on
indices).
Each Fund manages risk by diversifying widely among industries and
companies, and using disciplined security selection.
Each Fund may, but is not required to, use derivatives in an attempt to
manage risk. The use of derivatives could magnify losses.
For temporary defensive purposes, each Fund may invest, without limit,
in cash and cash equivalents, U.S. government securities, money market
instruments and high quality debt securities without equity features. In such a
case, a Fund would not be pursuing, and may not achieve, its investment
objective.
Neither Fund can guarantee a gain or eliminate the risk of loss. The
net asset value of a Fund's shares will increase or decrease with changes in the
market price of each Fund's investments.
Additional information regarding the S&P 500 Index
The Scudder Select 500 Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"). S&P makes no representation or warranty, express or implied, to the
shareholders of the Scudder Select 500 Fund or any member of the public
regarding the advisability of investing in securities generally, or in the
Scudder Select 500 Fund particularly or the ability of the S&P 500 Composite
Stock Price Index (the "S&P 500 Index") to track general stock market
performance. S&P's only relationship to the Adviser and Scudder Select 500 Fund
is the licensing of certain trademarks and trade names of S&P and of the S&P 500
Index which is determined, composed and calculated by S&P without regard to the
Adviser or the Scudder Select 500 Fund. S&P has no obligation to take the needs
of the Adviser or the shareholders of the Scudder Select 500 Fund into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Scudder Select 500 Fund, or the timing of the issuance or sale
of shares of the Scudder Select 500 Fund or in the determination or calculation
of the equation by which the Scudder Select 500 Fund is to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading in the shares of the Scudder Select 500 Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, SCUDDER SELECT 500 FUND,
SHAREHOLDERS OF THE SCUDDER SELECT 500 FUND, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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Additional Information regarding the Russell 1000 Growth Index
Scudder Select 1000 Growth Fund is not promoted, sponsored or endorsed
by, nor in any way affiliated with Frank Russell Company. Frank Russsell Company
is not responsible for and has not reviewed Scudder Select 1000 Growth Fund nor
any associated literature or publications and Frank Russell Company makes no
representation or warranty, express or implied, as to its accuracy, or
completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without
notice, to alter, amend, terminate or in any way change the Russell 1000 Growth
Index. Frank Russell Company has no obligation to take the needs of any
particular fund or its participants or any other product or person into
consideration in determining, composing or calulating the Russell 1000 Growth
Index.
Frank Russell Company's publication of the Russell 1000 Growth Index in
no way suggests or implies an opinion by Frank Russell Company as to the
attractiveness or appropriateness of investment in any or all securities upon
which the Russell 1000 Growth Index is based.
FRANK RUSSELL COMPANY MAKES NO REPRESENTATION WARRANTY, OR GUARANTEE
AS TO THE ACCURANCY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE RUSSELL 1000
GROWTH INDEX OR ANY DATA INCLUDED IN THE RUSSELL 1000 GROWTH INDEX. FRANK
RUSSELL COMPANY MAKES NO REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE
RESULTS OF USE, OF THE RUSSELL 1000 GROWTH INDEX OR ANY DATA INCLUDED THEREIN,
OR ANY SECURITY (OR COMBINATION THEREOF) COMPRISING THE RUSSELL 1000 GROWTH
INDEX. FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR IMPLIED WARRANTY, AND
EXPRESSLY DISCLAIMS ANY WARRATY, OF ANY KIND, INCLUDING, WITHOUT MEANS OF
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE RUSSELL 1000 GROWTH INDEX OR ANY DATA OR ANY SECURITY (OR
COMBINATION THEREOF) INCLUDED THEREIN.
Master/feeder fund structure
The Board of Trustees has the discretion to retain the current
distribution arrangement for a Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Interfund Borrowing and Lending Program
The Funds have received exemptive relief from the SEC, which permits
the Funds to participate in an interfund lending program among certain
investment companies advised by the Adviser. The interfund lending program
allows the participating funds to borrow money from and loan money to each other
for temporary or emergency purposes. The program is subject to a number of
conditions designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable interest rate than a rate approximating the
lowest interest rate at which bank loans would be available to any of the
participating funds under a loan agreement; and (2) no fund may lend money
through the program unless it receives a more favorable return than that
available from an investment in repurchase agreements and, to the extent
applicable, money market cash sweep arrangements. In addition, a fund may
participate in the program only if and to the extent that such participation is
consistent with the fund's investment objectives and policies (for instance,
money market funds would normally
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participate only as lenders and tax exempt funds only as borrowers). Interfund
loans and borrowings may extend overnight, but could have a maximum duration of
seven days. Loans may be called on one day's notice. A fund may have to borrow
from a bank at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional costs. The program is subject to the
oversight and periodic review of the Boards of the participating funds. To the
extent the Funds are actually engaged in borrowing through the interfund lending
program, the Funds, as a matter of non-fundamental policy, may not borrow for
other than temporary or emergency purposes (and not for leveraging), except that
the Funds may engage in reverse repurchase agreements and dollar rolls for any
purpose.
Investments and Investment Techniques
Common Stocks. Under normal circumstances, the Funds invest primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, a
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Convertible Securities. The Funds may each invest in convertible securities,
that is, bonds, notes, debentures, preferred stocks and other securities which
are convertible into common stock. Investments in convertible securities can
provide an opportunity for capital appreciation and/or income through interest
and dividend payments by virtue of their conversion or exchange features. The
Funds will limit their purchases of convertible securities to debt securities
convertible into common stocks.
The convertible securities in which the Funds may invest are either
fixed income or zero coupon debt securities, which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments, which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes ("LYONs"). Zero coupon securities pay no cash income and are
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sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the purchase price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follows the
movements in the market value of the underlying common stock. Zero coupon
convertible securities are generally expected to be less volatile than the
underlying common stocks as they are usually issued with short to medium length
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Real Estate Investment Trusts. The Scudder Select 1000 Growth Fund may invest in
REITs. REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. Investment in REITs may subject the Fund to risks
associated with the direct ownership of real estate, such as decreases in real
estate values, overbuilding, increased competition and other risks related to
local or general economic conditions, increases in operating costs and property
taxes, changes in zoning laws, casualty or condemnation losses, possible
environmental liabilities, regulatory limitations on rent and fluctuations in
rental income. Equity REITs generally experience these risks directly through
fee or leasehold interests, whereas mortgage REITs generally experience these
risks indirectly through mortgage interests, unless the mortgage REIT forecloses
on the underlying real estate. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Changes in interest rates may
also affect the value of the Fund's investment in REITs. For instance, during
periods of declining interest rates, certain mortgage REITs may hold mortgages
that the mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may
tend to increase the volatility of the market price of their securities.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free pass-through of income under the Internal Revenue Code
of 1986 as amended (the "Code"), and to maintain exemption from the registration
requirements of the Investment Company Act of 1940 (the "1940 Act"). By
investing in REITs indirectly through the Fund, a shareholder will bear not only
his or her proportionate share of the expenses of the Fund, but also,
indirectly, similar expenses of the REITs. In addition, REITs depend generally
on their ability to generate cash flow to make distributions to shareholders.
Illiquid Securities. Each Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. The absence of a
trading market can make it difficult to ascertain a market value for these
investments. This investment practice, therefore, could have the effect of
increasing the level of illiquidity of a Fund. It is the Funds' policy that
illiquid securities (including repurchase agreements of more than seven days
duration, certain restricted securities, and other securities which are not
readily marketable) may not constitute, at the time of purchase, more than 15%
of the value of each Fund's net assets. The Trust's Board of Trustees has
approved guidelines for use by the Adviser in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which a Fund
is permitted or able to sell such security, a Fund might obtain a price less
favorable than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted securities, a
Fund may be required to bear all or part of the registration expenses. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Funds may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
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Borrowing. As a matter of fundamental policy, the Funds will not borrow money,
except as permitted under the Investment Company Act of 1940 (the "1940 Act"),
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time. While the Trustees do not currently intend to
borrow for investment leverage purposes, if such a strategy were implemented in
the future it would increase the Funds' volatility and the risk of loss in a
declining market. Borrowing by the Funds will involve special risk
considerations. Although the principal of the Funds' borrowings will be fixed,
the Funds' assets may change in value during the time a borrowing is
outstanding, thus increasing exposure to capital risk.
Repurchase Agreements. Each Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System or any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investors Service ("Moody's) or by Standard & Poor's Ratings
Services, a Division of The McGraw-Hill Companies, Inc. ("S&P").
A repurchase agreement provides a means for a Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which a Fund
acquires a debt security ("Obligation") and the seller agrees, at the time of
sale, to repurchase the Obligation at a specified time and price. Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such Obligations kept at least equal to the repurchase price on a daily
basis. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price upon repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement. Obligations will be held by the Fund's custodian or in the Federal
Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by a Fund subject to a repurchase agreement as being owned
by the Fund or as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the Obligation before repurchase of the Obligation under a
repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the Obligation. If the court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the Obligation, the Fund
may be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, the Fund would
risk losing some or all of the principal and income involved in the transaction.
As with any unsecured debt instrument purchased for the Fund, the Adviser seeks
to minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the Obligation, in which case the
Fund may incur a loss if the proceeds to the Fund of the sale to a third party
are less than the repurchase price. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund involved will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to impose on the seller a contractual obligation to deliver additional
securities.
Warrants. Each Fund may invest in warrants up to 5% of the value of its
respective total assets. The holder of a warrant has the right, until the
warrant expires, to purchase a given number of shares of a particular issuer at
a specified price. Such investments can provide a greater potential for profit
or loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund sells a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, a Fund will
maintain liquid assets in a segregated custodial account to cover its obligation
under the agreement. Each Fund will enter into reverse repurchase agreements
only with
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parties whose creditworthiness has been found satisfactory by the Adviser. Such
transactions may increase fluctuations in the market value of a Fund's assets
and may be viewed as a form of leverage.
Investment Company Securities. Each may acquire securities of other investment
companies to the extent consistent with its investment objective and subject to
the limitations of the 1940 Act. Each Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, each Fund may invest in a variety of investment companies which
seek to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs). Index-based
investments may not replicate exactly the performance of their specified index
because of transaction costs and because of the temporary unavailability of
certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Lending of Portfolio Securities. Each Fund may seek to increase its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the Securities and
Exchange Commission (the"SEC"), such loans may be made to member firms of the
Exchange, and would be required to be secured continuously by collateral in
cash, U.S. Government securities or other high grade debt obligations maintained
on a current basis at an amount at least equal to the market value and accrued
interest of the securities loaned. Each Fund would have the right to call a loan
and obtain the securities loaned on no more than five days' notice. During the
existence of a loan, a Fund would continue to receive the equivalent of the
interest paid by the
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issuer on the securities loaned and would also receive compensation based on
investment of the collateral. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, the loans would be made
only to firms deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration that can be earned currently from
securities loans of this type justifies the attendant risk. If a Fund determines
to make securities loans, the value of the securities loaned will not exceed 5%
of the value of the Fund's total assets at the time any loan is made.
Short Sales Against the Box. Each Fund may make short sales of common stocks if,
at all times when a short position is open, the applicable Fund owns the stock
or owns preferred stocks or debt securities convertible or exchangeable, without
payment of further consideration, into the shares of common stock sold short.
Short sales of this kind are referred to as short sales "against the box." The
broker/dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to a Fund. Arrangements may be made with the
broker/dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds.
Debt Securities. In general, the prices of debt securities rise when interest
rates fall, and vice versa. This effect is usually more pronounced for longer
term debt securities. When the Adviser believes that it is appropriate to do so
in order to achieve a Fund's objective of long-term capital appreciation, the
Funds may invest in debt securities, including bonds of private issuers.
Portfolio debt investments will be selected on the basis of, among other things,
credit quality, and the fundamental outlooks for currency, economic and interest
rate trends, taking into account the ability to hedge a degree of currency or
local bond price risk. The Funds may purchase "investment-grade" bonds, rated
Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged
to be of equivalent quality as determined by the Adviser.
Strategic Transactions and Derivatives. Each Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in each Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
In the course of pursuing these investment strategies, each Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for each Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect each Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in each Fund's portfolio, or to establish a position in the
derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of each Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of each Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. Each Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of each Fund, and
each Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of each Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to each Fund, force the sale or
purchase of portfolio
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securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation each Fund can realize on its investments or
cause each Fund to hold a security it might otherwise sell. The use of currency
transactions can result in each Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of each
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of each Fund's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
each Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, each Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving each Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. Each Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect each Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. Each Fund is authorized to purchase and sell exchange listed options
and over-the-counter options ("OTC options"). Exchange listed options are issued
by a regulated intermediary such as the Options Clearing Corporation ("OCC"),
which guarantees the performance of the obligations of the parties to such
options. The discussion below uses the OCC as an example, but is also applicable
to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
Each Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist,
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although outstanding options on that exchange would generally continue to be
exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. Each
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting each Fund to require the Counterparty
to sell the option back to each Fund at a formula price within seven days. Each
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with each Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, each Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. Each Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
each Fund, and portfolio securities "covering" the amount of each Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to each Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If each Fund sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase each Fund's income. The sale of put options can also
provide income.
Each Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. . Each Fund will not
purchase call options unless the aggregate premiums paid on all options held by
each Fund at any time do not exceed 20% of its total assets. All calls sold by
each Fund must be "covered" (i.e., each Fund must own the securities or futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though each Fund will
receive the option premium to help protect it against loss, a call sold by each
Fund exposes each Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require each Fund to hold a security or
instrument which it might otherwise have sold.
Each Fund may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments (whether or not it holds the
above securities in its portfolio), and on securities indices, currencies and
futures contracts other than futures on individual corporate debt and individual
equity securities. Each Fund will not purchase put options unless the aggregate
premiums paid on all options held by each Fund at any time do not exceed 20% of
its total assets. Each Fund will not sell put options if, as a result, more than
50% of each Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than
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those with respect to futures and options thereon. In selling put options, there
is a risk that each Fund may be required to buy the underlying security at a
disadvantageous price above the market price.
General Characteristics of Futures. Each Fund may enter into futures contracts
or purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by each Fund, as seller, to deliver
to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such position.
Each Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires each Fund
to deposit with a financial intermediary as security for its obligations an
amount of cash or other specified assets (initial margin) which initially is
typically 1% to 10% of the face amount of the contract (but may be higher in
some circumstances). Additional cash or assets (variation margin) may be
required to be deposited thereafter on a daily basis as the mark to market value
of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of each Fund. If each Fund exercises an option on a futures contract it
will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as it would for any position.
Futures contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
Each Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of each Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. Each Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. Each Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. Each Fund may enter into currency
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transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.
Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of each
Fund, which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
Each Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
Each Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which each Fund has or in which each Fund
expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, each Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which each
Fund's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a commitment or option to sell a
currency whose changes in value are generally considered to be correlated to a
currency or currencies in which some or all of each Fund's portfolio securities
are or are expected to be denominated, in exchange for U.S. dollars. The amount
of the commitment or option would not exceed the value of each Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
each Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to each
Fund if the currency being hedged fluctuates in value to a degree or in a
direction that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that each Fund is engaging in proxy hedging. If each
Fund enters into a currency hedging transaction, each Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to each Fund if it is unable to deliver or receive currency or funds
in settlement of obligations and could also cause hedges it has entered into to
be rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of each Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the
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desired portfolio management goal, it is possible that the combination will
instead increase such risks or hinder achievement of the portfolio management
objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
each Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. Each Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities each Fund anticipates purchasing at a later
date. Each Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream each Fund may be
obligated to pay. Interest rate swaps involve the exchange by each Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
Each Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with each Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as each Fund will
segregate assets (or enter into offsetting positions) to cover its obligations
under swaps, the Adviser and each Fund believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to its borrowing restrictions. Each Fund will not enter
into any swap, cap, floor or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the Counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from a NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, each
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Eurodollar Instruments. Each Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. Each Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in each Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that each Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by each Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash
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or liquid assets at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by each
Fund will require each Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by each Fund
on an index will require each Fund to own portfolio securities which correlate
with the index or to segregate cash or liquid assets equal to the excess of the
index value over the exercise price on a current basis. A put option written by
each Fund requires the Fund to segregate cash or liquid assets equal to the
exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Investment Restrictions
Unless specified to the contrary, the following restrictions are
fundamental policies of each Fund and may not be changed without the approval of
a majority of the outstanding voting securities of that Fund which, under the
1940 Act and the rules thereunder and as used in this Statement of Additional
Information, means the lesser of (1) 67% or more of the shares of the Fund
present at a meeting if the holders of more than 50% of the outstanding shares
of the Fund are present in person or represented by proxy; or (2) more than 50%
of the outstanding shares of the Fund.
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If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, later change in percentage
resulting from changes in the value or the total cost of a Fund's assets will
not be considered a violation of the restriction.
Each Fund has elected to be classified as a diversified series of an
open-end investment company.
As a matter of fundamental policy, each Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
The Trustees of the Trust have voluntarily adopted certain policies and
restrictions, which are observed in the conduct of each Fund's affairs. These
represent intentions of the Trustees based upon current circumstances.
Nonfundamental policies may be changed by the Trustees of the Trust and without
shareholder approval.
As a matter of nonfundamental policy, each Fund currently does not
intend to:
(a) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(b) enter into either reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(c) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(d) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(e) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the
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Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the
Fund's total assets; provided that in the case of an option
that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit;
(f) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(g) lend portfolio securities in an amount greater than 5% of its
total assets.
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PURCHASES
Class AARP shares will be available for purchase on October 2, 2000
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 for Class S
and $1,000 for Class AARP through Scudder Investor Services, Inc. by letter,
fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, class name, amount to be wired ($2,500 minimum for Class S and
$1,000 for Class AARP , name of bank or trust company from which the wire will
be sent, the exact registration of the new account, the tax identification
number or Social Security number, address and telephone number. The investor
must then call the bank to arrange a wire transfer to The Scudder Funds, Boston,
MA 02101, ABA Number 011000028, DDA Account 9903-5552. The investor must give
the Scudder fund, class name, account name and the new account number. Finally,
the investor must send a completed and signed application to the Fund promptly.
Investors interested in investing in the Class AARP should call 800-253-2277 for
further instructions.
The minimum initial purchase amount is less than $2,500 for Class S
under certain plan accounts and is $1,000 for the Class AARP .
Minimum balances
Shareholders should maintain a share balance worth at least $2,500 for
Class S and $1,000 for Class AARP. For fiduciary accounts such as IRAs, and
custodial accounts such as Uniform Gift to Minor Act and Uniform Trust to Minor
Act accounts, the minimum balance is $1,000. These amounts may be changed by
each Fund's Board of
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Trustees. A shareholder may open an account with at least $1,000 ($500 for
fiduciary/custodial accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for Class AARP and fiduciary/custodial accounts) is
established. Scudder group retirement plans and certain other accounts have
similar or lower minimum share balance requirements.
The Funds reserve the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per Fund charge (with the Fee to be paid
to the Fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500 for Class S and $1,000 for Class
AARP ; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the Funds' prospectus. Contact the
Distributor at 1-800-SCUDDER for additional information. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request,
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the purchaser will be responsible for any loss incurred by the Funds or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust shall have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Funds or the principal
underwriter for the loss incurred. Net losses on such transactions which are not
recovered from the purchaser will be absorbed by the principal underwriter. Any
net profit on the liquidation of unpaid shares will accrue to the Funds.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of a Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time. Proceeds
in the amount of your purchase will be transferred from your bank checking
account two or three business days following your call. For requests received by
the close of regular trading on the Exchange, shares will be purchased at the
net asset value per share calculated at the close of trading on the day of your
call. QuickBuy requests received after the close of regular trading on the
Exchange will begin their processing and be purchased at the net asset value
calculated the following business day. If you purchase shares by QuickBuy and
redeem them within seven days of the purchase, a Fund may hold the redemption
proceeds for a period of up to seven business days. If you purchase shares and
there are insufficient funds in your bank account the purchase will be canceled
and you will be subject to any losses or fees incurred in the transaction.
QuickBuy transactions are not available for most retirement plan accounts.
However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow 15 days for this service to be available.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine and to discourage fraud. To the extent
that the Funds do not follow such procedures, they may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Funds will not be
liable for acting upon instructions communicated by telephone that they
reasonably believe to be genuine.
Investors interested in making subsequent investments in the Class AARP
of a Fund should call 800-253-2277 for further instruction.
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Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Funds are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the applicable Fund or the
principal underwriter for the loss incurred. Investors whose orders have been
canceled may be prohibited from, or restricted in, placing future orders in any
of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Funds prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Funds.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed for each class as of the close of regular trading on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will be executed at the next
business day's net asset value. If the order has been placed by a member of the
NASD, other than the Distributor, it is the responsibility of that member
broker, rather than each Fund, to forward the purchase order to Scudder Service
Corporation (the "Transfer Agent") by the close of regular trading on the
Exchange.
There is no sales charge in connection with the purchase of shares of
any class of the Funds.
Share Certificates
Due to the desire of the Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Funds.
Share certificates now in a shareholder's possession may be sent to the the
Funds' Transfer Agent for cancellation and credit to such shareholder's account.
Shareholders who prefer may hold the certificates in their possession until they
wish to exchange or redeem such shares.
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Other Information
Each Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Funds' shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Funds when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Funds and
the broker, ordinarily orders will be priced at the Funds' net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Funds' shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Funds' principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of the Funds at any time for any reason.
The Board of Trustees and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of shares of the Funds at
any time for any reasons.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations, certification of exempt status)
will be returned to the investor. Each Fund reserves the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number. A shareholder may avoid
involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period.
The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
Class AARP shares will be available to shareholders on October 2, 2000
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder Fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500 for Class S and
$1,000 for Class AARP. When an exchange represents an additional investment into
an existing account, the account receiving the exchange proceeds must have
identical registration, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee.
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Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above (except
for exchanges from funds which impose a redemption fee on shares held less than
a year. An exchange into another Scudder fund is a redemption of shares, and
therefore may result in tax consequences (gain or loss) to the shareholder and
the proceeds of such exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Fund
and the Transfer Agent each reserves the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder Funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder fund into which the exchange is being contemplated. The exchange
privilege may not be available for certain Scudder Funds or classes of Scudder
Funds. For more information, please call 1-800-225-5163. Investors interested in
exchanging Class AARP shares of a Fund should call 800-253-2277 for more
information.
Scudder retirement plans may have different exchange requirements. Please refer
to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may request to have the proceeds mailed
or wired to their pre-designated bank account. In order to request redemptions
by telephone, shareholders must have completed and returned to the Transfer
Agent the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption payments
should either return a Telephone Redemption Option Form
(available
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<PAGE>
upon request) or send a letter identifying the account and
specifying the exact information to be changed. The letter
must be signed exactly as the shareholder's name(s) appears on
the account. An original signature and an original signature
guarantee are required for each person in whose name the
account is registered.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption By QuickSell
Shareholders whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of a Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net asset
value per share calculated at the close of trading on the day of your call.
QuickSell requests received after the close of regular trading on the Exchange
will begin their processing and be redeemed at the net asset value calculated
the following business day. QuickSell transactions are not available for Scudder
IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders that wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not limited to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
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It is suggested that shareholders holding certificated shares or shares
registered in other than individual names contact the Transfer Agent prior to
redemptions to ensure that all necessary documents accompany the request. When
shares are held in the name of a corporation, trust, fiduciary agent, attorney
or partnership, the Transfer Agent requires, in addition to the stock power,
certified evidence of authority to sign. These procedures are for the protection
of shareholders and should be followed to ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within five business days after receipt by the
Transfer Agent of a request for redemption that complies with the above
requirements. Delays of more than seven days of payment for shares tendered for
repurchase or redemption may result but only until the purchase check has
cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-SCUDDER.
Redemption-in-Kind
The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by a
Fund and valued as they are for purposes of computing a Fund's net asset value
(a redemption-in-kind). If payment is made in securities, a shareholder may
incur transaction expenses in converting these securities into cash. The Trust
has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which a Fund is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund at the beginning of the
period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct redemption requests to the
Trust through Scudder Investor Services, Inc. at Two International Place,
Boston, Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the request. A written
request in good order as described above and any certificates with a proper
original signature guarantee(s), as described in the Funds' prospectuses under
"Transaction information -- Signature guarantees", should be sent with a copy of
the invoice to Scudder Service Corporation, Confirmed Processing Department, Two
International Place, Boston, Massachusetts 02110-4103. Failure to deliver shares
or required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any loss
incurred by a Fund or the principal underwriter by reason of such cancellation.
The Trust shall have the authority, as agent of the shareholder, to redeem
shares in the account to reimburse a Fund or the principal underwriter for the
loss incurred. Net losses on such transactions, which are not recovered from the
shareholder, will be absorbed by the principal underwriter. Any net gains so
resulting will accrue to a Fund. For this group, repurchases will be carried out
at the net asset value next computed after such repurchase requests have been
received. The arrangements described in this paragraph for repurchasing shares
are discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Funds do not impose a redemption or repurchase charge, although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The Trust's Declaration of Trust provides that the determination of net
asset value may be suspended and a shareholder's right to redeem shares and to
receive payments may be suspended at times during which a) the Exchange is
closed, other than customary weekend and holiday closings, (b) trading on the
Exchange is restricted, (c) an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is
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not reasonably practicable for a Fund fairly to determine the value of its net
assets, or (d) a governmental body having jurisdiction over the Trust may, by
order, permit such a suspension for the protection of a Fund's shareholders;
provided that applicable rules and regulations of the SEC (or any succeeding
governmental authority) shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist.
FEATURES AND SERVICES OFFERED BY THE FUNDS
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Because funds and classes in the Scudder Family of Funds do not pay any
asset-based sales charges or service fees, Scudder uses the phrase no-load to
distinguish Scudder funds and classes from other load mutual funds. Scudder
pioneered the no-load concept when it created the nation's first no-load fund in
1928, and later developed the nation's first family of no-load mutual funds.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com.
The address for the Class AARP shares is aarp.scudder.com. These sites offer
guidance on global investing and developing strategies to help meet financial
goals and provides access to the Scudder investor relations department via
e-mail. The sites also enable users to access or view fund prospectuses and
profiles with links between summary information in Fund Summaries and details in
the Prospectus. Users can fill out new account forms on-line, order free
software, and request literature on funds.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
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Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders that have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment may be given to the Transfer Agent in writing at least five days prior
to a dividend record date. Shareholders may change their dividend option by
calling 1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP or by
sending written instructions to the Transfer Agent. Please include your account
number with your written request.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's Direct
Distributions Program. Shareholders who elect to participate in the Direct
Distributions Program, and whose predesignated checking account of record is
with a member bank of Automated Clearing House Network (ACH) can have income and
capital gain distributions automatically deposited to their personal bank
account usually within three business days after a Fund pays its distribution. A
Direct Distributions request form can be obtained by calling 1-800-225-5163 for
Class S and 1-800-253-2277 for Class AARP. Confirmation Statements will be
mailed to shareholders as notification that distributions have been deposited.
Investors choosing to participate in the Automatic Withdrawal Plan must
reinvest any dividends or capital gains. For most retirement plan accounts, the
reinvestment of dividends and capital gains is also required.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-253-2277 for
Class AARP shares and 1-800-225-SCUDDER for Class S shares.
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THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds; a list of Scudder's
funds follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
TAX FREE
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
----------------------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 500 Index Fund
Scudder Real Estate Investment Fund
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund***
Scudder Global Discovery Fund**
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Health Care Fund
Scudder Technology Fund
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
-------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
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The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890 for Class S shares or 1-800-253-2277 for Class
AARP shares.
Certain Scudder funds or classes thereof may not be available for
purchase or exchange. For more information, please call 1-800-SCUDDER.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Funds may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Funds'
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Funds may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Funds may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Funds may be purchased as the underlying investment for
an Individual Retirement Account which meets the requirements of Section 408(a)
of the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, such as a pension or profit sharing plan, a
governmental plan, a simplified employee pension plan, a simple retirement
account, or a tax-deferred annuity program (a "qualified plan"), and a married
individual who is not an active participant in a qualified plan and whose spouse
is also not an active participant in a qualified plan, are eligible to make tax
deductible contributions of up to $2,000 to an IRA prior to the year such
individual attains age 70 1/2. In addition, certain
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individuals who are active participants in qualified plans (or who have spouses
who are active participants) are also eligible to make tax-deductible
contributions to an IRA; the annual amount, if any, of the contribution which
such an individual will be eligible to deduct will be determined by the amount
of his, her, or their adjusted gross income for the year. If an individual is an
active participant, the deductibility of his or her IRA contributions in 2000 is
phased out if the individual has gross income between $32,000 and $42,000 and is
single, if the individual has gross income between $52,000 and $62,000 and is
married filing jointly, or if the individual has gross income between $0 and
$10,000 and is married filing separately; the phase-out ranges for individuals
who are single or married filing jointly are subject to annual adjustment
through 2005 and 2007, respectively. If an individual is married filing jointly
and the individual's spouse is an active participant but the individual is not,
the deductibility of his or her IRA contributions is phased out if their
combined gross income is between $150,000 and $160,000. Whenever the adjusted
gross income limitation prohibits an individual from contributing what would
otherwise be the maximum tax-deductible contribution he or she could make, the
individual will be eligible to contribute the difference to an IRA in the form
of nondeductible contributions. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the Funds may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, certain medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Funds may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
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described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional Shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s). Any
such requests must be received by a Fund's transfer agent ten days prior to the
date of the first automatic withdrawal. An Automatic Withdrawal Plan may be
terminated at any time by the shareholder, the Trust or its agent on written
notice, and will be terminated when all Shares of a Fund under the Plan have
been liquidated or upon receipt by the Trust of notice of death of the
shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after
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notification. An investor in a plan who has not purchased shares for six months
shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments in Class S shares
through automatic deductions from checking accounts by completing the
appropriate form and providing the necessary documentation to establish this
service. The minimum investment is $50 for Class S shares.
Shareholders may arrange to make periodic investments in the AARP class
of each Fund through automatic deductions from checking accounts. The minimum
pre-authorized investment amount is $500. This minimum also applies to
shareholders who open a Gift to Minors Account pursuant to the UGMA, however,
the automatic deduction option is not available. New shareholders who open a
Gift to Minors Account pursuant to the Uniform Transfer to Minors Act (UTMA) and
who sign up for the Automatic Investment Plan will be able to open a Fund
account for less than $500 if they agree to increase their investment to $500
within a 15 month period. Investors may also invest in any AARP class for $500
if they establish a plan with a minimum automatic investment of at least $100
per month. This feature is only available to Gifts to Minors Account investors.
The Automatic Investment Plan may be discontinued at any time without prior
notice to a shareholder if any debit from their bank is not paid, or by written
notice to the shareholder at least thirty days prior to the next scheduled
payment to the Automatic Investment Plan.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
FEATURES AND SERVICES OFFERED BY THE AARP INVESTMENT PROGRAM
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o Experienced Professional Management: The Adviser provides investment
advice to the Funds.
o AARP's Commitment: the Program was designed with AARP's active
participation to provide strong, ongoing representation of the members'
interests and to help ensure a high level of service.
o Diversification: you may benefit from investing in one or more large
portfolios of carefully selected securities.
o No Sales Commissions: the AARP Funds are no-load funds, so you pay no
sales charges to purchase, transfer or redeem shares, nor do you pay
Rule 12b-1 (i.e., distribution) fees.
o Automatic Dividend Reinvestment: you may receive dividends by check or
arrange to have them automatically reinvested.
o Readily Available Account, Price, Yield and Total Return Information:
You may dial our automated Easy-Access Line, toll-free, 1-800-631-4636
for recorded account information, share price, yield and total return
information, 7 days a week.
o Convenience and Efficiency: simplified investment procedures save you
time and help your money work harder for you.
o Direct Deposit Program: you may have your Social Security or other
checks received from the U.S. Government or any other regular income
checks, such as pension, dividend, interest, and even payroll checks
automatically deposited directly to your account.
o Direct Payment of Regular Fixed Bills: with a minimum qualifying
balance of $10,000 in one Fund, you may arrange to have your regular
bills that are of fixed amounts, such as rent, mortgage, or other
obligations of $50 or more sent directly from your account at the end
of the month.
o Personal Service and Information: professionally trained service
representatives are available to help you whenever you have questions
through our toll-free number, 1-800-253-2277.
o Consolidated Statements: in addition to receiving a confirmation
statement of each transaction in your account, you receive, without
extra charge, a convenient monthly consolidated statement. (Retirement
Plan statements are mailed quarterly.) This statement contains the
market value of all your holdings in the Funds and a complete listing
of your transactions for the statement period.
o Shareholder Handbook: the Shareholder Handbook was created to help
answer many of the questions you may have about investing in the
Program.
o IRA Shareholder Handbook: the IRA Shareholder Handbook was created to
help answer many of the questions you may have about investing in the
no-fee AARP IRA.
o A Glossary of Investment Terms: the Glossary of Investment Terms
defines commonly used financial and investment terms.
o Newsletter: every month, shareholders receive our newsletter, Financial
Focus (retirement plan shareholders receive a special edition of
Financial Focus on a quarterly basis) which is designed to help keep
you up-to-date on economic and investment developments, and any new
financial services and features of the Program.
Distributions Direct
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through the AARP Funds'
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to
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their personal bank account usually within three business days after the Fund
pays its distribution. A DistributionsDirect request form can be obtained by
calling 1-800-253-2277. Confirmation statements will be mailed to shareholders
as notification that distributions have been deposited.
Reports to Shareholders
The AARP Funds send to shareholders semiannually financial statements,
which are examined annually by independent accountants, including a list of
investments held and statements of assets and liabilities, operations, changes
in net assets, and financial highlights.
Investors receive a brochure entitled Your Guide to Simplified
Investment Decisions when they order an investment kit for the Funds which also
contains a prospectus. The Shareholder's Handbook is sent to all new
shareholders to help answer any questions they may have about investing.
Similarly, an IRA Handbook is sent to all new IRA shareholders. Every month,
shareholders will be sent the newsletter, Financial Focus. Retirement plan
shareholders will be sent a special edition of Financial Focus on a quarterly
basis. The newsletters are designed to help you keep up to date on economic and
investment developments, and any new financial services and features of the
Program.
Direct Payment of Regular Fixed Bills
Shareholders who own or purchase $10,000 or more of shares of an AARP
Fund may arrange to have regular fixed bills such as rent, mortgage or other
payments of more than $50 made directly from their account. The arrangements are
virtually the same as for an Automatic Withdrawal Plan (see above). For more
information concerning this plan, write to the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, MA 02208-2540 or call, toll-free,
1-800-253-2277.
Direct Deposit Program
Investors can have Social Security or other checks from the U.S.
Government or any other regular income checks such as pension, dividends, and
even payroll checks automatically deposited directly to their accounts.
Investors may allocate a minimum of 25% of their income checks into any AARP
Fund. Information may be obtained by contacting the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, Massachusetts 02208-2540, or by calling toll
free, 1-800-253-2277.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund intends to follow the practice of distributing substantially
all of its investment company taxable income, which includes any excess of net
realized short-term capital gains over net realized long-term capital losses. A
Fund may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. If it
appears to be in the best interest of a Fund and its shareholders, a Fund may
retain all or part of such gain for reinvestment after paying the related
federal income taxes which shareholders may then claim as a credit on their
returns. (See "TAXES.") If a Fund does not distribute the amount of capital gain
and/or ordinary income required to be distributed by an excise tax provision of
the Code, the Fund may be subject to that excise tax. (See "TAXES.") In certain
circumstances, a Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.
The Funds intend to declare in December any net realized capital gains
resulting from its investment activity and any dividend from investment company
taxable income. The Funds intend to distribute the December dividends and
capital gains either in December or in the following January. Any dividends or
capital gains distributions declared in October, November, or December with a
record date in that month and paid during the following January will be treated
by shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. If a shareholder has elected to reinvest any
dividends and/or other distributions, such distributions will be made in shares
of that Fund and confirmations will be mailed to each shareholder. If a
shareholder has chosen to receive cash, a check will be sent.
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PERFORMANCE INFORMATION
From time to time, quotations of the Funds' performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors.
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year, five years and ten years (or such shorter
periods as may be applicable dating from the commencement of a Fund's
operations), all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of the Funds' shares
and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Fund shares. Average annual total return
is calculated by computing the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = Average Annual Total Return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Returns for the Period Ended February 29, 2000
Life of the Fund^(1)
Scudder Select 500 Fund N/A
Scudder Select 1000 Growth Fund N/A
^(1)The Funds commenced operations on May 17, 1999.
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for a Fund or class will vary based on changes in market conditions
and the level of a Fund's and class' expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Funds' shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by computing
the cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
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C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Returns for the Period Ended February 29, 2000
Life of the Fund^(1)
Scudder Select 500 Fund 5.95%
Scudder Select 1000 Growth Fund 26.19%
^(1)The Funds commenced operations on May 17, 1999.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of a Fund apart from capital appreciation will be cited, as an
update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Funds' and classes' performance data.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, each Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, S&P 500, the Nasdaq OTC Composite
Index, the Nasdaq Industrials Index, the Russell 1000 Index, the Russell 2000
Index, the Wilshire Real Estate Securities Index and statistics published by the
Small Business Administration.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
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From time to time, in marketing and other Fund literature, Trustees and
officers of the Trust, a Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
Each Fund may be advertised as an investment choice in Scudder's
college planning program. Marketing and other Fund literature may include a
description of the potential risks and rewards associated with an investment in
the Fund. The description may include a "risk/return spectrum" which compares
each Fund to other Scudder funds or broad categories of funds, such as money
market, bond or equity funds, in terms of potential risks and returns. Money
market funds are designed to maintain a constant $1.00 share price and have a
fluctuating yield. Share price, yield and total return of a bond fund will
fluctuate. The share price and return of an equity fund also will fluctuate. The
description may also compare the Fund to bank products, such as certificates of
deposit. Unlike mutual funds, certificates of deposit are insured up to $100,000
by the U.S. government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund.
ORGANIZATION OF THE FUNDS
The Funds are separate series of Value Equity Trust. Value Equity
Trust, formerly Scudder Equity Trust, is a Massachusetts business trust
established under a Declaration of Trust dated October 16, 1985, as amended. The
Trust's authorized capital consists of an unlimited number of shares of
beneficial interest, par value $0.01 per share. The Trust's shares are currently
divided into four series: Scudder Large Company Value Fund, Value Fund, Scudder
Select 500 Fund and Scudder Select 1000 Growth Fund. The Trustees have the
authority to issue additional series of shares. If a series were unable to meet
its obligations, the remaining series might have to assume the unsatisfied
obligations of that series.
As of the date of this SAI, all shares of each of Scudder Select 500
Fund and Scudder Select 1000 Growth Fund are of one class and have equal rights
as to voting, dividends and liquidation. All shares issued and outstanding will
be fully paid and nonassessable by the Trust, and redeemable as described in
this Statement of Additional Information and in the Funds' prospectus. On
October 2, 2000, the prospectus and this Statement of Additional Information for
Scudder Select 500 Fund and for Scudder Select 1000 Growth Fund will offer two
classes of shares to provide investors with different purchase options. The two
classes are: the Class S and the Class AARP. Each class will have its own
important features and policies. In addition, as of the date noted above for
each fund, all existing shares of
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Scudder Select 500 Fund and Scudder Select 1000 Growth Fund will be redesignated
Class S shares of their respective funds. Shares of the AARP class are specially
designed for members of the American Association of Retired Persons ("AARP").
Each share of each class of a Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters that such shares
(or class of shares) shall be entitled to vote. Shareholders of each Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Trustees has determined that the matter affects only
the interest of shareholders of one or more classes of a Fund, in which case
only the shareholders of such class or classes of that Fund shall be entitled to
vote thereon. Any matter shall be deemed to have been effectively acted upon
with respect to a Fund if acted upon as provided in Rule 18f-2 under the 1940
Act, or any successor rule, and in the Fund's Declaration of Trust. As used in
this Statement of Additional Information, the term "majority", when referring to
the approvals to be obtained from shareholders in connection with general
matters affecting the Funds and all additional portfolios (e.g., election of
directors), means the vote of the lesser of (i) 67% of the Fund's shares
represented at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (ii) more than 50% of the Fund's
outstanding shares. The term "majority", when referring to the approvals to be
obtained from shareholders in connection with matters affecting a single Fund or
any other single portfolio (e.g., annual approval of investment management
contracts), means the vote of the lesser of (i) 67% of the shares of the
portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
Each share of a Fund represents an equal proportionate interest in that
Fund with each other share of the same Fund and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared in the discretion of the Fund's Board of Trustees. In the event
of the liquidation or dissolution of the Fund, shares of a Fund are entitled to
receive the assets attributable to that Fund that are available for
distribution, and a proportionate distribution, based upon the relative net
assets of the Funds, of any general assets not attributable to a Fund that are
available for distribution.
The Trustees, in their discretion, may authorize the division of shares
of a Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution.
Currently, the assets of Value Equity Trust received for the issue or
sale of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with a proportionate
share of the general liabilities of Value Equity Trust. If a series were unable
to meet its obligations, the assets of all other series may in some
circumstances be available to creditors for that purpose, in which case the
assets of such other series could be used to meet liabilities which are not
otherwise properly chargeable to them. Expenses with respect to any two or more
series are to be allocated in proportion to the asset value of the respective
series except where allocations of direct expenses can otherwise be fairly made.
The officers of Value Equity Trust, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to a given
series, or which are general or allocable to two or more series. In the event of
the dissolution or liquidation of Value Equity Trust, the holders of the shares
of any series are entitled to receive as a class the underlying assets of such
shares available for distribution to shareholders.
The Trust's predecessor was organized in 1966 as a Delaware corporation
under the name "Scudder Duo-Vest Inc." as a closed-end, diversified dual-purpose
investment company. Effective April 1, 1982, its original dual-purpose nature
was terminated and it became an open-end investment company with only one class
of shares outstanding. At a Special Meeting of Shareholders held May 18, 1982,
the shareholders voted to amend the investment objective to seek to maximize
long-term growth of capital and to change the name of the corporation to
"Scudder Capital Growth Fund, Inc." ("SCGF, Inc."). The fiscal year end of SCGF,
Inc. was changed from March 31 to September 30 by action of its Directors on May
18, 1982. Effective as of September 30, 1982, Scudder Special Fund, Inc. was
merged into SCGF,
38
<PAGE>
Inc. In October 1985, the Fund's form of organization was changed to a
Massachusetts business trust upon approval of the shareholders.
Shares of Value Equity Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Trust has a Declaration of Trust which provides that obligations of
a Fund are not binding upon the Trustees individually but only upon the property
of that Fund, that the Trustees and officers will not be liable for errors of
judgment or mistakes of fact or law, and that a Fund involved will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, except if it is determined in the manner provided in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the Fund involved. Nothing in the
Declaration of Trust, however, protects or indemnifies a Trustee or officer
against any liability to which that person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of that person's office.
No series of the Trust shall be liable for the obligations of any other
series.
INVESTMENT ADVISER
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On December 31, 1997, Zurich
Insurance Company ("Zurich") acquired a majority interest in the Adviser, and
Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of the
Adviser. The Adviser's name changed to Scudder Kemper Investments, Inc. On
September 7, 1998, the businesses of Zurich (including Zurich's 70% interest in
Scudder Kemper) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services Group. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services Group, with the balance initially owned by former
B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations, as well as providing investment advice to over 280 open- and
closed-end mutual funds.. The Adviser maintains a large research department,
which conducts continuous studies of the factors that affect the position of
various industries, companies and individual securities. The Adviser receives
published reports and statistical compilations from issuers and other sources,
as well as analyses from brokers and dealers who may execute portfolio
transactions for the Adviser's clients. However, the Adviser regards this
information and material as an adjunct to its own research activities. Scudder's
international investment management team travels the world, researching hundreds
of companies. In selecting the securities in which the Funds may invest, the
39
<PAGE>
conclusions and investment decisions of the Adviser with respect to the Funds
are based primarily on the analyses of its own research department.
Certain investments may be appropriate for a Fund and also for other
clients advised by the Adviser. Investment decisions for a Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a Fund. Purchase and sale orders for a Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
In certain cases, the investments for the Fund are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser,
that have similar names, objectives and investment styles. You should be aware
that the Fund is likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Fund can be expected to vary from those of these other mutual funds.
The present management agreements (the "Agreements") were approved by
the Trustees on March 1, 1999 and became effective March 31, 1999. The
Agreements will continue in effect until September 30, 2000 and from year to
year thereafter only if their continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreements or interested
persons of the Adviser or the Trust, cast in person at a meeting called for the
purpose of voting on such approval, and either by a vote of the Trust's Trustees
or of a majority of the outstanding voting securities of the respective Fund.
The Agreements may be terminated at any time without payment of penalty by
either party on sixty days' written notice and automatically terminate in the
event of their assignment.
Under each Agreement, the Adviser regularly provides a Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objectives, policies and restrictions and determines what
securities shall be purchased for the portfolio of the Fund, what portfolio
securities shall be held or sold by the Fund, and what portion of the Fund's
assets shall be held uninvested, subject always to the provisions of the Trust's
Declaration of Trust and By-Laws, of the 1940 Act and the Code and to the Fund's
investment objectives, policies and restrictions, and subject, further, to such
policies and instructions as the Trustees of the Trust may from time to time
establish. The Adviser also advises and assists the officers of the Trust in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Trust.
Under each Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
a Fund's operations as an open-end investment company including, but not limited
to, preparing reports and notices to the Trustees and shareholders, supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, custodians, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Funds; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Trustees.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York and Boston,
Massachusetts) of all trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to the Funds,
the services of such trustees, officers and
40
<PAGE>
employees as may duly be elected officers, subject to their individual consent
to serve and to any limitations imposed by law, and provides the Funds' office
space and facilities.
As of the date of this SAI, for the Adviser's services, Scudder Select
500 Fund pays the Adviser a fee equal to 0.75 of average daily net assets;
payable monthly, provided the Fund will make such interim payments as may be
requested by the Adviser not to exceed 75% of the amount of the fee then accrued
on the books of the Fund and unpaid. The Adviser has agreed to maintain the
annualized expenses of the Fund at no more than 0.75% of the average daily net
assets of the Fund until June 30, 2000.
For the Adviser's services, Scudder Select 1000 Growth Fund pays the
Adviser a fee equal to 0.75 of average daily net assets; payable monthly,
provided the Fund will make such interim payments as may be requested by the
Adviser not to exceed 75% of the amount of the fee then accrued on the books of
the Fund and unpaid. The Adviser has agreed to maintain the annualized expenses
of the Fund at no more than 0.75% of the average daily net assets of the Fund
until June 30, 2001. For the period ended February 29, 2000, the Adviser did not
impose any of its management fee for Scudder Select 500 Fund and Scudder Select
1000 Growth Fund, amounting to $183,253 and $126,070, respectively.
Under each Agreement a Fund is responsible for all of its other
expenses including broker's commissions; legal, auditing and accounting
expenses; the calculation of net asset value; taxes and governmental fees; the
fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses including clerical expenses of issue, sale,
underwriting, distribution, redemption or repurchase of shares; the expenses of
and the fees for registering or qualifying securities for sale; fees and
expenses incurred in connection with membership in investment company
organizations; the fees and expenses of the Trustees, officers and employees of
the Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. The Trust may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Funds. The
Funds are also responsible for expenses incurred in connection with litigation,
proceedings and claims and the legal obligation it may have to indemnify its
officers and Trustees with respect thereto. Each Agreement expressly provides
that the Adviser shall not be required to pay a pricing agent of any Fund for
portfolio pricing services, if any.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of each Agreement and in discussions with the
Adviser concerning each Agreement, Trustees who are not "interested persons" of
the Trust are represented by independent counsel at the Funds' expense.
Each Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which each Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreements.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with a
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of a Fund.
The term Scudder Investments is the designation given to the services
provided by Scudder Kemper Investments, Inc. and its affiliates to the Scudder
Family of Funds.
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<PAGE>
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
Administrative Fee
The Board of Trustees has approved the adoption of a new administrative
services agreement (an "Administrative Agreement"). Under each Fund's
Administrative Agreement, each share class of the Fund will pay a fixed fee rate
(the "Administrative Fee") to Scudder Kemper Investments, Inc., the Fund's
investment adviser ("Scudder Kemper"). In return, Scudder Kemper will provide or
pay others to provide substantially all services that a fund normally requires
for its operations, such as transfer agency fees, shareholder servicing fees,
custodian fees, and fund accounting fees, but not including expenses such as
taxes, brokerage, interest, extraordinary expenses and fees and expenses of
Board members not affiliated with Scudder Kemper (including fees and expenses of
their independent counsel). Each fund would continue to pay the fees required by
its investment management agreement with Scudder Kemper. Each Administrative
Agreement will have an initial term of three years, subject to earlier
termination by a fund's Board. Such an administrative fee would enable investors
to determine with greater certainty the expense level that the fund will
experience, and, for the term of the administrative agreement, would transfer
substantially all of the risk of increased cost to Scudder Kemper. The date upon
which each fund's Administrative Agreement will be implemented is set forth
below, along with the administrative fee rate that will be in effect under each
Administrative Agreement.
Each Fund has entered into administrative services agreements with
Scudder Kemper (the "Administration Agreements"), pursuant to which Scudder
Kemper will provide or pay others to provide substantially all of the
administrative services required by a Fund (other than those provided by Scudder
Kemper under its investment management agreements with the Funds, as described
above) in exchange for the payment by each Fund of an administrative services
fee (the "Administrative Fee") of 0.25% of its average daily net assets. One
effect of these arrangements is to make each Fund's future expense ratio more
predictable. The Administrative Fee will become effective on or about August 27,
2000 for Scudder Select 500 Fund and October 2, 2000 for Scudder Select 1000
Growth Fund. The details of the proposal (including expenses that are not
covered) are set out below.
Various third-party service providers (the "Service Providers"), some
of which are affiliated with Scudder Kemper, provide certain services to the
Funds pursuant to separate agreements with the Funds. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for the
Funds and maintains their accounting records. Scudder Service Corporation, also
a subsidiary of Scudder Kemper, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Funds. Scudder Trust Company, an
affiliate of Scudder Kemper, provides subaccounting and recordkeeping services
for shareholders in certain retirement and employee benefit plans. As custodian,
Brown Brothers Harriman holds the portfolio securities of the Funds, pursuant to
a custodian agreement. PricewaterhouseCoopers LLP audits the financial
statements of the Funds and provides other audit, tax, and related services.
Dechert Price & Rhoads acts as general counsel for each Fund. In addition to the
fees they pay under the investment management agreements with Scudder Kemper,
the Funds pay the fees and expenses associated with these service arrangements,
as well as each Fund's insurance, registration, printing, postage and other
costs.
Scudder Kemper will pay the Service Providers for the provision of
their services to the Funds and will pay other fund expenses, including
insurance, registration, printing and postage fees. In return, each Fund will
pay Scudder Kemper an Administrative Fee.
Each Administration Agreement has an initial term of three years,
subject to earlier termination by the Fund's Board. The fee payable by a Fund to
Scudder Kemper pursuant to the Administration Agreements is reduced by the
amount of any credit received from the Fund's custodian for cash balances.
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<PAGE>
Certain expenses of the Funds will not be borne by Scudder Kemper under
the Administration Agreements, such as taxes, interest and extraordinary
expenses; and the fees and expenses of the Independent Trustees (including the
fees and expenses of their independent counsel). In addition, each Fund will
continue to pay the fees required by its investment management agreement with
Scudder Kemper.
Personal Investments by Employees of the Adviser
The Funds, the Adviser and principal underwriter have each adopted
codes of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Funds and employees of the Adviser and principal underwriter are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Fund, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The Adviser's Code
of Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Fund. Among other things, the Adviser's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the
Adviser's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Trust Occupation** Services, Inc.
--------------------- ---------- ---------- --------------
<S> <C> <C> <C>
Linda C. Coughlin(48)+* President Managing Director of Scudder Senior Vice President
Kemper Investments, Inc.
43
<PAGE>
Position with
Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Trust Occupation** Services, Inc.
--------------------- ---------- ---------- --------------
Sheryle J. Bolton (53) Trustee Chief Executive Officer and --
Scientific Learning Corporation Director, Scientific Learning
1995 University Ave. Corporation, Former President and
Suite 400 Chief Operating Officer,
San Francisco, CA 94704 Physicians Online, Inc.
(electronic transmission of
clinical information for
physicians) (1994-1995); Member,
Senior Management Team,
Rockefeller & Co. (1990-1993)
William T. Burgin (56) Trustee General Partner, Bessemer Venture --
83 Walnut Street Partners (venture capital firm);
Wellesley, MA 02481-2101 General Partner, Deer & Company;
Director, James River Corp.;
Director Galile Corp., Director of
various privately held companies
Keith R. Fox (45) Trustee Private Equity Investor, Exeter --
Exeter Capital Management Capital Management Corporation
Corporation
10 East 53rd Street
New York, NY 10022
William H. Luers (70) Trustee Chairman and President, United --
801 Second Avenue Nations Association of America (as
New York, NY 10017 of February 1, 1999) ; formerly
President, Metropolitan Museum of
Art (1986-1999)
Kathryn L. Quirk (47)*#++ Trustee, Vice Managing Director of Scudder Senior Vice President,
President and Kemper Investments, Inc. Chief Legal Officer and
Assistant Assistant Clerk
Secretary
Joan E. Spero (55) Trustee President, The Doris Duke --
Doris Duke Charitable Foundation Charitable Foundation (1997 to
650 Fifth Avenue - 19th Floor present), Undersecretary of State
New York, NY 10019 for Economic, Business and
Agricultural Affairs, (1993-1997)
Paul Bancroft III (68) Honorary Trustee Venture capitalist and consultant; --
79 Pine Lane Retired President, Chief Executive
Box 6639 Officer and Director, Bessemer
Snowmass Village, CO 81615 Securities Corporation
44
<PAGE>
Position with
Underwriter,
Position Principal Scudder Investor
Name, Age and Address with Trust Occupation** Services, Inc.
--------------------- ---------- ---------- --------------
Thomas J. Devine (73) Honorary Consultant --
450 Park Avenue Trustee
New York, NY 10022
Wilson Nolen (73) Honorary Trustee Consultant, June 1989 to present, --
1120 Fifth Avenue Corporate Vice President of
New York, NY 10128-0144 Becton, Dickinson & Company
(manufacturer of medical and
scientific products),
from 1973 to June 1989
Robert G. Stone, Jr. (76) Honorary Trustee Chairman Emeritus and Director, --
405 Lexington Avenue Kirby Corporation (inland and
39th Floor offshore marine transportation and
New York, NY 10174 diesel repairs)
Ann M. McCreary( 43)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Kathleen T. Millard (39)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Lois R. Roman (35)++ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Robert D. Tymoczko (29)& Vice President Assistant Vice President of --
Scudder Kemper Investments, Inc.
since August, 1997; previously
employed by The Law & Economics
Consulting Group, Inc. as an
economic consultant.
John Millette (37)+ Vice President Vice President of Scudder Kemper --
and Secretary Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of Scudder Assistant Treasurer
Kemper Investments, Inc.
Caroline Pearson (38)+ Assistant Senior Vice President of Scudder Clerk
Secretary Kemper Investments, Inc.;
Associate, Dechert Price & Rhoades
(law firm) 1989-1997
</TABLE>
* Ms. Quirk is considered by the Trust and its counsel to be an
"interested person" of the Adviser or of the Trust (within the meaning
of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Ms. Quirk is a member of the Executive Committee, which may exercise
all of the powers of the Trustees when they are not in session.
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<PAGE>
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 333 South Hope Street, Los Angeles, California
& Address: 101 California Street, Suite 4100, San Francisco, CA 94111
As of May 31, 2000, all Trustees and officers of the Trust as a group
owned beneficially (as that term is defined in Section 13(d) under the
Securities and Exchange Act of 1934) less than 1% of the shares of each Fund.
To the best of the Trust's knowledge, as of May 31, 2000, no person
owned beneficially more than 5% of a Fund's outstanding shares, except as stated
above.
The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder funds.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with the
Adviser. These "Independent Trustees" have primary responsibility for assuring
that each Fund is managed in the best interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Funds' independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from each
Fund of Value Equity Trust: an annual trustee's fee of $3,500; a fee of $325 for
attendance at each board meeting, audit committee meeting, or other meeting held
for the purposes of considering arrangements between the Trust on behalf of each
Fund and the Adviser or any affiliate of the Adviser; $100 for all other
committee meetings and reimbursement of expenses incurred for travel to and from
Board Meetings. No additional compensation is paid to any Independent Trustee
for travel time to meetings, attendance at trustees' educational seminars or
conferences, service on industry or association committees, participation as
speakers at trustees' conferences or service on special trustee task forces or
subcommittees. Independent Trustees do not receive any employee benefits such as
pension or retirement benefits or health insurance. Notwithstanding the schedule
of fees, the Independent Trustees have in the past and may in the future waive a
portion of their compensation.
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The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1999 from the Trust and from all of Scudder funds as a group.
<TABLE>
Value Equity Trust* All Scudder Funds
<S> <C> <C>
Paul Bancroft III $18,200 $159,991 (25 funds)
Trustee++
Sheryle J. Bolton $23,400 $179,860 (24 funds)
Trustee
William T. Burgin $21,100 $160,325 (23 funds)
Trustee
Keith R. Fox $21,100 $160,325 (23 funds)
Trustee
William H. Luers $24,700 $212,596 (23 funds)
Trustee
Wilson Nolen $ 0.00 $63,598 (5 funds)
Honorary Trustee+
Joan E. Spero** $24,700 $175,275 (23 funds)
Trustee
Robert G. Stone, Jr.
Honorary Trustee# $ 0.00 $ 9,000 (1 fund)
</TABLE>
* Value Equity Trust consists of four funds: Scudder Large Company Value
Fund, Value Fund, Scudder Select 500 Fund and Scudder Select 1000
Growth Fund. Scudder Select 500 Fund and Scudder Select 1000 Growth
Fund both became effective on March 31, 1999.
** Elected as Trustee of the Trust in September 1998.
+ Elected as Honorary Trustee in December 1998, after serving as Trustee.
++ Elected as Honorary Trustee in December 1999, after serving as Trustee.
# Includes pension or retirement benefits received as Director of The
Japan Fund.
DISTRIBUTOR
The Trust, on behalf of each Fund, has an underwriting agreement
pertaining to Scudder Select 500 Fund and Scudder Select 1000 Growth Fund with
Scudder Investor Services, Inc. Two International Place, Boston, MA 02110 (the
"Distributor"), a Massachusetts corporation, which is a subsidiary of the
Adviser. This underwriting agreement dated September 7, 1998 will remain in
effect until September 30, 2000 and from year to year thereafter only if its
continuance is approved annually by a majority of the Trustees who are not
parties to such agreement or interested persons of any
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such party and either by vote of a majority of the Trustees or a majority of the
outstanding voting securities of the Trust. The underwriting agreement was last
approved by the Trustees on August 8, 1998.
Under the principal underwriting agreement, the Trust is responsible
for: the payment of all fees and expenses in connection with the preparation and
filing with the SEC of the Trust's registration statement and prospectuses and
any amendments and supplements thereto; the registration and qualification of
shares for sale in the various states, including registering the Trust or a Fund
as a broker/dealer in various states, as required; the fees and expenses of
preparing, printing and mailing prospectuses (see below for expenses relating to
prospectuses paid by the Distributor), notices, proxy statements, reports or
other communications (including newsletters) to shareholders of a Fund; the cost
of printing and mailing confirmations of purchases of shares and the
prospectuses accompanying such confirmations; any issuance taxes or any initial
transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both a Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of a Fund's shares
to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
service representatives, a portion of the cost of computer terminals, and of any
activity which is primarily intended to result in the sale of the Fund's shares.
Note: Although the Funds currently have no 12b-1 Plan and shareholder
approval would be required in order to adopt such plans, the
underwriting agreement provides that a Fund will also pay those fees
and expenses permitted to be paid or assumed by a Fund pursuant to a
12b-1 Plan, if any, adopted by a Fund, notwithstanding any other
provision to the contrary in the underwriting agreement and a Fund or a
third party will pay those fees and expenses not specifically allocated
to the Distributor in the underwriting agreement.
As agent, the Distributor currently offers shares of a Fund on a
continuous basis to investors in all states. The underwriting agreement provides
that the Distributor accepts orders for shares at net asset value as no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of a Fund.
TAXES
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute and has qualified as
such from its inception. Each Fund intends to continue to qualify for such
treatment. Such qualification does not involve governmental supervision of
management or investment practices or policies.
If for any taxable year a Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of the Fund's
earnings and profits, and would be eligible for the dividends-received deduction
in the case of corporate shareholders.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain in
excess of net long-term capital loss) and generally is not subject to federal
income tax to the extent that it distributes annually its investment company
taxable income and net realized capital gains in the manner required under the
Code.
Investment company taxable income generally is made up of dividends,
interest, and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net capital gains (the excess of net long-term capital
gain over net short-term capital loss) are computed by taking into account any
capital loss carryforward of a Fund.
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At February 29, 2000, Scudder Select 500 Fund had a net tax basis
capital loss carryforward of approximately $552,000, which may be applied
against any realized net taxable capital gains of each succeeding year until
fully utilized or until February 29, 2008, the expiration date.
At February 29, 2000, Scudder Select 1000 Growth Fund had a net tax
basis capital loss carryforward of approximately $181,000, which may be applied
against any realized net taxable capital gains of each succeeding year until
fully utilized or until February 29, 2008, the expiration date.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions at
least equal to the sum of 98% of a Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses as prescribed in the Code) realized during the
one-year period ending October 31 during such year, and all ordinary income and
capital gains for prior years that were not previously distributed.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of each Fund's gross income. To the extent that such dividends
constitute a portion of a Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the dividends received deduction
for corporations. Shareholders will be informed of the portion of dividends
which so qualify. The dividends-received deduction is reduced to the extent the
shares with respect to which the dividends are received are treated as
debt-financed under the federal income tax law and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholders, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of net capital gains are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of a Fund have been held by such shareholders. Such distributions are not
eligible for the dividends received deduction. Any loss realized upon the
redemption of shares held at the time of redemption for six months or less will
be treated as a long-term capital loss to the extent of any amounts treated as
long-term capital gain distributions during such six-month period.
If any net capital gains are retained by a Fund for reinvestment,
requiring federal income taxes to be paid thereon by that Fund, the Fund intends
to elect to treat such capital gains as having been distributed to shareholders.
As a result, each shareholder will report such capital gains as long-term
capital gains, will be able to claim a proportionate share of federal income
taxes paid by the Fund on such gains as a credit against the shareholder's
federal income tax liability, and will be entitled to increase the adjusted tax
basis of the shareholder's Fund shares by the difference between such reported
gains and the shareholder's tax credit. However, retention of such gains by a
Fund may cause the Fund to be liable for an excise tax on all or a portion of
those gains.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gains, whether received in shares or cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
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<PAGE>
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
An individual may make a deductible IRA contribution for any taxable
year only if (i) neither the individual nor his or her spouse (unless filing
separate returns) is an active participant in an employer's retirement plan, or
(ii) the individual (and his or her spouse, if applicable) has an adjusted gross
income below a certain level ($52,000 for married individuals filing a joint
return, with a phase-out of the deduction for adjusted gross income between
$52,000 and $62,000; $32,000 for a single individual, with a phase-out for
adjusted gross income between $32,000 and $42,000). However, an individual not
permitted to make a deductible contribution to an IRA for any such taxable year
may nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her non-earning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, contributions may be made to a spousal
IRA even if the spouse has earnings in a given year, if the spouse elects to be
treated as having no earnings (for IRA contribution purposes) for the year.
Distributions by a Fund result in a reduction in the net asset value of
that Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of capital upon
the distribution, which will nevertheless be taxable to them.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by a
Fund will be subject to tax under Section 1234 of the Code. In general, no loss
will be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in a Fund's portfolio.
If a Fund writes a covered call option on portfolio stock, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.
Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by a Fund.
Many or all futures and forward contracts entered into by a Fund and
many or all listed non-equity options written or purchased by a Fund (including
options on debt securities, options on futures contracts, options on foreign
currencies and options on securities indices) will be governed by Section 1256
of the Code. Absent a tax election to the contrary, gain or loss attributable to
the lapse, exercise or closing out of any such position generally will be
treated as 60% long-term and 40% short-term capital gain or loss, and on the
last day of the Fund's fiscal year (as well as on October 31 for purposes of the
4% excise tax), all outstanding Section 1256 positions will be marked to market
(i.e. treated as if such positions were sold at their closing price on such
day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term capital gain or loss. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options, and similar financial
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<PAGE>
instruments entered into or acquired by a Fund will be treated as ordinary
income. Under certain circumstances, entry into a futures contract to sell a
security may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a substantially
identical security in the relevant Fund's portfolio.
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or non-equity
option or other position governed by Section 1256 which substantially diminishes
the Fund's risk of loss with respect to such other position may be treated as a
"mixed straddle." Mixed straddles are subject to the straddle rules of Section
1092 of the Code and may result in the deferral of losses if the non-Section
1256 position is in an unrealized gain at the end of a reporting period.
Notwithstanding any of the foregoing, recent tax law changes may
require a Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to a Fund each year, even though the Fund will not receive cash interest
payments from these securities. This original issue discount imputed income will
comprise a part of the investment company taxable income of the Fund which must
be distributed to shareholders in order to maintain the qualification of the
Fund as a regulated investment company and to avoid federal income tax at the
Fund's level.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
Each Fund will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
nonexempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in shares, will be reduced by the amounts required to be withheld.
Shareholders may be subject to state and local taxes on distributions
received from a Fund and on redemptions of a Fund's shares. A brief explanation
of the form and character of the distribution accompany each distribution. By
January 31 of each year a Fund issues to each shareholder a statement of the
federal income tax status of all distributions.
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The Trust is organized as a Massachusetts business trust. Neither the
Trust nor a Fund is expected to be liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that each Fund qualifies as a regulated
investment company under the Code.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Funds' purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for a Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction on account of execution services and the receipt
of research, market or statistical information. The Adviser will not place
orders with broker/dealers on the basis that the broker/dealer has or has not
sold shares of a Fund. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than a Fund, and the Adviser in connection with a Fund
uses
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not all such information. Conversely, such information provided to the Adviser
by broker/dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to a Fund.
The Trustees review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable.
For the period May 17, 1999 (commencement of operations to February 29,
2000, the Scudder Select 500 Fund paid brokerage commissions of $23,136. In the
fiscal period ended February 29, 2000, the Fund paid $17,219 (74.43% of the
total brokerage commissions), resulting from orders placed, consistent with the
policy of seeking to obtain the most favorable net results, for transactions
placed with brokers and dealers who provided supplementary research services to
the Trust or Adviser. The amount of brokerage transactions aggregated
$59,897,025, of which $37,582,587 (62.75% of all brokerage transactions) were
transactions which included research commissions.
For the period May 17, 1999 (commencement of operations to February 29,
2000, the Scudder Select 1000 Growth Fund paid brokerage commissions of $13,368.
In the fiscal period ended February 29, 2000, the Fund paid $10,095 (75.52% of
the total brokerage commissions), resulting from orders placed, consistent with
the policy of seeking to obtain the most favorable net results, for transactions
placed with brokers and dealers who provided supplementary research services to
the Trust or Adviser. The amount of brokerage transactions aggregated
$37,931,939, of which $28,403,261 (74.88 % of all brokerage transactions) were
transactions which included research commissions.
Portfolio Turnover
Neither Fund's average annual portfolio turnover rate, i.e. the ratio
of the lesser of sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less), is not expected
to exceed 100% for the initial fiscal year.
Higher levels of activity by a Fund result in higher transaction costs
and may also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for a Fund whenever necessary, in
management's opinion, to meet the Fund's objectives.
Scudder Select 500 Fund's portfolio turnover rate for the period ended
February 29, 2000, was 53%. Scudder Select 500 Fund's portfolio turnover rate
for the period ended February 29, 2000, was 39% . These figures have been
annualized.
NET ASSET VALUE
The net asset value of shares of each Funds is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading
(the "Value Time"). The Exchange is scheduled to be closed on the following
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holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Net asset value per share is
determined by dividing the value of the total assets of a Fund, less all
liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation on such exchange as of the Value Time. An equity security
which is traded on the National Association of Securities Dealers Automated
Quotation ("Nasdaq") system will be valued at its most recent sale price on such
system as of the Value Time. Lacking any sales, the security is valued at the
most recent bid quotation as of the Value Time. The value of an equity security
not quoted on the Nasdaq System, but traded in another over-the-counter market,
is its most recent sale price if there are any sales of such security on such
market as of the Value Time. Lacking any sales, the security is valued at the
Calculated Mean quotation for such security as of the Value Time. Lacking a
Calculated Mean quotation, the security is valued at the most recent bid
quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at
prices supplied by the Funds' pricing agent(s), which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money market
instruments with an original maturity of sixty days or less maturing at par
shall be valued by the amortized cost, which the Board believes approximates
market value. If it is not possible to value a particular debt security pursuant
to these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is determined
in a manner that, in the discretion of the Valuation Committee most fairly
reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial highlights of the Funds included in the Funds' prospectus
and the Financial Statements incorporated by
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reference in this Statement of Additional Information have been incorporated by
reference in reliance on the report of PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP audits the financial statements of the Funds and
provides other audit, tax, and related services.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with a Fund's property or the
acts, obligations or affairs of a Fund. The Declaration of Trust also provides
for indemnification out of a Fund's property of any shareholder of a Fund held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder of a Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable to
meet its obligations.
Other Information
Many of the investment changes in a Fund will be made at prices
different from those prevailing at the time they may be reflected in regular
reports to shareholders of a Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objectives and policies of a Fund,
and other factors, such as its other portfolio holdings and tax considerations
should not be construed as recommendations for similar action by other
investors.
The name "Value Equity Trust" is the designation of the Trustees for
the time being under a Declaration of Trust dated October 16, 1985, as amended,
and all persons dealing with a Fund must look solely to the property of a Fund
for the enforcement of any claims against a Fund as neither the Trustees,
officers, agents, shareholders nor other series of the Trust assumes any
personal liability for obligations entered into on behalf of a Fund. Upon the
initial purchase of shares of a Fund, the shareholder agrees to be bound by the
Trust's Declaration of Trust, as amended from time to time. The Declaration of
Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with the Fund must look only to the assets of
the Fund for the enforcement of any claims against a Fund as no other series of
the Trust assumes any liabilities for obligations entered into on behalf of a
Fund.
The CUSIP number of Scudder Select 500 Fund Class S is 920390 606.
The CUSIP number of Scudder Select 500 Fund Class AARP is 920390 804
The CUSIP number of the Scudder Select 1000 Growth Fund Class S is
920390 705.
The CUSIP number of the Scudder Select 1000 Growth Fund Class AARP is
920390 887
Each Fund has a fiscal year end of February 28.
The Trust employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as custodian for each Fund.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset values for the Funds. Each Fund pays SFAC an annual fee equal to 0.025% of
the first $150 million of average daily net assets, 0.0075% of such assets in
excess of $150 million and 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the period
55
<PAGE>
ended February 29, 2000, SFAC did not impose any of its fees for Scudder Select
500 Fund and Scudder Select 1000 Growth Fund, amounting to $35,182 and $32,799,
respectively.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer, dividend
disbursing and shareholder service agent for the Funds. SSC also provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Each Fund pays Service Corporation a fee
for maintaining each account for a retail participant of $26.00 and for each
retirement participant of $29.00. Pursuant to a services agreement with SSC,
Kemper Service Company, an affiliate of Scudder Kemper, may perform, from time
to time, certain transaction and shareholder servicing functions.
For the period ended February 29, 2000, SSC imposed fees for Scudder
Select 500 Fund and Scudder Select 1000 Growth Fund, amounting to $159,918 and
$115,344, respectively, of which all was unpaid. Further, SSC did not impose
fees for Scudder Select 500 Fund and Scudder Select 1000 Growth Fund, amounting
to $84,551 and $111,735, respectively.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in each Fund.
The Funds, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are generally
held in an omnibus account.
The Trustees of the Trust have considered the appropriateness of using
this combined Statement of Additional Information for the Funds. There is a
possibility that a Fund might become liable for any misstatement, inaccuracy, or
incomplete disclosure in this Statement of Additional Information concerning
another Fund.
The prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Fund
and the securities offered hereby. The Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of Class
S of Scudder Select 500 Funds and Class S of Scudder Select 1000 Growth Fund,
together with the Report of Independent Accountants, and Financial Highlights,
are incorporated by reference in the Annual Report to the Shareholders dated
02/29/2000 as filed with the Securities and Exchange Commission for Scudder
Equity Trust on Form N-30D and are hereby deemed to be a part of this Statement
of Additional Information.
56
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds.
Ratings of Municipal and Corporate Bonds
Standard & Poor's:
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, large
uncertainties or major exposures to adverse conditions outweigh these.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal in the event of
adverse business, financial, or economic conditions. It is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high-grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to
57
<PAGE>
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds that are rated Baa are considered as medium grade obligations,
i.e.; they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds that are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during other good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
that are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds that are rated Ca represent obligations that are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
58
<PAGE>
VALUE EQUITY TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C> <C> <C>
(a) (1) Amended and Restated Declaration of Trust dated March 17, 1988.
(Incorporated by reference to Exhibit 1(a) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(2) Establishment and Designation of Series dated December 15, 1986.
(Incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(3) Amended Establishment and Designation of Series dated May 4, 1987.
(Incorporated by reference to Exhibit 1(c) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(4) Certificate of Amendment dated December 13, 1990.
(Incorporated by reference to Exhibit 1(d) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(5) Establishment and Designation of Series dated October 6, 1992.
(Incorporated by reference to Exhibit 1(e) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(6) Redesignation of Series by the Registrant on behalf of Scudder Capital Growth Fund, dated
December 2, 1996.
(Incorporated by reference to Exhibit 1(f) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(7) Establishment and Designation of Classes of Shares of Beneficial Interest, $0.01 Par
Value, Kemper A, B & C Shares, and Scudder Shares.
(Incorporated by reference to Post-Effective Amendment No. 30 to the Registration
Statement.)
(8) Redesignation of Series, Scudder Value Fund to Value Fund.
(Incorporated by reference to Post-Effective Amendment No. 30 to the Registration
Statement.)
(9)(a) Establishment and Designation of Classes of Shares of Beneficial Interest, $.01 Par
Value, Scudder Large Company Value Fund - Class S Shares and Scudder Large Company Value
Fund - AARP Shares, dated March 17, 2000.
Filed herein.
(9)(b) Establishment and Designation of Classes of Shares of Beneficial Interest, $.01 Par
Value, Scudder Select 500 Fund - Class S Shares and Scudder Select 500 Fund - AARP
Shares, dated March 17, 2000.
Filed herein.
(9)(c) Establishment and Designation of Classes of Shares of Beneficial Interest, $.01 Par
Value, Scudder Select 1000 Growth Fund - Class S Shares and Scudder Select 1000 Growth
Fund - AARP Shares, dated March 17, 2000.
<PAGE>
Filed herein.
(b) (1) By-Laws as of October 16, 1985.
(Incorporated by reference to Exhibit 2(a) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(2) Amendment to the By-Laws of Registrant as amended through December 9, 1985.
(Incorporated by reference to Exhibit 2(b) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(3) Amendment to the Registrant's By-Laws dated December 12, 1991.
(Incorporated by reference to Exhibit 2(c) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(4) Amendment to the Registrant's By-Laws dated September 17, 1992.
(Incorporated by reference to the Exhibit 2(d) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(5) Amendment to the Registrant's By-Laws dated February 7, 2000.
Filed herein.
(c) Inapplicable.
(d) (1) Investment Management Agreement between the Registrant, on behalf of Scudder Large
Company Value Fund, and Scudder Kemper Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the Registration
Statement.)
(2) Investment Management Agreement between the Registrant, on behalf of Value Fund, and
Scudder Kemper Investment, Inc. dated September 7, 1998. (Incorporated by reference to
Post-Effective Amendment No. 30 to the Registration Statement.)
(3) Investment Management Agreement between the Registrant on behalf of Scudder Select 500
Fund and Scudder Kemper Investments, Inc., dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the Registration
Statement.)
(4) Investment Management Agreement between the Registrant on behalf of Scudder Select 1000
Growth Fund and Scudder Kemper Investments, Inc., dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the Registration
Statement.)
(5) Investment Management Agreement between the Registrant, on behalf of Scudder Large
Company Value Fund, and Scudder Kemper Investments, Inc., dated February 7, 2000.
Filed herein.
2
<PAGE>
(6) Form of Investment Management Agreement between the Registrant, on behalf of Scudder
Select 500 Fund, and Scudder Kemper Investments, Inc., dated August 25, 2000.
Filed herein.
(7) Form of Investment Management Agreement between the Registrant, on behalf of Scudder
Select 1000 Growth Fund, and Scudder Kemper Investments, Inc., dated October 2, 2000.
Filed herein.
(e) (1) Underwriting and Distribution Services Agreement between the Registrant, on behalf of
Value Fund, and Kemper Distributors, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the Registration
Statement.)
(2) Underwriting Agreement between the Registrant and Scudder Investor Services, Inc. dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the Registration
Statement.)
(3) Amendment dated September 30, 1999 to the Underwriting and Distribution Services
Agreement between the Registrant, on behalf of Value Fund, and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 35 to the Registration
Statement.)
Form of Amendment dated December 7, 1999 to the Underwriting and Distribution Services
(4) Agreement between the Registrant, on behalf of Value Fund, and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 37 to the Registration
Statement.)
(f) Inapplicable.
(g) (1) Custodian Agreement between the Registrant and State Street Bank and Trust Company
("State Street Bank") dated October 1, 1982.
(Incorporated by reference to Exhibit 8(a)(1) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(1)(a) Fee schedule for Exhibit (g)(1).
(Incorporated by reference to Exhibit 8(a)(2) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(2) Amendment to Custodian Contract dated March 31, 1986.
(Incorporated by reference to Exhibit 8(a)(3) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(3) Amendment to Custodian Contract dated October 1, 1982.
(Incorporated by reference to Exhibit 8(a)(4)to Post-Effective Amendment No. 25 to the
Registration Statement.)
3
<PAGE>
(4) Amendment to Custodian Contract dated September 16, 1988.
(Incorporated by reference to Exhibit 8(a)(5) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(5) Amendment to Custodian Contract dated December 13, 1990.
(Incorporated by reference to Exhibit 8(a)(6) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(5)(a) Fee schedule for Exhibit (g)(5) dated August 1, 1994.
(Incorporated by reference to Exhibit 8(a)(7) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(6) Amendment to Custodian Contract dated March 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 35 to the Registration
Statement.)
(6)(a) Form of Fee schedule for Exhibit (g)(6).
(Incorporated by reference to Post-Effective Amendment No. 35 to the Registration
Statement.)
(7) Agency Agreement between State Street Bank and Trust Company and The Bank of New York,
London office dated January 1, 1979.
(Incorporated by reference to Exhibit (b)(1) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(8) Subcustodian Agreement between State Street Bank and the Chase Manhattan Bank, N.A. dated
September 1, 1986.
(Incorporated by reference to Exhibit 8(c)(1) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(h) (1) Transfer Agency and Service Agreement between the Registrant and Scudder Service
Corporation dated October 2, 1989.
(Incorporated by reference to Exhibit 9(a)(1) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(1)(a) Fee schedule for Exhibit (h)(1).
(Incorporated by reference to Exhibit 9(a)(2) to Post Effective Amendment No. 25 to the
Registration Statement.)
(1)(b) Form of revised fee schedule for Exhibit (h)(1).
(Incorporated by reference to Exhibit 9(a)(3) to Post-Effective Amendment No. 23 to the
Registration Statement.)
(2) Transfer Agency Fee Schedule between the Registrant and Kemper Service Company on behalf
of Scudder Value Fund dated January 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 35 to the Registration
Statement.)
(3) Agency Agreement between the Registrant on behalf of Value Fund and Kemper Service
Company dated April 16, 1998.
(Incorporated by reference to Post-Effective No. 30 to the Registration Statement.)
4
<PAGE>
(4) Amendment No. 1 dated September 30, 1999 to the Agency Agreement between the Registrant,
on behalf of Value Fund, and Kemper Service Company.
(Incorporated by reference to Post-Effective Amendment No. 35 to the Registration
Statement.)
(5) COMPASS Service Agreement between Scudder Trust Company and the Registrant dated October
1, 1995.
(Incorporated by reference to Exhibit 9(b)(3)to Post-Effective Amendment No. 24 to this
Registration Statement.)
(6) Shareholder Services Agreement between the Registrant and Charles Schwab & Co., Inc.
dated June 1, 1990.
(Incorporated by reference to Exhibit 9(c) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(7) Service Agreement between Copeland Associates, Inc. and Scudder Service Corporation, on
behalf of Scudder Equity Trust, dated June 8, 1995.
(Incorporated by reference to Exhibit 9(c)(1) to Post-Effective Amendment No. 23 to this
Registration Statement.)
(8) Fund Accounting Services Agreement between the Registrant, on behalf of Scudder Capital
Growth Fund, and Scudder Fund Accounting Corporation dated October 19, 1994.
(Incorporated by reference to Exhibit 9(e)(1) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(9) Fund Accounting Services Agreement between the Registrant, on behalf of Scudder Value
Fund, and Scudder Fund Accounting Corporation dated October 24, 1994.
(Incorporated by reference to Exhibit 9(e)(2) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(10) Amendment No. 1 dated September 30, 1999 to the Fund Accounting Service Agreement between
the Registrant, on behalf of Value Fund, and Scudder Fund Accounting Corporation.
(Incorporated by reference to Post-Effective Amendment No. 35 to the Registration
Statement.)
(11) Special Servicing Agreement dated November 15, 1996 between Scudder Pathway Series and
the Registrant, on behalf of Scudder Capital Growth Fund and Scudder Value Fund.
(Incorporated by reference to Exhibit 9(f) to Post-Effective Amendment No. 25 to the
Registration Statement.)
(12) Administrative Services Agreement between the Registrant and Kemper Distributors, Inc.
dated April 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the Registration
Statement.)
5
<PAGE>
(12)(a) Amendment No. 1 dated September 14, 1999 to the Administrative Services Agreement between
the Registrant on behalf of Value Fund and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 35 to the Registration
Statement.)
(12)(b) Form of Administrative Services Agreement (and Fee Schedule thereto) between the
Registrant, on behalf of Scudder Large Company Value Fund, Scudder Select 500 Fund,
Scudder Select 1000 Growth Fund, and Value Fund, and Scudder Kemper, Investments, Inc.,
dated August 28, 2000.
Filed herein.
(13) Fund Accounting Services Agreement between the Registrant, on behalf of Scudder Select
500 Fund, and Scudder Fund Accounting Corporation dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the Registration
Statement.)
(14) Fund Accounting Services Agreement between the Registrant, on behalf of Scudder Select
1000 Growth Fund, and Scudder Fund Accounting Corporation dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the Registration
Statement.)
(15) License Agreement between the Registrant, on behalf of Scudder Select 500 Fund, and
Standard & Poor's Corporation, dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 34 to the Registration
Statement.)
(16) Research License Agreement between the Registrant, on behalf of Scudder Select 1000
Growth Fund, and Frank Russell Company dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 34 to the Registration
Statement.)
(i) Opinion and Consent of Legal Counsel.
Filed herein.
(j) Consent of Independent Accountants.
Filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Mutual Funds Multi-Distribution System Plan (Rule 18f-3 Plan).
(Incorporated by reference to Exhibit 18 of Post-Effective Amendment No. 29 to the
Registration Statement.)
6
<PAGE>
(1) Plan With Respect to Scudder Large Company Value Fund Pursuant to Rule 18f-3, dated March
14, 2000.
Filed herein.
(2) Amended and Restated Plan With Respect to Scudder Large Company Value Fund Pursuant to
Rule 18f-3, dated May 8, 2000.
Filed herein.
(3) Plan With Respect to Scudder Select 500 Fund Pursuant to Rule 18f-3, dated March 14, 2000.
Filed herein.
(4) Amended and Restated Plan With Respect to Scudder Select 500 Fund Pursuant to Rule 18f-3,
dated May 8, 2000.
Filed herein.
(5) Plan With Respect to Scudder Select 1000 Growth Fund Pursuant to Rule 18f-3, dated March
14, 2000.
Filed herein.
(6) Amended and Restated Plan With Respect to Scudder Select 1000 Growth Fund Pursuant to
Rule 18f-3, dated May 8, 2000.
Filed herein.
(p) Scudder Kemper Investments, Inc. Code of Ethics.
(Incorporated by reference to Post-Effective Amendment No. 38 to the Registration
Statement.)
(1) Code of Ethics of Value Equity Trust.
Filed herein.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
-------- --------------------------------------------------------
None
Item 25. Indemnification.
-------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as
7
<PAGE>
such, of the Trust, is made a party to any suit or proceeding
to enforce any such liability of the Trust, he shall not, on
account thereof, be held to any personal liability. The Trust
shall indemnify and hold each Shareholder harmless from and
against all claims and liabilities, to which such Shareholder
may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all
legal and other expenses reasonably incurred by him in
connection with any such claim or liability. The
indemnification and reimbursement required by the preceding
sentence shall be made only out of the assets of the one or
more Series of which the Shareholder who is entitled to
indemnification or reimbursement was a Shareholder at the time
the act or event occurred which gave rise to the claim against
or liability of said Shareholder. The rights accruing to a
Shareholder under this Section 4.1 shall not impair any other
right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification.
------------ -------------------------
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative or other,
including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final adjudication
by a court or other body before which a proceeding was brought
that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best
interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by
(x) vote of a majority of the Disinterested Trustees
acting on the matter
8
<PAGE>
(provided that a majority of the Disinterested
Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall insure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the recipient, or
the Trust shall be insured against losses arising out of any
such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel in
a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an "Interested Person" of the
Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 26. Business or Other Connections of Investment Adviser
-------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
9
<PAGE>
<S> <C>
Stephen R. Beckwith Treasurer, Scudder Kemper Investments, Inc.**
Director, Kemper Service Company
Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director and Treasurer, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Director and Chairman, Scudder Threadneedle International Ltd.
Director, Scudder Kemper Holdings (UK) Ltd. oo
Director and President, Scudder Realty Holdings Corporation *
Director, Scudder, Stevens & Clark Overseas Corporation o
Director and Treasurer, Zurich Investment Management, Inc. xx
Director and Treasurer, Zurich Kemper Investments, Inc.
Lynn S. Birdsong Director, Vice President and Chief Investment Officer, Scudder Kemper Investments, Inc.**
Director and Chairman, Scudder Investments (Luxembourg) S.A.#
Director, Scudder Investments (U.K.) Ltd. oo
Director and Chairman of the Board, Scudder Investments Asia, Ltd. ooo
Director and Chairman, Scudder Investments Japan, Inc. +++
Senior Vice President, Scudder Investor Services, Inc.
Director and Chairman, Scudder Trust (Cayman) Ltd. @@@
Director, Scudder, Stevens & Clark Australia x
Director and Vice President, Zurich Investment Management, Inc. xx
Director and President, Scudder, Stevens & Clark Corporation **
Director and President, Scudder , Stevens & Clark Overseas Corporation o
Director, Scudder Threadneedle International Ltd.
Director, Korea Bond Fund Management Co., Ltd. @@
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company xxx
Nicholas Bratt Director, Scudder Kemper Investments, Inc.**
Vice President, Scudder, Stevens & Clark Corporation **
Vice President, Scudder, Stevens & Clark Overseas Corporation o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
10
<PAGE>
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, Chairman of the Board, Zurich Holding Company of America xxx
Director, ZKI Holding Corporation xx
Harold D. Kahn Chief Financial Officer, Scudder Kemper Investments, Inc.**
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper Investments, Inc.**
Director, Vice President, Chief Legal Officer and Secretary, Kemper Distributors, Inc.
Director and Secretary, Kemper Service Company
Director, Senior Vice President, Chief Legal Officer & Assistant Clerk, Scudder Investor Services, Inc.
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director and Secretary, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc. ###
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. @
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation o
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President, Chief Legal Officer and Secretary, Scudder Financial Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd. @@
Director, Scudder Threadneedle International Ltd.
Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd.
Director, Scudder Investments Japan, Inc. +++
Director and Secretary, Scudder Kemper Holdings (UK) Ltd. oo
Director and Secretary, Zurich Investment Management, Inc. xx
11
<PAGE>
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc. ###
President and Director, Scudder, Stevens & Clark Overseas Corporation o
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc. @
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
Director, Scudder Threadneedle International Ltd.
Director, Scudder Investments Japan, Inc. +++
Director, Scudder Kemper Holdings (UK) Ltd. oo
President and Director, Zurich Investment Management, Inc. xx
Director and Deputy Chairman, Scudder Investment Holdings Ltd.
</TABLE>
* Two International Place, Boston, MA
@ 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
@@@ Grand Cayman, Cayman Islands, British West Indies
o 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
xxx Zurich Towers, 1400 American Ln., Schaumburg, IL
@@ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
oo One South Place, 5th Floor, London EC2M 2ZS England
ooo One Exchange Square, 29th Floor, Hong Kong
+++ Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon,
Minato-ku, Tokyo 105-0001
x Level 3, Five Blue Street, North Sydney, NSW 2060
Item 27. Principal Underwriters.
-------- ----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
12
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
<S> <C> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mark S. Casady President and Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President Trustee and President
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant Clerk None
345 Park Avenue
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
James J. McGovern Chief Financial Officer and Treasurer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110
13
<PAGE>
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
Kathryn L. Quirk Director, Senior Vice President, Chief Legal Trustee, Vice President and
345 Park Avenue Officer and Assistant Clerk Assistant Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance Officer None
Two International Place
Boston, MA 02110
</TABLE>
Item 28. Location of Accounts and Records.
-------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the
Registrant's custodian are maintained by State Street Bank
and Trust Company, Heritage Drive, North Quincy,
Massachusetts. Records relating to the duties of the
Registrant's transfer agent are maintained by Scudder
Service Corporation, Two International Place, Boston,
Massachusetts.
Item 29. Management Services.
-------- --------------------
Inapplicable.
Item 30. Undertakings.
-------- -------------
Inapplicable.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement, pursuant to Rule 485(b) under the Securities Act of 1933, and has
duly caused this amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
the Commonwealth of Massachusetts on the 28th day of June, 2000.
VALUE EQUITY TRUST
By: /s/John Millette
---------------------------------
John Millette
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Linda C. Coughlin
---------------------------------------
Linda C. Coughlin President (Chief Executive Officer) June 28, 2000
/s/ Sheryle J. Bolton
---------------------------------------
Sheryle J. Bolton* Trustee June 28, 2000
/s/ William T. Burgin
---------------------------------------
William T. Burgin* Trustee June 28, 2000
/s/ Keith R. Fox
---------------------------------------
Keith R. Fox* Trustee June 28, 2000
/s/ William H. Luers
---------------------------------------
William H. Luers* Trustee June 28, 2000
/s/ Kathryn L. Quirk
---------------------------------------
Kathryn L. Quirk* Trustee, Vice President and Assistant June 28, 2000
Secretary
/s/ Joan E. Spero
---------------------------------------
Joan E. Spero* Trustee June 28, 2000
<PAGE>
/s/ John R. Hebble
---------------------------------------
John R. Hebble Treasurer (Chief Financial Officer) June 28, 2000
</TABLE>
*By: /s/ Caroline Pearson
--------------------------------
Caroline Pearson
Assistant Secretary
*Attorney-in-fact pursuant to powers of attorney for
Sheryle J. Bolton, William T. Burgin, Keith R. Fox,
William H. Luers, Kathryn L. Quirk, and Joan E. Spero,
contained in Post-Effective Amendment No. 34 to the
Registration Statement.
<PAGE>
File No. 2-78724
File No. 811-1444
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 39
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 39
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
VALUE EQUITY TRUST
<PAGE>
VALUE EQUITY TRUST
EXHIBIT INDEX
Exhibit (a)(9)(a)
Exhibit (a)(9)(b)
Exhibit (a)(9)(c)
Exhibit (b)(5)
Exhibit (d)(5)
Exhibit (d)(6)
Exhibit (d)(7)
Exhibit (h)(12)(b)
Exhibit (i)
Exhibit (j)
Exhibit (n)(1)
Exhibit (n)(2)
Exhibit (n)(3)
Exhibit (n)(4)
Exhibit (n)(5)
Exhibit (n)(6)
Exhibit (p)(1)
2
