Filed electronically with the Securities and Exchange
Commission on December 29, 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. 45
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 45
--
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) 295-2572
--------------
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 December 29, 2000 pursuant to paragraph (b)
/ / On ________ pursuant to paragraph (a) (1)
/ / On pursuant to paragraph (a) (2) of Rule 485
<PAGE>
VALUE EQUITY TRUST
Scudder Large Company Value Fund
<PAGE>
Scudder Large Company Value Fund
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 29, 2000
------------------------
CLASS I SHARES
-------------------------
The above Fund currently offers six classes of shares to provide investors with
different purchasing options. These are Class AARP, Class S, Class A, Class B
and Class C shares, which are described in the Fund's prospectus, and Class I
shares, which are described in the prospectus as supplemented hereby. When
placing purchase orders, investors must specify whether the order is for Class
AARP, Class S, Class A, Class B, Class C or Class I shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Zurich
Scudder Investments, Inc. ("Zurich Scudder") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Zurich Scudder and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee-based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund; and (6) investment
companies managed by Zurich Scudder that invest primarily in other investment
companies.
Class I shares currently are available for purchase only from Kemper
Distributors, Inc. ("KDI"), principal underwriter for the Fund, and, in the case
of category 4 above, selected dealers authorized by KDI. Share certificates are
not available for Class I shares.
The following information supplements the indicated sections of the prospectus.
THE FUND'S TRACK RECORD
The table shows how these performance figures for the Fund's Class S shares
compare with a broad based market index (which, unlike the Fund, has no fees or
expenses). The performance of both the Fund and the index vary over time. Class
I shares do not have a full calendar year of performance, therefore their
performance data is not provided. Class S shares are invested in the same
portfolio. Class S shares' annual returns differ only to the extent that the
classes have different fees and expenses. All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
<PAGE>
Average Annual Total Returns - Class S shares
<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------------------- --------------------------
For Periods ended December One Year Five Years Ten Years
31, 1999
---------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Class S shares 4.66% 19.04% 12.64%
---------------------------- -------------------------- -------------------------- --------------------------
Index 7.35% 23.07% 15.60%
---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
Index: The Russell 1000 Value Index, which consists of those stocks in the
Russell 1000 Index that have a less-than-average growth orientation.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Class I shares.
Shareholder fees: Fees paid directly from your investment. None.
Annual operating expenses: Expenses that are deducted from fund assets.
<TABLE>
<CAPTION>
--------------------------- -------------------- ----------------------- -------------------------
Investment management fee Distribution Other expenses* Total annual fund
(12b-1) fees operating expenses*
--------------------------- -------------------- ----------------------- -------------------------
<S> <C> <C> <C>
0.59% None 0.10% 0.69%
--------------------------- -------------------- ----------------------- -------------------------
--------------------------- -------------------- ----------------------- -------------------------
</TABLE>
* Includes a fixed rate administrative fee of 0.10%
Expense Example
Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
Expenses, assuming you sold your shares at the end of each period:
-------------------- ------------------ ----------------- --------------------
1 Year 3 Years 5 Years 10 Years
-------------------- ------------------ ----------------- --------------------
$70 $221 $384 $859
-------------------- ------------------ ----------------- --------------------
-------------------- ------------------ ----------------- --------------------
FINANCIAL HIGHLIGHTS
No financial information is presented for Class I shares of Scudder Large
Company Value Fund since no Class I shares were issued as of the fiscal year end
of the Fund.
<PAGE>
SPECIAL FEATURES
Shareholders of the Fund's Class I shares may exchange their shares for (i)
shares of Zurich Money Funds -- Zurich Money Market Fund if the shareholders of
Class I shares have purchased shares because they are participants in tax-exempt
retirement plans of Zurich Scudder and its affiliates and (ii) Class I shares of
any other "Scudder Mutual Fund" listed in the Statement of Additional
Information. Conversely, shareholders of Zurich Money Funds -- Zurich Money
Market Fund who have purchased shares because they are participants in
tax-exempt retirement plans of Zurich Scudder and its affiliates may exchange
their shares for Class I shares of "Kemper Mutual Funds" to the extent that they
are available through their plan. Exchanges will be made at the relative net
asset values of the shares. Exchanges are subject to the limitations set forth
in the prospectus. As a result of the relatively lower expenses for Class I
shares, the level of income dividends per share (as a percentage of net asset
value) and, therefore, the overall investment return, typically will be higher
for Class I shares than for Class AARP, Class S, Class A, Class B and Class C
shares.
<PAGE>
SCUDDER
INVESTMENTS (SM)
[LOGO]
December 29, 2000
Prospectus
Scudder Large Company Value Fund
Advisor Classes A, B and C
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>
Contents
--------------------------------------------------------------------------------
How the Fund Works How to Invest in the Fund
4 The Fund's Investment Strategy 11 Choosing a Share Class
5 The Main Risks of Investing in 16 How to Buy Shares
the Fund
17 How to Exchange or Sell Shares
6 The Fund's Performance History
18 Policies You Should Know About
7 How Much Investors Pay
23 Understanding Distributions
8 Other Policies and Risks and Taxes
9 Who Manages and Oversees the Fund
<PAGE>
How the Fund Works
On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal and the main risks that
could affect its performance.
Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
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.
<PAGE>
--------------------------------------------------------------------------------
Class A Class B Class C
ticker symbol XXXXX XXXXX XXXXX
fund number 000 000 000
--------------------------------------------------------------------------------
Scudder Large Company Value Fund
--------------------------------------------------------------------------------
The Fund's Investment Strategy
The fund seeks maximum long-term capital appreciation through a value-oriented
investment approach. It does this by investing at least 65% of net assets in
common stocks and other equities of large U.S. companies (those with a market
value of $1 billion or more).
In choosing stocks, the portfolio managers begin by using a computer model.
Examining the companies in the Russell 1000 Index, the model seeks those whose
market values, when compared to factors such as earnings, book value and sales,
place them in the most undervalued 40% of companies in the index.
To further narrow the pool of potential stocks, the managers use bottom-up
analysis, looking for companies that seem poised for business improvement,
whether through a rebound in their markets, a change in business strategy or
other factors. The managers also draw on fundamental investment research to
assemble the fund's portfolio, looking at earnings, management and other factors
of the qualifying stocks. Additionally, the managers assess the economic
outlooks for various industries and the risk characteristics and potential
volatility of each stock.
The managers may favor securities from different industries and companies at
different times while still maintaining variety in terms of the industries and
companies represented.
--------------------------------------------------------------------------------
OTHER INVESTMENTS While the fund invests mainly in common stocks, it may also
invest up to 20% of net assets in debt securities, including convertible bonds
and junk bonds, which are those below the fourth credit grade (i.e., grade BB/Ba
and below).
Although the managers are 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.
4
<PAGE>
The fund will normally sell a stock when it reaches a target price, when the
managers believe other investments offer better opportunities or in the course
of adjusting its exposure to a given industry.
The Main Risks of Investing in the Fund
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 large company portion of the U.S. market.
Large company stocks at times may not perform as well as stocks of smaller or
mid-size companies. When large company stock prices fall, you should expect the
value of your investment to fall as well. 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 focuses on a given industry, any factors affecting
that industry could affect the value of portfolio securities. For example, a
rise in unemployment could hurt manufacturers of consumer goods.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends, geographical areas or other matters
o value 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
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
This fund is designed for long-term investors who favor a value investment style
and are interested in broadly diversified exposure to large company stocks.
5
<PAGE>
The Fund's Performance History
While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know. The bar chart shows how
fund performance has varied from year to year, which may give some idea of risk.
The table shows how fund performance compares with a broad-based market index
(which, unlike the fund, does not have any fees or expenses). The performance of
both the fund and the index varies over time. All figures on this page assume
reinvestment of dividends and distributions.
The share classes offered in this prospectus -- Classes A, B and C -- are newly
offered. In the bar chart, the performance figures for Class A are based on the
historical performance of the fund's original share class (Class S), adjusted to
reflect the higher gross total annual operating expenses of Class A. The bar
chart does not reflect sales loads; if it did, returns would be lower. In the
table, the performance figures for each share class are based on the historical
performance of Class S, adjusted to reflect both the higher gross total annual
operating expenses of Class A, B or C and the current applicable sales charge of
that class. Class S shares are offered in a different prospectus.
Scudder Large Company Value Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1990 -17.20
1991 42.57
1992 6.80
1993 19.74
1994 -10.12
1995 31.28
1996 19.22
1997 32.18
1998 9.20
1999 4.37
2000 Total Return as of September 30: 7.06%
Best Quarter: 19.70%, Q1 1991 Worst Quarter: -22.32%, Q3 1990
--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
Class A -1.63 17.32 11.67
--------------------------------------------------------------------------------
Class B 0.43 17.53 11.44
--------------------------------------------------------------------------------
Class C 3.57 17.80 11.46
--------------------------------------------------------------------------------
Index 7.35 23.07 15.60
--------------------------------------------------------------------------------
Index: The Russell 1000 Value Index, which consists of those stocks in the
Russell 1000 Index that have a less-than-average growth orientation.
6
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
--------------------------------------------------------------------------------
Fee Table Class A Class B Class C
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (% of offering price) 5.75% None None
--------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge
(Load) (% of redemption proceeds) None* 4.00% 1.00%
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.59% 0.59% 0.59%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25% 1.00% 1.00%
--------------------------------------------------------------------------------
Other Expenses** 0.33% 0.38% 0.35%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.17% 1.97% 1.94%
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50% if
redeemed during the second year following purchase.
** Includes a fixed rate administrative fee of 0.325%, 0.375% and 0.350% for
Class A, Class B and Class C shares, respectively.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on October 2, 2000.
Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares $687 $925 $1,182 $1,914
--------------------------------------------------------------------------------
Class B shares 600 918 1,262 1,899
--------------------------------------------------------------------------------
Class C shares 297 609 1,047 2,264
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $687 $925 $1,182 $1,914
--------------------------------------------------------------------------------
Class B shares 200 618 1,062 1,899
--------------------------------------------------------------------------------
Class C shares 197 609 1,047 2,264
--------------------------------------------------------------------------------
7
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund's Board could
change the fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, the fund could shift up to 100% of its
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
fund.
If you want more information on the fund's 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.
8
<PAGE>
Who Manages and Oversees the Fund
The investment advisor
The fund's investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, New York. The advisor has more than 80 years of experience
managing mutual funds, and currently has more than $290 billion in assets under
management.
The advisor's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.
The advisor receives a management fee from the fund. For the 12 months through
the most recent fiscal year end, the actual amount the fund paid in management
fees was 0.62% of its average daily net assets.
The fund has entered into a new investment management agreement with the
advisor. The table below describes the new fee rates for the fund.
-------------------------------------------------------------------------------
Investment Management Fee effective October 2, 2000
-------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
-------------------------------------------------------------------------------
first $1.5 billion 0.600%
-------------------------------------------------------------------------------
next $500 million 0.575%
-------------------------------------------------------------------------------
more than $2 billion 0.550%
-------------------------------------------------------------------------------
The portfolio managers
The following people handle the day-to-day management of the fund.
Lois R. Roman
Lead Portfolio Manager
o Began investment career in 1988
o Joined the advisor in 1994
o Joined the fund team in 1995
Jonathan Lee
o Began investment career in 1990
o Joined the advisor in 1999
o Joined the fund team in 1999
9
<PAGE>
How to Invest in the Fund
The following pages tell you about many of the services, choices and benefits of
being a shareholder. You'll also find information on how to check the status of
your account using the method that's most convenient for you.
You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.
<PAGE>
Choosing a Share Class
Offered in this prospectus are three share classes for the fund. The fund offers
other classes of shares separately. Each class has its own fees and expenses,
offering you a choice of cost structures. Class A, Class B and Class C shares
are intended for investors seeking the advice and assistance of a financial
representative, who may receive compensation for those services through sales
commissions, service fees and/or distribution fees.
Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.
We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.
--------------------------------------------------------------------------------
Classes and features Points to help you compare
--------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, charged o Some investors may be able to reduce
when you buy shares or eliminate their sales charges;
see next page
o In most cases, no charges when you
sell shares o Total annual operating expenses are
lower than those for Class B or
o 0.25% service fee Class C
--------------------------------------------------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate falls
to zero after six years
o Deferred sales charge declining from
4.00%, charged when you sell shares o Shares automatically convert to
you bought within the last six years Class A after six years, which means
lower annual expenses going forward
o 1.00% distribution/service fee
--------------------------------------------------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never convert
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you remain higher
bought within the last year
o 1.00% distribution/service fee
--------------------------------------------------------------------------------
11
<PAGE>
Class A shares
Class A shares do have a 12b-1 plan, under which a service fee of 0.25% is
deducted from fund assets each year. Class A shares have a sales charge that
varies with the amount you invest:
Sales charge as a Sales charge as % of
Your investment % of offering price your net investment
-------------------------------------------------------------------------------
Up to $50,000 5.75% 6.10%
-------------------------------------------------------------------------------
$50,000-$99,999 4.50 4.71
-------------------------------------------------------------------------------
$100,000-$249,999 3.50 3.63
-------------------------------------------------------------------------------
$250,000-$499,999 2.60 2.67
-------------------------------------------------------------------------------
$500,000-$999,999 2.00 2.04
-------------------------------------------------------------------------------
$1 million or more See below and next page
-------------------------------------------------------------------------------
The offering price includes the sales charge.
You may be able to lower your Class A sales charges if:
o you plan to invest at least $50,000 over the next 24 months ("letter of
intent")
o the amount of shares you already own (including shares in certain other
funds) plus the amount you're investing now is at least $50,000
("cumulative discount")
o you are investing a total of $50,000 or more in several funds at once
("combined purchases")
The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.
12
<PAGE>
You may be able to buy Class A shares without sales charges when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under which you pay a fee
to an investment advisor or other firm for portfolio management services
There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper Service
Company can answer your questions and help you determine if you are eligible.
If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper Service Company can answer your questions and help you
determine if you're eligible.
13
<PAGE>
Class B shares
With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% and a
service fee of 0.25% are deducted from fund assets each year. This means the
annual expenses for Class B shares are somewhat higher (and their performance
correspondingly lower) compared to Class A shares. After six years, Class B
shares automatically convert to Class A, which has the net effect of lowering
the annual expenses from the seventh year on. However, unlike Class A shares,
your entire investment goes to work immediately.
Class B shares have a CDSC. This charge declines over the years you own shares,
and disappears completely after six years of ownership. But for any shares you
sell within those six years, you may be charged as follows:
Year after you bought shares CDSC on shares you sell
-------------------------------------------------------------------------------
First year 4.00%
-------------------------------------------------------------------------------
Second or third year 3.00
-------------------------------------------------------------------------------
Fourth or fifth year 2.00
-------------------------------------------------------------------------------
Sixth year 1.00
-------------------------------------------------------------------------------
Seventh year and later None (automatic conversion to Class A)
-------------------------------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper Service Company can answer your
questions and help you determine if you're eligible.
While Class B shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class B shares can be a logical choice for long-term investors who would prefer
to see all of their investment go to work right away, and can accept somewhat
higher annual expenses.
14
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges. However,
Class C shares do have a 12b-1 plan under which a distribution fee of 0.75% and
a service fee of 0.25% are deducted from fund assets each year. Because of these
fees, the annual expenses for Class C shares are similar to those of Class B
shares, but higher than those for Class A shares (and the performance of Class C
shares is correspondingly lower than that of Class A). However, unlike Class A
shares, your entire investment goes to work immediately.
Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.
Class C shares have a CDSC, but only on shares you sell within one year of
buying them:
Year after you bought shares CDSC on shares you sell
--------------------------------------------------------------------------------
First year 1.00%
--------------------------------------------------------------------------------
Second year and later None
--------------------------------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper Service Company can answer your
questions and help you determine if you're eligible.
While Class C shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.
15
<PAGE>
How to Buy Shares
Once you've chosen a share class, use these instructions to make investments.
--------------------------------------------------------------------------------
First investment Additional investments
--------------------------------------------------------------------------------
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
--------------------------------------------------------------------------------
Through a financial representative
o Contact your representative using the o Contact your representative using
method that's most convenient for you the method that's most convenient
for you
--------------------------------------------------------------------------------
By mail or express mail (see below)
o Fill out and sign an application o Send a check made out to "Kemper
Funds" and an investment slip to us
o Send it to us at the appropriate at the appropriate address below
address, along with an investment
check o If you don't have an investment
slip, simply include a letter with
your name, account number, the full
name of the fund and the share class
and your investment instructions
--------------------------------------------------------------------------------
By wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
--------------------------------------------------------------------------------
By phone
-- o Call (800) 621-1048 for instructions
--------------------------------------------------------------------------------
With an automatic investment plan
-- o To set up regular investments from a
bank checking account, call (800)
621-1048 (minimum $50)
--------------------------------------------------------------------------------
On the Internet
-- o Go to www.kemper.com and register
o Follow the instructions for buying
shares with money from your bank
account
--------------------------------------------------------------------------------
Regular mail:
Kemper Funds, PO Box 219153, Kansas City, MO 64121-9153
Express, registered or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: (800) 818-7526 (for exchanging and selling only)
16
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell shares in your account.
--------------------------------------------------------------------------------
Exchanging into another fund Selling shares
--------------------------------------------------------------------------------
$1,000 or more to open a new account Some transactions, including most for
($250 for IRAs) over $50,000, can only be ordered in
writing with a signature guarantee; if
$100 or more for exchanges between you're in doubt, see page 27
existing accounts
--------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by the
method that's most convenient for you method that's most convenient
for you
--------------------------------------------------------------------------------
By phone or wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
--------------------------------------------------------------------------------
By mail, express mail or fax
(see previous page)
Write a letter that includes: Write a letter that includes:
o the fund, class and account number o the fund, class and account number
you're exchanging out of from which you want to sell shares
o the dollar amount or number of shares o the dollar amount or number of
you want to exchange shares you want to sell
o the name and class of the fund you o your name(s), signature(s) and
want to exchange into address, as they appear on your
account
o your name(s), signature(s) and
address, as they appear on your o a daytime telephone number
account
o a daytime telephone number
--------------------------------------------------------------------------------
With a systematic exchange plan
o To set up regular exchanges from a --
fund account, call (800) 621-1048
--------------------------------------------------------------------------------
With a systematic withdrawal plan
-- o To set up regular cash payments from
a fund account, call (800) 621-1048
--------------------------------------------------------------------------------
On the Internet
o Go to www.kemper.com and register --
o Follow the instructions for making
on-line exchanges
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17
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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
received 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.
In either case, keep in mind that the information in this prospectus applies
only to the fund's Class A, Class B and Class C shares. The fund does have other
share classes, which are described in a separate prospectus and which have
different fees, requirements and services.
In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call (800)
621-1048.
Policies about transactions
The fund is open for business each day the New York Stock Exchange is open. The
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 Kemper Service Company, 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 Kemper
Service Company 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.
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<PAGE>
KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Scudder or Kemper funds generally and on accounts held directly at Kemper. You
can also use it to make exchanges and sell shares.
EXPRESS-Transfer lets you set up a link between a Scudder or Kemper 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. Transactions take two to three days to be completed, and
there is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the
account application; to add it to an existing account, call (800) 621-1048.
Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personalized security codes or other information, we are responsible
for any losses that may occur. For transactions conducted over the Internet, we
recommend the use of a secure Internet browser. In addition, you should verify
the accuracy of your confirmation statements immediately after you receive them.
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 or limit purchase orders,
for these or other reasons.
When you want to sell more than $50,000 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.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
19
<PAGE>
When you sell shares that have a CDSC, we calculate the CDSC as a percentage of
what you paid for the shares or what you are selling them for -- whichever
results in the lowest charge to you. In processing orders to sell shares, we
turn to the shares with the lowest CDSC first. Exchanges from one fund into
another don't affect CDSCs: for each investment you make, the date you first
bought shares is the date we use to calculate a CDSC on that particular
investment.
There are certain cases in which you may be exempt from a CDSC. These include:
o the death or disability of an account owner (including a joint owner)
o withdrawals made through a systematic withdrawal plan
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship provisions or returns of
excess contributions from retirement plans
o for Class A shares purchased through the Large Order NAV Purchase
Privilege, redemption of shares whose dealer of record at the time of the
investment notifies Kemper Distributors that the dealer waives the
applicable commission
In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper Service Company can answer your questions and help you determine if you
are eligible.
If you sell shares in a Scudder fund offering multiple classes or a Kemper fund
and then decide to invest with Scudder or Kemper again within six months, you
can take advantage of the "reinstatement feature." With this feature, you can
put your money back into the same class of a Scudder or Kemper fund at its
current NAV and for purposes of sales charges it will be treated as if it had
never left Scudder or Kemper. You'll be reimbursed (in the form of fund shares)
for any CDSC you paid when you sold. Future CDSC calculations will be based on
your original investment date, rather than your reinstatement date. There is
also an option that lets investors who sold Class B shares buy Class A shares
with no sales charge, although they won't be reimbursed for any CDSC they paid.
You can only use the reinstatement feature once for any given group of shares.
To take advantage of this feature, contact Shareholder Services or your
financial representative.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
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<PAGE>
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: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.
How the fund calculates share price
The price at which you buy shares is as follows:
Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing a Share Class")
Class B and Class C shares -- net asset value per share, or NAV
To calculate NAV, each share class of the fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For each share class, the price at which you sell shares is also the NAV,
although for Class B and Class C investors a contingent deferred sales charge
may be taken out of the proceeds (see "Choosing a Share Class").
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.
To the extent that the fund invests in securities that are traded primarily in
foreign markets, the value of its holdings could change at a time when you
aren't able to buy or sell fund shares. This is because some foreign markets are
open on days when the fund doesn't price its shares.
21
<PAGE>
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 we 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 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 charge you $9 each calendar quarter if your account balance is below
$1,000 for the entire quarter; this policy doesn't apply to most
retirement accounts or if you have an automatic investment plan
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; the fund generally 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, whichever is
less
o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)
22
<PAGE>
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 fund intends to pay dividends and distributions to its shareholders annually
in November or December, and if necessary may do so at other times as well.
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.
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 FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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.
23
<PAGE>
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.
24
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get the reports
automatically. For more copies, call (800) 621-1048.
Statement of Additional Information (SAI) -- This tells you more about the
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 Kemper or the SEC (see below). If you're a shareholder and have
questions, please contact Kemper. Materials you get from Kemper 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].
SEC Scudder Funds c/o
450 Fifth Street, N.W. Kemper Distributors, Inc.
Washington, DC 20549-0102 222 South Riverside Plaza
www.sec.gov Chicago, IL 60606-5808
Tel (202) 942-8090 www.kemper.com
Tel (800) 621-1048
SEC File Number
Scudder Large Company Value Fund 811-1444
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 29, 2000
Scudder Large Company Value Fund (Class A, B, C and I Shares)
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Class A, Class B and Class C Shares (the
"Shares") of Scudder Large Company Value Fund (the "Fund"), a diversified series
of Value Equity Trust (the "Trust"), an open-end management investment company.
It should be read in conjunction with the prospectus of the Shares dated
December 29, 2000. The prospectus may be obtained without charge from the Fund
at the address or telephone number on this cover or the firm from which this
Statement of Additional Information was received.
Scudder Large Company Value Fund offers the following classes of shares:
Class S, Class AARP, Class A, Class B, Class C and Class I shares (the
"Shares"). Only Class A, Class B, Class C and Class I shares of Scudder Large
Company Value Fund are offered herein.
TABLE OF CONTENTS
Investment Restrictions.....................................................2
Investment Policies and Techniques..........................................4
Dividends, Distributions and Taxes.........................................19
Performance................................................................24
Investment Manager and Underwriter.........................................27
Portfolio Transactions.....................................................33
Net Asset Value............................................................34
Purchase, Repurchase and Redemption of Shares..............................35
Purchase of Shares.........................................................35
Redemption or Repurchase of Shares.........................................41
Special Features...........................................................44
Officers and Trustees......................................................48
Shareholder Rights.........................................................52
Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's investment
manager.
The financial statements appearing in the Fund's July 31, 2000 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.
<PAGE>
INVESTMENT RESTRICTIONS
Unless specified to the contrary, the following fundamental restrictions may not
be changed without the approval of a majority of the outstanding voting
securities of the Fund involved which, under the Investment Company Act of 1940,
as amended (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
voting securities present at such meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy, or (2) more than 50% of the outstanding voting securities of the Fund.
Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund. The Fund is
under no restriction as to the amount of portfolio securities which may be
bought or sold.
The Fund has elected to be classified as a diversified series of an open-end
investment company.
If a percentage restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Other Investment Policies" is adhered to at
the time an investment is made, a 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.
In addition, as a matter of fundamental policy, the Fund will not:
(1) borrow money, except as permitted under the 1940 Act, 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 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 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 related to physical
commodities; or
(7) make loans except as permitted under the 1940 Act, as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
Other Investment Policies. The Trustees of the Trust have voluntarily adopted
policies and restrictions which are observed in the conduct of the Fund's
affairs. These represent intentions of the Trustees based upon current
circumstances. They differ from fundamental investment policies in that they may
be changed or amended by action of the Trustees without prior notice to or
approval of shareholders.
Nonfundamental policies may be changed by the Trustees of the Trust and without
shareholder approval. As a matter of nonfundamental policy, the Fund does not
currently intend to:
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<PAGE>
(1) 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 a Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) 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 a Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) 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;
(5) 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 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;
(6) 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
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
Master/feeder Fund Structure. The Board of Trustees has the discretion to retain
the current distribution arrangement for the 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 Fund has received exemptive relief
from the Securities and Exchange Commission (the "SEC") that permits the Fund to
participate in an interfund lending program among certain investment companies
advised by the Advisor. 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,
3
<PAGE>
money market funds would normally 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 Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.
INVESTMENT POLICIES AND TECHNIQUES
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Scudder Large Company Value Fund (the "Large Company Value Fund") is a
diversified series of Value Equity Trust (the "Trust"). The Fund is an open-end
management company which continuously offers and redeems shares at net asset
value. It is a company of the type commonly known as a mutual fund.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which the Fund may engage (such as hedging,
etc.) or a financial instrument which the Fund may purchase (such as options,
forward foreign currency contracts, etc.) are meant to describe the spectrum of
investments that the Advisor, in its discretion, might, but is not required to,
use in managing the Fund's portfolio assets. The Advisor 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 a Fund's performance.
General Investment Objective and Policies
The Fund seeks maximum long-term capital appreciation through a value-oriented
investment approach. The Fund seeks to achieve its objective by investing: (i)
in marketable securities, principally common stocks; (ii) up to 20% of its
assets in debt securities where capital appreciation from debt securities is
expected to exceed the capital appreciation available from common stocks; and
(iii) for temporary defensive purposes, during periods when market or economic
conditions may warrant, in debt securities, short-term indebtedness, cash and
cash equivalents. Because this defensive policy differs from the Fund's
investment objective, the Fund may not achieve its goal during a defensive
period. The Fund may also invest in preferred stocks consistent with its
objective. Additionally, the Fund may invest in debt securities, repurchase
agreements and reverse repurchase agreements, convertible securities, rights,
warrants, illiquid securities, investment company securities, and may engage in
strategic transactions and derivatives.
The Fund uses a value-based investment approach to pursue a range of investment
opportunities, principally among larger, established U.S. companies. Given this
approach, the Fund may be appropriate as a core investment holding for
retirement or other long-term goals.
In seeking capital appreciation, the Fund looks for companies whose securities
appear to present a favorable relationship between market price and opportunity.
These may include securities of companies whose fundamentals or products may be
of only average promise.
Market misconceptions, temporary bad news, and other factors may cause a
security to be out of favor in the stock market and to trade at a price below
its potential value. Accordingly, the prices of such securities can rise either
as a result of improved business fundamentals, particularly when earnings grow
faster than general expectations, or as
4
<PAGE>
more investors come to recognize the full extent of a company's underlying
potential. These "undervalued" securities can provide the opportunity for
above-average market performance.
Investments in common stocks have a wide range of characteristics, and the
management of the Fund believes that opportunity for long-term capital
appreciation may be found in all sectors of the market for publicly traded
equity securities. Thus the search for equity investments for the Fund may
encompass any sector of the market and companies of all sizes. It is a
fundamental policy of the Fund, which may not be changed without approval of a
majority of the Fund's outstanding shares, that the Fund will not concentrate
its investments in any particular industry. However, the Fund reserves the right
to invest up to, but less than, 25% of its total assets (taken at market value)
in any one industry. The use of this tactic is, in the opinion of management,
consistent with the Fund's flexible approach of seeking to maximize long-term
growth of capital.
The Fund will normally invest at least 65% of its net assets in the equity
securities of large U.S. companies, i.e., those with $1 billion or more in total
market capitalization. The Fund's investment flexibility enables it to pursue
investment value in all sectors of the stock market, including:
o companies that generate or apply new technologies, new and
improved distribution techniques or new services, such as
those in the business equipment, electronics, specialty
merchandising and health service industries;
o companies that own or develop natural resources, such as
energy exploration companies;
o companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunications companies;
o foreign companies, including those in countries with more
rapid economic growth than the U.S; and o companies whose
earnings are temporarily depressed and are currently out of
favor with most investors.
The Fund may purchase, for capital appreciation, investment-grade debt
securities including zero coupon bonds. Investment-grade debt securities are
those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S & P or, if
unrated, of equivalent quality as determined by the Fund's investment advisor.
Moody's considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics.
The Fund may also purchase debt securities which are rated below
investment-grade, commonly referred to as "junk bonds," (that is, rated below
Baa by Moody's or below BBB by S&P), and unrated securities of comparable
quality in the Advisor's judgment, which usually entail greater risk (including
the possibility of default or bankruptcy of the issuers of such securities),
generally involve greater volatility of price and risk of principal and income,
and may be less liquid and more difficult to value than securities in the higher
rating categories. The Fund may invest up to 20% of its net assets in securities
rated B or lower by Moody's or S&P and may invest in securities which are rated
as low as C by Moody's or D by S&P. Securities rated B or lower involve a high
degree of speculation with respect to the payment of principal and interest and
those securities rated C or D may be in default with respect to payment of
principal or interest. (See "High Yield, High Risk Securities.")
The Fund is limited to 5% of its net assets for initial margin and premium
amounts on futures positions considered speculative by the Commodities Futures
Trading Commission.
The Fund may borrow money for temporary, emergency or other purposes, including
investment leverage purposes, as determined by the Trustees. The Fund may also
engage in reverse repurchase agreements.
Changes in portfolio securities are made on the basis of investment
considerations, and it is against the policy of management to make changes for
trading purposes.
5
<PAGE>
Investments and Investment Techniques
Value Investment Approach. The Fund is actively managed using a disciplined,
value-oriented investment management approach. The Advisor uses a proprietary,
computerized model to identify for investment public U.S. companies selling at
prices that, in the opinion of the Advisor, do not reflect adequately their
long-term business potential. Companies purchased for the Fund typically have
attractive valuations relative to the Russell 2000(R) Index -- a widely used
benchmark of small stock performance-- based on measures such as price to
earnings, price to book value and price to cash flow ratios.
The Fund's holdings are often out of favor or simply overlooked by investors.
Accordingly, their prices can rise either as a result of improved business
fundamentals, particularly when earnings grow faster than general expectations,
or as more investors come to recognize the full extent of a company's underlying
potential.
Common stocks. Under normal circumstances, the Fund invests 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, the
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 a greater potential for gain
on investment, compared to other classes of financial assets such as bonds or
cash equivalents.
Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks.
The convertible securities in which the Fund may invest 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 nonconvertible
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 sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of
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accretion of discount, comes from the difference between the issue 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 follow the movements in the market value of the
underlying common stock. Zero coupon convertible securities generally are
expected to be less volatile than the underlying common stocks as they usually
are issued with shorter 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.
Investment of Uninvested Cash Balances. The Fund may have cash balances that
have not been invested in portfolio securities ("Uninvested Cash"). Uninvested
Cash may result from a variety of sources, including dividends or interest
received from portfolio securities, unsettled securities transactions, reserves
held for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions and
dividend payments, and new cash received from investors. Uninvested Cash may be
invested directly in money market instruments or other short-term debt
obligations. Pursuant to an Exemptive Order issued by the SEC, the Fund may use
Uninvested Cash to purchase shares of affiliated funds including money market
funds, short-term bond funds and Scudder Cash Management Investment Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment advisor that operate as cash management investment vehicles and
that are excluded from the definition of investment company pursuant to section
3(c)(1) or 3(c)(7) of the 1940 Act (collectively, the "Central Funds") in excess
of the limitations of Section 12(d)(1) of the 1940 Act. Investment by the Fund
in shares of the Central Funds will be in accordance with the Fund's investment
policies and restrictions as set forth in its registration statement.
Certain of the Central Funds comply with rule 2a-7 under the 1940 Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance the Fund's ability to
manage Uninvested Cash.
The Fund will invest Uninvested Cash in Central Funds only to the extent that
the Fund's aggregate investment in the Central Funds does not exceed 25% of its
total assets in shares of the Central Funds. Purchase and sales of shares of
Central Funds are made at net asset value.
Real Estate Investment Trusts ("REITs"). The 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. 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 capitalizations, 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, and to maintain exemption from the registration requirements of 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's, 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. The Fund may occasionally 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
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availability of an exemption from registration (such as Rules 144 or 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or 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 in a public offering for which a registration statement is
in effect under the 1933 Act. The 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 Fund may be liable to purchasers of such securities if such
sale is made in violation of the 1933 Act or if the registration statement
prepared by the issuer, or the prospectus forming a part of it, is materially
inaccurate or misleading.
The Advisor will monitor the liquidity of such restricted securities subject to
the supervision of the Board of Trustees. In reaching liquidity decisions, the
Advisor will consider the following factors: (1) the frequency of trades and
quotes for the security, (2) the number of dealers wishing to purchase or sell
the security and the number of their potential purchasers, (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (i.e., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). The Fund will invest more than 15% of total assets in illiquid
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and 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 Advisor to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's or S&P.
A repurchase agreement provides a means for the Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., the Fund) acquires a security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities 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 itself. Obligations will be
physically held by the 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
the Fund to the seller of the Obligation subject to the repurchase agreement and
is therefore subject to the Fund's investment restriction applicable to loans.
It is not clear whether a court would consider the Obligation purchased by the
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, the 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 be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund, the
Advisor 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 security. However,
if the market value of the Obligation subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund 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.
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Warrants. The Fund may invest in warrants up to 5% of the value of 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 to be speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by the Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed upon time and price. The
Fund maintains a segregated account in connection with outstanding reverse
repurchase agreements. The Fund will enter into reverse repurchase agreements
only when the Advisor believes that the interest income to be earned from the
investment of the proceeds of the transaction will be greater than the interest
expense of the transaction. Such transactions may increase fluctuations in the
market value of the Fund's assets and may be viewed as a form of leverage.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid 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. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will 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 will be made only to firms deemed by the Advisor to be in good standing.
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.
Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as interpreted or modified by regulatory
authority having jurisdiction, from time to time. While the Trustees do not
currently intend for the Fund to borrow for investment leveraging purposes, if
such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by the Fund
will involve special risk considerations. Although the principal of the Fund's
borrowings will be fixed, the Fund's assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, the 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.
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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.
Depositary Receipts. The Fund may invest in sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and
other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary receipts provide
indirect investment in securities of foreign issuers. Prices of unsponsored
Depositary Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. ADRs are Depositary
Receipts which are bought and sold in the United States and are typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities by a foreign corporation. GDRs, IDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities. Depositary Receipts, including those denominated in U.S.
dollars will be subject to foreign currency exchange rate risk. However, by
investing in U.S. dollar-denominated ADRs rather than directly in foreign
issuers' stock, the Fund avoids currency risks during the settlement period. In
general, there is a large, liquid market in the United States for most ADRs.
However, certain Depositary Receipts may not be listed on an exchange and
therefore may be illiquid securities.
Foreign Securities. Investors should recognize that investing in foreign
securities involves certain special considerations, including those set forth
below, which are not typically associated with investing in U.S. securities and
which may favorably or unfavorably affect the Fund's performance. As foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange, Inc. (the "Exchange"), and
securities of some foreign companies are less liquid and more volatile than
securities of domestic companies. Similarly, volume and liquidity in most
foreign bond markets is less than in the U.S. and at times, volatility of price
can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been
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times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in a possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters which may affect the
prices of portfolio securities. Communications between the U.S. and foreign
countries may be less reliable than within the U.S., thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. In addition, with respect to certain foreign countries,
there is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of the Fund
seeks to mitigate the risks associated with the foregoing considerations through
diversification and continuous professional management.
Because investments in foreign securities will usually involve currencies of
foreign countries, and because the Fund may hold foreign currencies and forward
foreign currency exchange contracts ("forward contracts"), futures contracts and
options on futures contracts on foreign currencies, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs in connection with conversions between various
currencies. Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts (or options thereon) to purchase or sell foreign
currencies. (See "Strategic Transactions and Derivatives" below.)
Debt Securities. When the Advisor believes that it is appropriate to do so in
order to achieve the Large Company Value Fund's objective of long-term capital
appreciation, the Fund 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 Fund 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 Advisor.
The principal risks involved with investments in bonds include interest rate
risk, credit risk and pre-payment risk. Interest rate risk refers to the likely
decline in the value of bonds as interest rates rise. Generally, longer-term
securities are more susceptible to changes in value as a result of interest-rate
changes than are shorter-term securities. Credit risk refers to the risk that an
issuer of a bond may default with respect to the payment of principal and
interest. The lower a bond is rated, the more it is considered to be a
speculative or risky investment. Pre-payment risk is commonly associated with
pooled debt securities, such as mortgage-backed securities and asset backed
securities, but may affect other debt securities as well. When the underlying
debt obligations are prepaid ahead of schedule, the return on the security will
be lower than expected. Pre-payment rates usually increase when interest rates
are falling.
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High Yield, High Risk Securities. Below investment-grade securities (commonly
referred to as "junk bonds") (rated below Baa by Moody's and below BBB by S&P)
or unrated securities of equivalent quality in the Advisor's judgment, carry a
high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, may be less liquid and more difficult to value
than securities in the higher ratings categories and are considered speculative.
The lower the ratings of such debt securities the greater their risks render
them like equity securities. See the Appendix to this Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
The Fund may invest up to 20% of its assets in debt securities rated below
investment-grade but will invest no more than 10% of its assets in securities
rated B or lower by Moody's or by S&P and may not invest more than 5% of its
assets in securities which are rated C by Moody's or D by S&P or of equivalent
quality as determined by the Advisor.
An economic downturn could disrupt the high yield market and impair the ability
of issuers to repay principal and interest. Also, an increase in interest rates
could adversely affect the value of such obligations held by the Fund. Prices
and yields of high yield securities will fluctuate over time and may affect the
Fund's net asset value. In addition, investments in high yield zero coupon or
pay-in-kind bonds, rather than income-bearing high yield securities, may be more
speculative and may be subject to greater fluctuations in value due to changes
in interest rates.
The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market or because of a decline in the
value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio and to
dispose of those securities. Adverse publicity and investor perceptions may
decrease the value and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Advisor not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective may be more dependent on the Advisor's credit analysis than
is the case for higher quality bonds. Should the rating of a portfolio security
be downgraded the Advisor will determine whether it is in the best interest of
the Fund to retain or dispose of the security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. For example, federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation, which would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type. For more information
regarding tax issues related to high yield securities see "Taxes."
Zero Coupon Securities. The Fund may invest in zero coupon securities, which pay
no cash income and are 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 issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with short 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.
Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons
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from the underlying principal (the "corpus") of the U.S. Treasury security. A
number of securities firms and banks have stripped the interest coupons and
receipts and then resold them in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" ("TIGRS") and
Certificate of Accrual on Treasuries ("CATS"). The underlying U.S. Treasury
bonds and notes themselves are held in book-entry form at the Federal Reserve
Bank or, in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners thereof. Counsel to the underwriters of these certificates or other
evidences of ownership of the U.S. Treasury securities has stated that for
federal tax and securities purposes, in their opinion purchasers of such
certificates, such as the Fund, most likely will be deemed the beneficial
holders of the underlying U.S. Government securities.
The Treasury has facilitated transfers of ownership of zero coupon securities by
accounting separately for the beneficial ownership of particular interest coupon
and corpus payments on Treasury securities through the Federal Reserve
book-entry record-keeping system. The Federal Reserve program, as established by
the Treasury Department, is known as "STRIPS" or "Separate Trading of Registered
Interest and Principal of Securities." Under the STRIPS program, the Fund will
be able to have its beneficial ownership of zero coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells.
(See "Taxes.")
IPO risk. Securities issued through an initial public offering (IPO) can
experience an immediate drop in value if the demand for the securities does not
continue to support the offering price. Information about the issuers of IPO
securities is also difficult to acquire since they are new to the market and may
not have lengthy operating histories. The Fund may engage in short-term trading
in connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
Strategic Transactions and Derivatives. The 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 the 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, the 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 the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the 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 the 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 the 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 the Fund to utilize these
Strategic Transactions successfully will depend on the Advisor's ability to
predict pertinent market movements, which cannot be assured. The Fund will
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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 the Fund, and
the 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 the 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 Advisor'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 the Fund, force the sale or purchase of portfolio
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 the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the 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 the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the 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,
the 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, the 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 the 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. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the 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. The 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.
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The 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, 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. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
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 the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor 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. The 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 Advisor. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the 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 the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.
If the 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 the Fund's income. The sale of put options can also provide income.
The 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. All calls sold by the Fund must be
"covered" (i.e., the 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 the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
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 the Fund to hold a security or instrument which it might otherwise
have sold.
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The 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. The
Fund will not sell put options if, as a result, more than 50% of the Fund's
assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund may be required
to buy the underlying security at a disadvantageous price above the market
price.
General Characteristics of Futures. The 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 the 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.
The 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 the 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 the Fund.
If the 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.
The 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 the 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. The 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. The 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,
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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. The Fund may enter into currency 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 Advisor.
The 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 the 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.
The 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.
The 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 the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the 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 the 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 the Fund's securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Advisor believes
that the value of schillings will decline against the U.S. dollar, the Advisor
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 the 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 the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the 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 the 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.
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Combined Transactions. The 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 Advisor, it is in the best interests of the 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 Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the 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 the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The 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 the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the 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. The 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 the Fund receiving or paying, as the
case may be, only the net amount of the two payments. Inasmuch as the Fund will
segregate assets (or enter into offsetting positions) to cover its obligations
under swaps, the Advisor and the Fund believes such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to its borrowing restrictions. The 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 Advisor. If there is a default by the Counterparty, the
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. The 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. The 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 the 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.
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Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the 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 the 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 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 the Fund will require the 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 the Fund on an index will require the 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 the 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.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Capital Gains Distributions
The 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. The Fund
may allow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment, after paying the
related federal income taxes for which the shareholders may claim a credit
against their federal income tax liability.
If the Fund does not distribute the amount of capital gains 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. In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than the
required amount. (See "Taxes.")
Earnings or profits distributed to shareholders on redemptions of Fund shares
may be utilized by the Fund, to the extent permissible, as part of the Fund's
dividends paid deduction on its federal return.
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 the Fund and confirmations will be mailed to each shareholder.
If a shareholder has chosen to receive cash, a check will be sent. Distributions
of investment company taxable income and net realized capital gains are taxable,
whether made in shares or cash (see "Taxes").
The Fund intends to declare in December any net realized capital gains resulting
from its investment activity and any dividend from investment company taxable
income. The Fund intends to distribute the December dividends and capital gains
either in December or in the following January.
Dividends paid by the Fund with respect to each class of its shares will be
calculated in the same manner, at the same time and on the same day. The level
of income dividends per share (as a percentage of net asset value) will be lower
for Class B and Class C shares than for Class A shares primarily as a result of
the distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same proportion for
each class.
Income and capital gain dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional shares of the same class of the Fund
at net asset value on the reinvestment date, except that, upon written request
to the Shareholder Service Agent, a shareholder may select one of the following
options:
o To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net
asset value; or
o To receive income and capital gain dividends in cash.
Dividends will be reinvested in shares of the same class of the Fund unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of other Scudder Funds with multiple classes of shares or Kemper Funds as
provided in the prospectus. See "Special Features - Class A Shares - Combined
Purchases" for a list of such other Funds. To use this privilege of investing
dividends of the Fund in shares of another Scudder or Kemper Fund, shareholders
must maintain a minimum account value of $1,000 in the Fund distributing the
dividends. The Fund will reinvest dividend checks (and future dividends) in
shares of that same Fund and class if checks are returned as undeliverable.
Dividends and other distributions of the Fund in the aggregate amount of $10 or
less are automatically reinvested in shares of the Fund unless the shareholder
requests that such policy not be applied to the shareholder's account.
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Taxes
The 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
since its inception. It intends to continue to qualify for such treatment. Such
qualification does not involve governmental supervision or management of
investment practices or policy.
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) 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.
If for any taxable year the 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.
The 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 representing at least 98%
of the 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)
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.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by the Fund for reinvestment, requiring federal
income taxes to be paid thereon by the 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 relative share of federal income taxes paid by the Fund on such
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on Fund shares by the difference
between such reported gains and the individual tax credit.
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 the Fund's gross income. To the extent that such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under 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 shareholder,
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 the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gain, regardless of the length of time the shares of the 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 distributions of
long-term capital gain during such six-month period.
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.
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<PAGE>
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
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.
A qualifying 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 for 2001 ($53,000 for married individuals filing a
joint return, with a phase-out of the deduction for adjusted gross income
between $53,000 and $63,000; $33,000 for a single individual, with a phase-out
for adjusted gross income between $33,000 and $43,000). 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 $2,000 per individual for married couples if only one spouse has earned
income) 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, annual 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 the Fund result in a reduction in the net asset value of the
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 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.
In some cases, shareholders of the Fund will not be permitted to take all or a
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term " reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
The Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
the Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which the Fund held the PFIC shares. The Fund will be subject to
tax on the portion, if any, of an excess distribution that is allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Excess distributions allocated
to the current taxable year are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions might have
been classified as capital gain.
The Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years.
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<PAGE>
The effect of the election would be to treat excess distributions and gain on
dispositions as ordinary income which is not subject to a fund level tax when
distributed to shareholders as a dividend. Alternatively, the Fund may elect to
include as income and gain its share of the ordinary earnings and net capital
gain of certain foreign investment companies in lieu of being taxed in the
manner described above.
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
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
an exercise of a put option, on the Fund's holding period for the underlying
stock. 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 stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, 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
a short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts entered
into by the Fund and all listed non-equity options written or purchased by the
Fund (including options on futures contracts and options on broad-based stock
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 trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e. treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
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 Fund's portfolio.
Positions of the Fund which consist of at least one stock and at least one 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 stock 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 the Fund.
Positions of the 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
governed by Section 1256 which substantially diminishes the Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. The Fund intends to monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require the
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.
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<PAGE>
Similarly, if the 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.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the 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 the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
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
the 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. In addition, if the Fund invests in certain high yield original issue
discount obligations issued by corporations, a portion of the original issue
discount accruing on the obligation may be eligible for the deduction for
dividends received by corporations. In such event, dividends of investment
company taxable income received from the Fund by its corporate shareholders, to
the extent attributable to such portion of accrued original issue discount, may
be eligible for this deduction for dividends received by corporations if so
designated by the Fund in a written notice to shareholders.
The Fund will be required to report to the Internal Revenue Service 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
non-exempt 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 the
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 additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a series of a Massachusetts business trust and is not
liable for any income or franchise tax in the Commonwealth of Massachusetts,
provided that it qualifies as a regulated investment company for federal income
tax purposes.
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 the 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.
Dividend and interest income received by the Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may
24
<PAGE>
reduce or eliminate these foreign taxes, however, and foreign countries
generally do not impose taxes on capital gains respecting investments by foreign
investors.
Shareholders should consult their tax advisors about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
PERFORMANCE
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be computed separately for each class.
Class A, B and C shares are newly offered and therefore have no available
performance information Performance figures for Class A, B and C shares are
derived from the historical performance of Class S shares, adjusted to reflect
the higher gross total annual operating expenses applicable to Class A, B and C
shares, which may be higher or lower than those of Class S shares. The
performance figures are also adjusted to reflect the maximum sales charge of
5.75% for Class A shares and the maximum current contingent deferred sales
charge of 4% for Class B shares and 1% for Class C shares.
The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class A, B and C shares of the Fund as described
above; they do not guarantee future results. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
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 the 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 Fund's 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.
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<PAGE>
Average Annual Total Returns for the Period Ended July 31, 2000^(1)(2)
1 Year 5 Years 10 Years
Scudder Large Company Value Fund --
Class A -10.34% 13.08% 12.53%
Scudder Large Company Value Fund --
Class B -8.46% 13.28% 12.30%
Scudder Large Company Value Fund --
Class C -5.61% 13.54% 12.33%
^(1) Because Class A, B and C shares were not introduced until December 29,
2000, the returns for Class A, B and C shares for the period prior to
their introduction are based upon the performance of Class S shares as
described above.
^(2) 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 the Fund or class will vary based on changes in
market conditions and the level of the 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 Fund's 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):
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 July 31, 2000^(1)
1 Year 5 Years 10 Years
Scudder Large Company Value Fund --
Class A -10.34% 84.88% 225.74%
Scudder Large Company Value Fund --
Class B -8.46% 86.58% 219.02%
Scudder Large Company Value Fund --
Class C -5.61% 88.70% 255.25%
^(1) Because Class A, B and C shares were not introduced until December 29,
2000, the returns for Class A, B and C shares for the period prior to
their introduction are based upon the performance of Class S shares as
described above as described above.
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.
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<PAGE>
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 the 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 Fund's and classes' performance data.
Quotations of the Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of the Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of the Fund will vary based
on changes in market conditions and the level of the Fund's expenses.
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 the 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, the 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.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests.
From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, members of the Board
and officers of the Fund, the 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 Advisor has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The 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 the 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
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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 the
Fund.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. Zurich Scudder Investments, Inc., Two International Place,
Boston, Massachusetts, an investment counsel firm, acts as investment advisor to
the Fund. This organization, the predecessor of which is Scudder, Stevens &
Clark, Inc., ("Scudder") 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
Advisor 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 June 26, 1997, Scudder entered into an
agreement with Zurich Insurance Company ("Zurich") pursuant to which Scudder and
Zurich agreed to form an alliance. On December 31, 1997, Zurich acquired a
majority interest in Scudder, and Zurich Kemper Investments, Inc., a Zurich
subsidiary, became part of Scudder. Scudder'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. On October 17, 2000, the
dual holding company structure of Zurich Financial Services Group, comprised of
Allied Zurich p.l.c. in the United Kingdom and Zurich Allied A.G. in
Switzerland, was unified into a single Swiss holding company, Zurich Financial
Services. The Advisor changed its name from Scudder Kemper Investments, Inc. to
Zurich Scudder Investments, Inc. The Advisor manages the Fund's daily investment
and business affairs subject to the policies established by the Trust's Board of
Trustees. The Trustees have overall responsibility for the management of the
Fund under Massachusetts law.
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.
Pursuant to an investment management agreement with the Fund, the Advisor acts
as the Fund's investment advisor, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical
and administrative services and permits any of its officers or employees to
serve without compensation as trustees or officers of the Fund if elected to
such positions.
The principal source of the Advisor'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, industrial
corporations, and financial and banking organizations, as well as providing
investment advice to over 280 open and closed-end mutual funds.
The Advisor maintains a large research department, which conducts continuous
studies of the factors that affect the position of various industries, companies
and individual securities. The Advisor 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
Advisor's clients. However, the Advisor regards this information and material as
an adjunct to its own research activities. The Advisor's international
investment management team travels the world researching hundreds of companies.
In selecting securities in which the Fund may invest, the conclusions and
investment decisions of the Advisor with respect to the Fund are based primarily
on the analyses of its own research department.
Certain investments may be appropriate for the Fund and also for other clients
advised by the Advisor. Investment decisions for the Fund and other clients are
made with a view to achieving their respective investment objectives and
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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 Advisor 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 the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Advisor 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 mange one or more other mutual funds advised by the Advisor,
that have similar names, objectives and investment styles. You should be aware
that the Funds are likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Funds can be expected to vary from those of these other mutual funds.
The present investment management (the "Agreement") was approved by the Trustees
on August 6, 1998, became effective September 7, 1998, and was approved at a
shareholder meeting held on December 15, 1998. The Agreement will continue in
effect until September 30, 2001 and from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Advisor 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' Trustees or of a majority of the
outstanding voting securities of the Fund. The Agreement 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 its assignment. The
continuance of the Agreement was most recently approved by the Trustees on July
10, 2000.
Under the Agreement, the Advisor regularly provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject to the Trust's Declaration of Trust, By-Laws, the 1940
Act, the Code and to the Fund's investment objective, policies and restrictions,
and subject, further, to such policies and instructions as the Board of Trustees
of the Trust may from time to time establish. The Advisor 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 Fund.
Under the Agreement, the Advisor renders significant administrative services
(not otherwise provided by third parties) necessary for the 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,
Custodian, 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 Fund; 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 Advisor pays the compensation and expenses of all Trustees, officers and
executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York; Boston, Massachusetts and Chicago,
Illinois) of the Fund affiliated with the Advisor and makes available, without
expense to the Trust, the services of such Trustees, officers and employees of
the Advisor as may duly be elected officers or Trustees of the Trust, subject to
their individual consent to serve and to any limitations imposed by law, and
provides the Fund's office space and facilities.
For the Advisor's services, prior to October 2, 2000, the Fund paid the Advisor
a fee equal to 0.75 of 1% on the first $500 million of average daily net assets;
0.65 of 1% on the next $500 million of such assets; 0.60 of 1% on the next $500
million of such assets, 0.55 of 1% on the next $500 million of such assets and
0.50 of 1% of such net
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assets in excess of $ 2 billion, payable monthly, provided the Fund will make
such interim payments as may be requested by the Advisor not to exceed 75% of
the amount of the fee then accrued on the books of the Fund and unpaid. After
October 2, 2000, the Fund pays the Advisor a fee equal to 0.60 of 1% on the
first $1.5 billion of average daily net assets; 0.575 of 1% on the next $500
million of such assets; 0.550 of 1% of such assets over $2 billion, payable
monthly, provided the Fund will make such interim payments as may be requested
by the Advisor not to exceed 75% of the amount of the fee then accrued on the
books of the Fund and unpaid.
For the fiscal years ended September 30, 1997 and 1998, the Fund incurred
aggregate fees pursuant to its then effective investment advisory agreement of
$12,187,280 and $14,296,878, respectively. For the ten months ended July 31,
1999, the Fund incurred aggregate fees pursuant to its then effective investment
advisory agreement of $12,261,953. For the fiscal year ended July 31, 2000, fees
were $13,995,880, which was equivalent to an annual effective rate of 0.62% of
the Fund's average daily net assets.
Under the Agreement the Fund is responsible for all of its other expenses
including: organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; taxes and governmental fees; the fees and
expenses of the Transfer Agent; any other expenses of issue, sale, underwriting,
distribution, redemption or repurchase of shares; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Fund who are not affiliated with the
Advisor; the cost of printing and distributing reports and notices to
stockholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses of shareholders' meetings, the cost of responding to shareholders'
inquiries, and its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees of the Fund with respect thereto.
The Agreement identifies the Advisor 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 the Agreement and in discussions with the Advisor
concerning such Agreement, the Trustees of the Trust who are not "interested
persons" of the Advisor are represented by independent counsel at the Fund's
expense.
The Agreement provides that the Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Advisor in
the performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreement.
Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.
The Advisor may serve as advisor to other funds with investment objectives and
policies similar to those of the Fund 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 the Fund as
principals in the purchase or sale of securities, except as individual
subscribers to or holders of Shares of the Fund.
The term Scudder Investments is the designation given to the services provided
by Zurich Scudder Investments, Inc. and its affiliates to the Scudder Family of
Funds.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Advisor and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Advisor 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 Advisor with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Advisor
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 advisor
or broker/dealer under federal securities laws. Any person who participates in
the AMA
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InvestmentLink(SM) Program will be a customer of the Advisor (or of a subsidiary
thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLink(SM) is a
service mark of AMA Solutions, Inc.
Code of Ethics
The Fund, the Advisor and principal underwriter have each adopted codes of
ethics under rule 17j-1 of the Investment Company Act. Board members, officers
of the Trust and employees of the Advisor 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 Advisor'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 Advisor'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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
Principal Underwriter. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the
Advisor, is the principal underwriter and distributor for the Class A, B and C
shares of the Fund and acts as agent of the Fund in the continuous offering of
its Shares. KDI bears all of its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. The Fund pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI, as principal underwriter, pays for
the printing and distribution of copies thereof used in connection with the
offering of Shares to prospective investors. KDI also pays for supplementary
sales literature and advertising costs.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Trustees of the Fund, including the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement. The agreement automatically terminates in the event of its assignment
and may be terminated for a class at any time without penalty by the Fund or by
KDI upon 60 days' notice. Termination by the Fund with respect to a class may be
by vote of a majority of the Board of Trustees or a majority of the Trustees who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the distribution agreement or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act. The distribution agreement may not be amended for a class to increase
the fee to be paid by the Fund with respect to such class without approval by a
majority of the outstanding voting securities of such class of the Fund, and all
material amendments must in any event be approved by the Board of Trustees in
the manner described above with respect to the continuation of the distribution
agreement.
Class B Shares and Class C Shares. The Fund has adopted a plan under Rule 12b-1
(the "Rule 12b-1 Plan") that provides for fees payable as an expense of the
Class B shares and Class C shares that are used by KDI to pay for distribution
and services for those classes. Because 12b-1 fees are paid out of fund assets
on an ongoing basis they will, over time, increase the cost of an investment and
cost more than other types of sales charges.
Rule 12b-1 Plan. Since the distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the 1940 Act, which regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares.
If a Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of a Fund to make payments to KDI pursuant to the Plan will cease
and the Fund will not be required to make any payments past the termination
date. Thus, there is no legal obligation for the Fund to pay any expenses
incurred by KDI in excess of its fees under a Plan, if for any reason the Plan
is terminated in accordance with its terms. Future fees under the Plan may or
may not be sufficient to reimburse KDI for its expenses incurred.
For its services under the distribution agreement, KDI receives a fee from the
Fund, payable monthly, at the annual rate of 0.75% of average daily net assets
of the Fund attributable to Class B shares. This fee is accrued daily as
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an expense of Class B shares. KDI also receives any contingent deferred sales
charges. KDI currently compensates firms for sales of Class B shares at a
commission rate of 3.75%.
For its services under the distribution agreement, KDI receives a fee from the
Fund, payable monthly, at the annual rate of 0.75% of average daily net assets
of the Fund attributable to Class C shares. This fee is accrued daily as an
expense of Class C shares. KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm and
the fee continues until terminated by KDI or the Fund. KDI also receives any
contingent deferred sales charges.
Administrative Fee. The Fund has entered into an administrative services
agreement with Zurich Scudder (the "Administrative Agreement"), pursuant to
which Zurich Scudder will provide or pay others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Zurich Scudder under its investment management agreements with the Fund, as
described above) in exchange for the payment by the Fund of an administrative
services fee (the "Administrative Fee") of 0.325% for Class A, 0.375% for Class
B and 0.350% for Class C. 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 Zurich Scudder, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for the
Fund and maintains its accounting records. Kemper Service Company, also a
subsidiary of Zurich Scudder, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Fund. Scudder Trust Company, an
affiliate of Zurich Scudder, provides subaccounting and recordkeeping services
for shareholders in certain retirement and employee benefit plans. As custodian,
State Street Bank holds the portfolio securities of the Fund, pursuant to a
custodian agreement. PricewaterhouseCoopers LLP audits the financial statements
of the Fund and provides other audit, tax, and related services.
Zurich Scudder will pay the Service Providers for the provision of their
services to the Fund and will pay other fund expenses, including insurance,
registration, printing and postage fees. In return, the Fund will pay Zuirch
Scudder an Administrative Fee.
The Administrative Agreement has an initial term of three years, subject to
earlier termination by the Fund's Board. The fee payable by the Fund to Zurich
Scudder pursuant to the Administrative Agreement is reduced by the amount of any
credit received from the Fund's custodian for cash balances.
Certain expenses of the Fund will not be borne by Zurich Scudder under the
Administrative Agreement, 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, the Fund will continue to
pay the fees required by its investment management agreement with Zurich
Scudder.
Administrative Services. Administrative services are provided to the Fund on
behalf of Class A, B and C shareholders under an administrative services
agreement ("administrative agreement") with KDI. KDI bears all its expenses of
providing services pursuant to the administrative agreement between KDI and the
Fund, including the payment of service fees. The Fund pays KDI an administrative
services fee, payable monthly, at an annual rate of up to 0.25% of average daily
net assets of Class A, and 1.00% for Class B and C shares of the average daily
net assets of each class.
KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms") that provide services and facilities
for their customers or clients who are investors in the Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. With respect to
Class A Shares, KDI pays each firm a service fee, payable
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quarterly, at an annual rate of up to 0.25% of the net assets in Fund accounts
that it maintains and services attributable to Class A Shares, commencing with
the month after investment. With respect to Class B and Class C Shares, KDI
currently advances to firms the first-year service fee at a rate of up to 0.25%
of the purchase price of such Shares. For periods after the first year, KDI
currently intends to pay firms a service fee at a rate of up to 0.25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C Shares maintained and serviced by the firm. After the first year,
a firm becomes eligible for the quarterly service fee and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid
include affiliates of KDI. In addition KDI may, from time to time, from its own
resources pay certain firms additional amounts for ongoing administrative
services and assistance provided to their customers and clients who are
shareholders of the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is payable at an annual rate of 0.25%
based upon Fund assets in accounts for which a firm provides administrative
services and at the annual rate of 0.15% based upon Fund assets in accounts for
which there is no firm of record (other than KDI) listed on the Fund's records.
The effective administrative services fee rate to be charged against all assets
of the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which a firm of record provides
administrative services. The Board of Trustees of the Fund, in its discretion,
may approve basing the fee to KDI at the annual rate of 0.25% on all Fund assets
in the future
Certain trustees or officers of the Fund are also directors or officers of the
Advisor or KDI, as indicated under "Officers and Trustees."
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts, a subsidiary of the Advisor,
computes net asset value for the Fund. Prior to the implementation of the
Administrative Agreement, the Fund paid SFAC an annual fee equal to 0.025% of
the first $150 million of average daily net assets, 0.0075% of the next $85
million of such assets, and 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the fiscal years ended
September 30, 1996, 1997 and 1998, Large Company Value Fund incurred annual fees
of $158,045, $157,173 and $174,325, respectively. For the 10 months ended July
31, 1999, Large Company Value Fund incurred fees of $147,196, of which $30,868
was unpaid at July 31, 1999. For the fiscal year ended July 31, 2000, the amount
charged to the Fund by SFAC aggregated $168,934, of which $13,899 was unpaid at
July 31, 2000.
Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company (the "Custodian"), 225 Franklin Street, Boston, Massachusetts
02110, as custodian has custody of all securities and cash of the Fund held
outside the United States. The Custodian attends to the collection of principal
and income, and payment for and collection of proceeds of securities bought and
sold by the Fund. Kemper Service Company ("KSVC"), 811 Main Street, Kansas City,
Missouri 64105-2005, an affiliate of the Advisor, is the Fund's transfer agent,
dividend-paying agent and shareholder service agent for the Fund's Class A, B, C
and I shares. KSVC receives as transfer agent, annual account fees of $5 per
account, transaction and maintenance charges, annual fees associated with the
contingent deferred sales charge (Class B shares only) and out-of-pocket expense
reimbursement.
Independent Accountants and Reports to Shareholders. The financial highlights of
the Fund included in the Fund's prospectus and the Financial Statements
incorporated by reference in this Statement of Additional Information have been
so included or 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 Fund and provides other audit, tax and related services.
Shareholders will receive annual audited financial statements and semi-annual
unaudited financial statements.
PORTFOLIO TRANSACTIONS
Brokerage Commissions. Allocation of brokerage may be placed by the Advisor.
The primary objective of the Advisor in placing orders for the purchase and sale
of securities for the 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
Advisor seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through the familiarity of the
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Distributor with commissions charged on comparable transactions, as well as by
comparing commissions paid by the Fund to reported commissions paid by others.
The Advisor routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally placed
by the Advisor with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the 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 Advisor's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Advisor or the Fund. The term "research services" 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 Advisor is authorized when placing portfolio transactions, if applicable,
for the 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 services. The Advisor has negotiated
arrangements, which are not applicable to most fixed-income transactions, with
certain broker/dealers pursuant to which a broker/dealer will provide research
services, to the Adviser or the Fund in exchange for the direction by the
Advisor of brokerage transactions to the broker/dealer. These arrangements
regarding receipt of research services generally apply to equity security
transactions. The Advisor will not place orders with a broker/dealer on the
basis that the broker/dealer has or has not sold shares of the 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 Advisor will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Advisor; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Advisor, it is the opinion
of the Advisor that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Advisor's staff. Such information may be useful to
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the Advisor in providing services to clients other than the Fund and not all
such information is used by the Advisor in connection with the Fund. Conversely,
such information provided to the Advisor by broker/dealers through whom other
clients of the Advisor effect securities transactions may be useful to the
Advisor in providing services to the Fund.
The Trustees review, from time to time, whether the recapture for the benefit of
the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable.
In the fiscal years ended September 30, 1997 and 1998, Large Company Value Fund
paid brokerage commissions of $2,188,295 and $1,318,544 respectively. For the
ten months ended July 31, 1999, Large Company Value Fund paid brokerage
commissions of $1,722,405. For the fiscal year ended July 31, 2000, Large
Company Value Fund paid brokerage commission of $2,586,082 For the fiscal year
ended September 30, 1998, $1,260,550, (95.60% of the total brokerage commissions
paid) resulted from orders placed, consistent with the policy of obtaining the
most favorable net results, with brokers and dealers who provided supplementary
research services to the Trust or Advisor. For the ten months ended July 31,
1999, $1,365,362, (79.27% of the total brokerage commissions paid) resulted from
orders placed, consistent with the policy of obtaining the most favorable net
results, with brokers and dealers who provided supplementary research services
to the Trust or Advisor. The total amount of brokerage transactions aggregated
for the fiscal year ended September 30, 1998 was $977,798,986 of which
$874,809,855 (89.47% of all brokerage transactions) were transactions which
included research commissions. The total amount of brokerage transactions
aggregated for the 10 months ended July 31, 1999 was $1,429,520,190 of which
$1,157,569,737 (80.98% of all brokerage transactions) were transactions which
included research commissions. For the fiscal year ended July 31, 2000,
$1,849,759 (72% of the total brokerage commissions paid) resulted from orders
placed, consistent with the policy of obtaining the most favorable net results,
with brokers and dealers who provided supplementary research market and
statistical information to the Fund or the Advisor. The total amount of
brokerage transactions aggregated $2,327,262,464, of which $1,652,601,359 (71%
of all brokerage transactions) were transactions which included research
commissions.
Portfolio Turnover
The portfolio turnover rates (defined by the SEC as the ratio of the lesser of
sales or purchases to the monthly average value of such securities owned during
the year, excluding all securities whose remaining maturities at the time of
acquisition were one year or less) for the fund is listed below. Higher levels
of activity by the 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 the Fund whenever necessary, in management's
opinion, to meet the Fund's objectives.
For the fiscal year ended September 30, 1998, the Fund's portfolio turnover rate
was 39.5%. The Fund's average annualized portfolio turnover rate for the 10
months ended July 31, 1999 was 35.2%. For the fiscal year ended July 31, 2000,
the Fund's portfolio turnover rate was 46.0%.
NET ASSET VALUE
The net asset value of shares of each class of the Fund is computed as of the
close of regular trading on the Exchange on each day the Exchange is open for
trading ("Value Time"). The Exchange is scheduled to be closed on the following
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 separately for each class of shares by dividing the value of the
total assets of the Fund, less all liabilities attributable to that class, by
the total number of shares of that class outstanding. The per share net asset
value of the
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<PAGE>
Class B and Class C Shares of the Fund will generally be lower than that of the
Class A Shares of the Fund because of the higher expenses borne by the Class B
and Class C Shares.
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 quotation, 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 Nasdaq Stock Market, Inc. ("Nasdaq") system will
be valued at its most recent sale price on such system as of the Value Time.
Lacking any sales, the security will be 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 short-term securities, are valued at prices supplied
by the Fund's pricing agent(s) which reflect broker/dealer supplied valuations
and electronic data processing techniques. Short-term securities with remaining
maturities of sixty days or less shall be valued by the amortized cost method,
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 Advisor 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 currency exchange rates as of
the date on which the net asset value per share is to be determined.
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 Fund'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 the Fund is determined in a manner
which, 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.
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
Fund Shares are sold at their public offering price, which is the net asset
value per such shares next determined after an order is received in proper form
plus, with respect to Class A Shares, an initial sales charge. The minimum
initial investment for Class A, B or C is $1,000 and the minimum subsequent
investment is $100 but such minimum amounts may be changed at any time. The Fund
may waive the minimum for purchases by trustees, directors, officers or
employees of the Fund or the Advisor and its affiliates. An order for the
purchase of Shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until the Fund determines that
it has
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<PAGE>
received payment of the proceeds of the check. The time required for such a
determination will vary and cannot be determined in advance.
PURCHASE OF SHARES
Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution/services fees. These differences are summarized in the table below.
Each class has distinct advantages and disadvantages for different investors,
and investors may choose the class that best suits their circumstances and
objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees^(1)
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 0.25% Initial sales charge
5.75% of the public offering waived or reduced for
price^(2) certain purchases
Class B Maximum contingent deferred sales 1.00% Shares convert to Class A
charge of 4% of redemption shares six years after
proceeds; declines to zero after issuance
six years
Class C Contingent deferred sales charge of 1.00% No conversion feature
1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
^(1) There is a service fee of 0.25% for each class.
^(2) Class A shares purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent deferred sales
charge if redeemed within one year of purchase and a 0.50% contingent
deferred sales charge if redeemed within the second year of purchase.
The minimum initial investment for each of Class A, B and C of the Fund is
$1,000 and the minimum subsequent investment is $100. The minimum initial
investment for an Individual Retirement Account is $250 and the minimum
subsequent investment is $50. Under an automatic investment plan, such as Bank
Direct Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent investment is $50. These minimum amounts may be changed
at any time in management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative - Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
------------
Allowed to Dealers
As a Percentage of As a Percentage of As a Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
------------------ -------------- ---------------- --------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.20%
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<PAGE>
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over .00** .00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales
charge as discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow to dealers up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in such Fund or other Zurich
Scudder Mutual Funds listed under "Special Features -- Class A Shares --
Combined Purchases" totals at least $1,000,000 including purchases of Class A
shares pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features described under "Special Features"; or (b) a
participant-directed qualified retirement plan described in Code Section 401(a),
a participant-directed non-qualified deferred compensation plan described in
Code Section 457 or a participant-directed qualified retirement plan described
in Code Section 403(b)(7) which is not sponsored by a K-12 school district,
provided in each case that such plan has not less than 200 eligible employees
(the "Large Order NAV Purchase Privilege"). Redemption within two years of the
purchase of shares purchased under the Large Order NAV Purchase Privilege may be
subject to a contingent deferred sales charge. See "Redemption or Repurchase of
Shares -- Contingent Deferred Sales Charge -- Large Order NAV Purchase
Privilege."
KDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer-sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Zurich Scudder
Mutual Funds listed under "Special Features -- Class A Shares -- Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above. The privilege of
purchasing Class A shares of the Fund at net asset value under the Large Order
NAV Purchase Privilege is not available if another net asset value purchase
privilege also applies.
Class A shares of the Fund or of any other Zurich Scudder Mutual Funds listed
under "Special Features -- Class A Shares -- Combined Purchases" may be
purchased at net asset value in any amount by members of the plaintiff class in
the proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is
generally non-transferable and continues for the lifetime of individual class
members and for a ten-year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts
38
<PAGE>
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by KDI. The
privilege of purchasing Class A shares of the Fund at net asset value under this
privilege is not available if another net asset value purchase privilege also
applies.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, employees (including retirees) and sales representatives of the Fund,
its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Fund,
for themselves or their spouses or dependent children; (c) any trust, pension,
profit-sharing or other benefit plan for only such persons; (d) persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm; and (e) persons who purchase shares of the Fund
through KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase the Fund's Class A shares at net asset value through reinvestment
programs described in the prospectuses of such trusts that have such programs.
Class A shares of the Fund may be sold at net asset value through certain
investment advisors registered under the 1940 Act and other financial services
firms acting solely as agent for their clients, that adhere to certain standards
established by KDI, including a requirement that such shares be sold for the
benefit of their clients participating in an investment advisory program or
agency commission program under which such clients pay a fee to the investment
advisor or other firm for portfolio management or agency brokerage services.
Such shares are sold for investment purposes and on the condition that they will
not be resold except through redemption or repurchase by the Fund. The Fund may
also issue Class A shares at net asset value in connection with the acquisition
of the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon
39
<PAGE>
redemption of Class B shares. See "Redemption or Repurchase of Shares --
Contingent Deferred Sales Charge -- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when they have been
outstanding long enough for KDI to have been compensated for distribution
related expenses. For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and other distributions paid with respect
to Class B shares in a shareholder's Fund account will be converted to Class A
shares on a pro rata basis.
Purchase of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
Purchase of Class I Shares. Class I shares are offered at net asset value
without an initial sales charge and are not subject to a contingent deferred
sales charge or a Rule 12b-1 distribution fee. Also, there is no administrative
services fee charged to Class I shares. As a result of the relatively lower
expenses for Class I shares, the level of income dividends per share (as a
percentage of net asset value) and, therefore, the overall investment value,
will typically be higher for Class I shares than for Class A, Class B, or Class
C shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Zurich
Scudder Investments, Inc. and its affiliates and rollover accounts from those
plans; (2) the following investment advisory clients of Zurich Scudder and its
investment advisory affiliates that invest at least $1 million in a Fund:
unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and self-directed retirement plans); unaffiliated
banks and insurance companies purchasing for their own accounts; and endowment
funds of unaffiliated non-profit organizations; (3) investment-only accounts for
large qualified plans, with at least $50 million in total plan assets or at
least 1000 participants; (4) trust and fiduciary accounts of trust companies and
bank trust departments providing fee based advisory services that invest at
least $1 million in a Fund on behalf of each trust; (5) policy holders under
Zurich-American Insurance Group's collateral investment program investing at
least $200,000 in a Fund; and (6) investment companies managed by Zurich Scudder
that invest primarily in other investment companies. Class I shares currently
are available for purchase only from Kemper Distributors, Inc. ("KDI"),
principal underwriter for the Fund, and, in the case of category (4) above,
selected dealers authorized by KDI. Share certificates are not available for
Class I shares.
Which Arrangement is Better for You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. In making
this decision, investors should review their particular circumstances carefully
with their financial representative. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Investors who prefer
not to pay an initial sales charge and who plan to hold their investment for
more than six years might consider Class B shares. Investors who prefer not to
pay an initial sales charge but who plan to redeem their shares within six years
might consider Class C shares. KDI has established the following procedures
regarding the purchase of Class A, Class B and Class C shares. These procedures
do not reflect in any way the suitability of a particular class of shares for a
particular investor and should not be relied upon as such. That determination
must be made by investors with the assistance of their financial representative.
Orders for Class B shares or Class C shares for $500,000 or more will be
declined. Orders for Class B shares or Class C shares by employer sponsored
employee benefit plans (not including plans under Code Section 403 (b)(7)
sponsored by a K-12 school district) using the subaccount record keeping system
made available through the Shareholder Service Agent
40
<PAGE>
("KemFlex Plans") will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other Zurich Scudder Mutual
Funds listed under "Special Features - Class A Shares - Combined Purchases" is
in excess of $1 million for Class B shares or $5 million for Class C shares
including purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features described under "Special Features." KemFlex Plans
that on May 1, 2000 have in excess of $1 million invested in Class B shares of
Kemper Mutual Funds, or have in excess of $850,000 invested in Class B shares of
Kemper Mutual Funds and are able to qualify for the purchase of Class A shares
at net asset value (e.g., pursuant to a Letter of Intent), will have future
investments made in Class A shares and will have the option to covert their
holdings in Class B shares to Class A shares free of any contingent deferred
sales charge on May 1, 2002. For more information about the three sales
arrangements, consult your financial representative or the Shareholder Service
Agent. Financial services firms may receive different compensation depending
upon which class of shares they sell.
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks or other financial services firms may be subject to
various state laws regarding the services described above and may be required to
register as dealers pursuant to state law. If banking firms were prohibited from
acting in any capacity or providing any of the described services, management
would consider what action, if any, would be appropriate. KDI does not believe
that termination of a relationship with a bank would result in any material
adverse consequences to the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to tome, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, to firms that sell shares of the Fund. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Fund, or other Funds underwritten by
KDI.
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value of the Fund next determined after receipt in good order
by KDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). The Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares."
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Fund's shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
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The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, the Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also 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.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 219153, Kansas City, Missouri 64141-9153. When certificates for shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association, federal savings bank, member firm of a
national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Payment for shares redeemed will be made in cash
as promptly as practicable but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for transfer. When the Fund is asked to redeem shares for which
it may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase Privilege may be subject
to a contingent deferred sales charge (see "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares"), the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge -- Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge -- Class C Shares"
below).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $800 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer-sponsored employee benefit plans
using the subaccount record-keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account
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application. The Fund or its agents may be liable for any losses, expenses or
costs arising out of fraudulent or unauthorized telephone requests pursuant to
these privileges unless the Fund or its agents reasonably believe, based upon
reasonable verification procedures, that the telephonic instructions are
genuine. The shareholder will bear the risk of loss, including loss resulting
from fraudulent or unauthorized transactions, so long as reasonable verification
procedures are followed. Verification procedures include recording instructions,
requiring certain identifying information before acting upon instructions and
sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value per Share Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by the Fund for up to seven days
if the Fund or the Shareholder Service Agent deems it appropriate under
then-current market conditions. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048 or in writing,
subject to the limitations on liability described under "General" above. The
Fund is not responsible for the efficiency of the federal wire system or the
account holder's financial services firm or bank. The Fund currently does not
charge the account holder for wire transfers. The account holder is responsible
for any charges imposed by the account holder's firm or bank. There is a $1,000
wire redemption minimum (including any contingent deferred sales charge). To
change the designated account to receive wire redemption proceeds, send a
written request to the Shareholder Service Agent with signatures guaranteed as
described above or contact the firm through which shares of the Fund were
purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire transfer until such shares have been owned
for at least 10 days. Account holders may not use this privilege to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege, although investors can still
redeem by mail. The Fund reserves the right to terminate or modify this
privilege at any time.
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Contingent Deferred Sales Charge - Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer-sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
Contingent Deferred Sales Charge - Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
Year of Redemption Contingent Deferred
After Purchase Sales Charge
-------------- ------------
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
-- Systematic Withdrawal Plan" below), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions
to satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in the Fund), (c) redemptions in connection with distributions
qualifying under the hardship provisions of the Internal Revenue Code and (d)
redemptions representing returns of excess contributions to such plans.
Contingent Deferred Sales Charge -- Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special Features --
Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any IRA
systematic withdrawal
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based on the shareholder's life expectancy including, but not limited to,
substantially equal periodic payments described in Internal Revenue Code Section
72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to satisfy required
minimum distributions after age 70 1/2 from an IRA account (with the maximum
amount subject to this waiver being based only upon the shareholder's Kemper IRA
accounts), (f) for any participant-directed redemption of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent (g) redemption of
shares by an employer sponsored employee benefit plan that offers funds in
addition to Kemper Funds and whose dealer of record has waived the advance of
the first year administrative service and distribution fees applicable to such
shares and agrees to receive such fees quarterly, and (g) redemption of shares
purchased through a dealer-sponsored asset allocation program maintained on an
omnibus record-keeping system provided the dealer of record had waived the
advance of the first year administrative services and distribution fees
applicable to such shares and has agreed to receive such fees quarterly.
Contingent Deferred Sales Charge - General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 of share appreciation to a
total of $12,000. If the investor were then to redeem the entire $12,000 in
share value, the contingent deferred sales charge would be payable only with
respect to $10,000 because neither the $1,000 of reinvested dividends nor the
$1,000 of share appreciation is subject to the charge. The charge would be at
the rate of 3% ($300) because it was in the second year after the purchase was
made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in March
1998 will be eligible for the second year's charge if redeemed on or after March
1, 1999. In the event no specific order is requested when redeeming shares
subject to a contingent deferred sales charge, the redemption will be made first
from shares representing reinvested dividends and then from the earliest
purchase of shares. KDI receives any contingent deferred sales charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Zurich Scudder Mutual Funds listed under "Special Features --
Class A Shares -- Combined Purchases" (other than shares of the Kemper Cash
Reserves Fund purchased directly at net asset value) may reinvest up to the full
amount redeemed at net asset value at the time of the reinvestment in Class A
shares of the Fund or of the other listed Zurich Scudder Mutual Funds. A
shareholder of the Fund or other Kemper Funds who redeems Class A shares
purchased under the Large Order NAV Purchase Privilege (see "Purchase of Shares
-- Initial Sales Charge Alternative -- Class A Shares") or Class B shares or
Class C shares and incurs a contingent deferred sales charge may reinvest up to
the full amount redeemed at net asset value at the time of the reinvestment, in
the same class of shares as the case may be, of the Fund or of other Kemper
Funds. The amount of any contingent deferred sales charge also will be
reinvested. These reinvested shares will retain their original cost and purchase
date for purposes of the contingent deferred sales charge schedule. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares of the Fund or of the other Zurich Scudder Mutual Funds listed
under "Special Features -- Class A Shares -- Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Zurich Scudder Mutual Funds available for sale in the shareholder's state of
residence as listed under "Special Features -- Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of shares of the Fund, the reinvestment in shares of
the Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
Redemption in Kind. Although it is the Fund's present policy to redeem in cash,
if the Board of Trustees determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the SEC, taking such securities at the same value used to
determine net asset value, and selecting the securities in such manner as the
Board of Trustees may deem fair and equitable. If such a distribution occurred,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash. The Trust has elected, however, to be governed by Rule 18f-1
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under the 1940 Act, as a result of which the 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 a Share at the
beginning of the period.
SPECIAL FEATURES
Class A Shares -- Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following Funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Strategic Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Blue Chip Fund,
Kemper Global Income Fund, Kemper Target Equity Fund (series are subject to a
limited offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash
Reserves Fund (available only upon exchange or conversion from Class A shares of
another Kemper Fund), Kemper U.S. Mortgage Fund, Kemper Short-Intermediate
Government Fund, Kemper Value Plus Growth Fund, Kemper Horizon Fund, Kemper New
Europe Fund, Inc., Kemper Asian Growth Fund, Kemper Aggressive Growth Fund,
Kemper Global/International Series, Inc., Kemper Equity Trust and Kemper
Securities Trust, Scudder 21st Century Growth Fund, The Japan Fund, Inc.,
Scudder High Yield Tax Free Fund, Scudder Pathway Series - Moderate Portfolio,
Scudder Pathway Series - Conservative Portfolio, Scudder Pathway Series - Growth
Portfolio, Scudder International Fund, Scudder Growth and Income Fund, Scudder
Large Company Growth Fund, Scudder Health Care Fund, Scudder Technology
Innovation Fund, Global Discovery Fund, Value Fund, and Classic Growth Fund
("Zurich Scudder Mutual Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"),
which are not considered a "Zurich Scudder Mutual Fund" for purposes hereof. For
purposes of the Combined Purchases feature described above as well as for the
Letter of Intent and Cumulative Discount features described below, employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent may include: (a) Money Market
Funds as "Kemper Mutual Funds", (b) all classes of shares of any Kemper Fund and
(c) the value of any other plan investments, such as guaranteed investment
contracts and employer stock, maintained on such subaccount record keeping
system.
Class A Shares - Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Zurich Scudder Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer-sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included for this privilege.
Class A Shares - Cumulative Discount. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Zurich Scudder Mutual Funds (computed at the maximum
offering price at the time of the purchase for which the discount is applicable)
already owned by the investor.
Class A Shares - Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge
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<PAGE>
is applicable to a purchase. Upon such notification, the investor will receive
the lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Zurich
Scudder Mutual Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Zurich Scudder Mutual Funds and shares of
the Money Market Funds listed under "Special Features -- Class A Shares --
Combined Purchases" above may be exchanged for each other at their relative net
asset values. Shares of Money Market Funds and the Kemper Cash Reserves Fund
that were acquired by purchase (not including shares acquired by dividend
reinvestment) are subject to the applicable sales charge on exchange. Series of
Kemper Target Equity Fund are available on exchange only during the Offering
Period for such series as described in the applicable prospectus. Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investors Municipal Cash Fund and Investors Cash Trust are available on exchange
but only through a financial services firm having a services agreement with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Zurich Scudder Mutual
Fund or a Money Market Fund under the exchange privilege described above without
paying any contingent deferred sales charge at the time of exchange. If the
Class A shares received on exchange are redeemed thereafter, a contingent
deferred sales charge may be imposed in accordance with the foregoing
requirements provided that the shares redeemed will retain their original cost
and purchase date for purposes of calculating the contingent deferred sales
charge.
Class B Shares. Class B shares of the Fund and Class B shares of any other
Zurich Scudder Mutual Fund listed under "Special Features -- Class A Shares --
Combined Purchases" may be exchanged for each other at their relative net asset
values. Class B shares may be exchanged without a contingent deferred sales
charge being imposed at the time of exchange. For purposes of calculating the
contingent deferred sales charge that may be imposed upon the redemption of the
Class B shares received on exchange, amounts exchanged retain their original
cost and purchase date.
Class C Shares. Class C shares of the Fund and Class C shares of any other
Zurich Scudder Mutual Funds listed under "Special Features -- Class A Shares --
Combined Purchases" may be exchanged for each other at their relative net asset
values. Class C shares may be exchanged without a contingent deferred sales
charge being imposed at the time of exchange. For purposes of determining
whether there is a contingent deferred sales charge that may be imposed upon the
redemption of the Class C shares received by exchange, they retain the cost and
purchase date of the shares that were originally purchased and exchanged.
General. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired by exchange through another Kemper Fund, or
from a Money Market Fund, may not be exchanged thereafter until they have been
owned for 15 days (the "15-Day Hold Policy"). In addition, shares of a Kemper
fund with a value of $1,000,000 or less (except Kemper Cash Reserves Fund)
acquired by exchange from another Kemper fund, or from a money market fund, may
not be exchanged thereafter until they have been owned for 15 days, if, in the
Advisor's judgment, the exchange activity may have an adverse effect on the
fund. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to the Kemper fund and therefore may be
subject to the 15-Day Hold Policy.
For purposes of determining whether the 15-Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, discretion or advice, including, without limitation, accounts
administered by a financial services firm offering market timing, asset
allocation or similar services. The total value of shares being exchanged must
at least equal the minimum investment requirement of the Kemper Fund into which
they are being exchanged. Exchanges are made based on relative dollar values of
the shares involved in the exchange. There is no service fee for an exchange;
however, dealers or other firms may charge for their services in effecting
exchange transactions. Exchanges will be effected by redemption of shares of the
fund held and purchase of shares of the other fund. For federal income tax
purposes, any such exchange constitutes a sale upon which a gain or loss may be
realized, depending upon whether the value of the shares being exchanged is more
or less than the shareholder's adjusted cost basis of such shares. Shareholders
interested in exercising the exchange privilege may obtain prospectuses of the
other Funds from dealers, other firms or KDI. Exchanges may be accomplished by a
written request to Kemper Service Company, Attention: Exchange Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557, or by telephone if the shareholder
has given authorization. Once the authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048, subject to the
limitations on liability under "Redemption or Repurchase of
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Shares -- General." Any share certificates must be deposited prior to any
exchange of such shares. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the telephone
exchange privilege. The exchange privilege is not a right and may be suspended,
terminated or modified at any time. Exchanges may only be made for Funds that
are available for sale in the shareholder's state of residence. Currently,
Tax-Exempt California Money Market Fund is available for sale only in California
and Investors Municipal Cash Fund is available for sale only in certain states.
Except as otherwise permitted by applicable regulations, 60 days' prior written
notice of any termination or material change will be provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($50 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the shareholder or the Kemper Fund terminates the privilege.
Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated ClearingHouse System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem Shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such Shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (minimum $50
and maximum $50,000) from the shareholder's account at a bank, savings and loan
or credit union into the shareholder's Fund account. By enrolling in Bank Direct
Deposit, the shareholder authorizes the Fund and its agents to either draw
checks or initiate Automated ClearingHouse debits against the designated account
at a bank or other financial institution. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Shareholder Service Agent for appropriate forms. A shareholder may terminate
his or her Plan by sending written notice to Kemper Service Company, P.O. Box
419415, Kansas City, Missouri 64141-6415. Termination by a shareholder will
become effective within thirty days after the Shareholder Service Agent has
received the request. The Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Fund may terminate or modify this privilege at any time.
Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $50. The maximum annual rate at which Class B shares may be redeemed
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in their first year following the purchase) under a systematic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain
48
<PAGE>
dividends will be automatically reinvested at net asset value. A sufficient
number of full and fractional shares will be redeemed to make the designated
payment. Depending upon the size of the payments requested and fluctuations in
the net asset value of the shares redeemed, redemptions for the purpose of
making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts
("IRAs"). This includes Savings Incentive Match Plan for Employees of
Small Employers ("SIMPLE"), Simplified Employee Pension Plan ("SEP")
IRA accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to
employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be
adopted by employers. The maximum annual contribution per participant
is the lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, simple 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisors before
establishing a retirement plan.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the Exchange is closed other than customary
weekend and holiday closings or during any period in which trading on the
Exchange is restricted, (b) during any period when an emergency exists as a
result of which (i) disposal of the Fund's investments is not reasonably
practicable, or (ii) it is not reasonably practicable for the Fund to determine
the value of its net assets, or (c) for such other periods as the SEC may by
order permit for the protection of the Fund's shareholders.
The conversion of Class B Shares to Class A Shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B Shares and
not Class A Shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B Shares to Class A Shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B Shares to Class
A Shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B Shares would occur, and Shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their ages, their principal occupations
and their affiliations, if any, with the Advisor, and Kemper Distributors, Inc.,
are as follows:
49
<PAGE>
<TABLE>
<CAPTION>
--------------------------------- ----------------------- --------------------------------------- --------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------- ------------------ -------------------- ----
--------------------------------- ----------------------- --------------------------------------- --------------------------
<S> <C> <C> <C>
Henry P. Becton, Jr. (56) Trustee President, WGBH Educational Foundation --
WGBH
125 Western Avenue
Allston, MA 02134
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Linda C. Coughlin (48)+* Trustee and President Managing Director of Zurich Scudder Director and Vice
Investments, Inc. Chairman
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Dawn-Marie Driscoll (53) Trustee Executive Fellow, Center for Business --
4909 SW 9th Place Ethics, Bentley College; President,
Cape Coral, FL 33914 Driscoll Associates (consulting firm)
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Edgar R. Fiedler (70) Trustee Senior Fellow and Economic Counselor, --
50023 Brogden The Conference Board, Inc.
Chapel Hill, NC (not-for-profit business research
organization)
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Keith R. Fox (45) Trustee Private Equity Investor, General --
10 East 53rd Street Partner, Exeter Group of Funds
New York, NY 10022
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Joan E. Spero (55) Trustee President, Doris Duke Charitable --
Doris Duke Charitable Foundation Foundation; Department of State -
650 Fifth Avenue Undersecretary of State for Economic,
New York, NY 10128 Business and Agricultural Affairs
(March 1993 to January 1997)
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Jean Gleason Stromberg (56) Trustee Consultant; Director, Financial --
3816 Military Road, NW Institutions Issues, U.S. General
Washington, D.C. Accounting Office (1996-1997);
Partner, Fulbright & Jaworski (law
firm) (1978-1996)
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Jean C. Tempel (56) Trustee Managing Director, First Light --
One Boston Place 23rd Floor Capital, LLC (venture capital firm)
Boston, MA 02108
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Steven Zaleznick (45)* Trustee President and CEO, AARP Services, Inc. --
601 E Street
Washington, D.C. 20004
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Thomas V. Bruns (43)# Vice President Managing Director of Zurich Scudder President
Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
50
<PAGE>
--------------------------------- ----------------------- --------------------------------------- --------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------- ------------------ -------------------- ----
--------------------------------- ----------------------- --------------------------------------- --------------------------
William F. Glavin (41)# Vice President Managing Director of Zurich Scudder Managing Director
Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
James E. Masur (40)+ Vice President Senior Vice President of Zurich --
Scudder Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Kathryn L. Quirk (47)+ Vice President and Managing Director of Zurich Scudder Director, Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Secretary
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Howard S. Schneider (43)# Vice President Managing Director of Zurich Scudder --
Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
John R. Hebble (42)+ Treasurer Senior Vice President of Zurich --
Scudder Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Brenda Lyons (37)+ Assistant Treasurer Senior Vice President of Zurich --
Scudder Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
Caroline Pearson (38)+ Assistant Secretary Senior Vice President of Zurich --
Scudder Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
--------------------------------- ----------------------- --------------------------------------- --------------------------
--------------------------------- ----------------------- --------------------------------------- --------------------------
John Millette (37)+ Vice President and Vice President of Zurich Scudder --
Secretary Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- -------------------------
--------------------------------- ----------------------- --------------------------------------- -------------------------
Senior Vice President of Zurich
Lois R. Roman (36)++ Vice President Scudder Investments, Inc. --
--------------------------------- ----------------------- --------------------------------------- -------------------------
--------------------------------- ----------------------- --------------------------------------- -------------------------
Robert D. Tymoczko (30)@ Vice President Senior Vice President of Zurich --
Scudder Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- -------------------------
</TABLE>
* Ms. Coughlin and Mr. Zaleznick are considered by the Fund and
its counsel to be persons who are "interested persons" of the
Advisor or of the Trust, within the meaning of the Investment
Company Act of 1940, as amended.
** Unless otherwise stated, all of the Trustees and officers have
been associated with their respective companies for more than
five years, but not necessarily in the same capacity.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
# 222 South Riverside Plaza, Chicago, Illinois
@ 101 California Street, San Francisco, California
The Trustees and Officers of the Trusts also serve in similar capacities with
other Scudder Funds.
51
<PAGE>
To the best of the Trust's knowledge, as of November 30, 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 outstanding shares of any class of Scudder Large Company Value Fund.
As of November 30, 2000, 2,311 shares in the aggregate, or 6.94% of the
outstanding shares of Scudder Large Company Value Fund - Class AARP - were held
in the name of George Zivska, who may deemed to be the beneficial owner of such
shares.
As of November 30, 2000, 5,605 shares in the aggregate, or 16.84% of the
outstanding shares of Scudder Large Company Value Fund - Class AARP - were held
in the name of Scudder Trust Company, Custodian for the IRA of Robert Schmicker,
who may deemed to be the beneficial owner of such shares.
As of November 30, 2000, 1,985 shares in the aggregate, or 5.96% of the
outstanding shares of Scudder Large Company Value Fund - Class AARP - were held
in the name of Scudder Trust Company, Custodian for the IRA of Jean Bauer, who
may deemed to be the beneficial owner of such shares.
To the best of the Fund's knowledge, no person owned of record more than 5% or
more of the outstanding shares of any class of the Fund, except as stated above.
Remuneration
Responsibilities of the Board--Board and Committee Meetings
The Board of Trustees of the Trust is responsible for the general oversight of
the Fund's business. A majority of the Board's members are not affiliated with
Zurich Scudder Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund of the Trust 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 Scudder and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, the quality and efficiency of the various other services provided,
costs incurred by Scudder and its affiliates, and comparative information
regarding fees and expenses of competitive funds. They are assisted in this
process by the Fund's independent public accountants and by independent legal
counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee of Independent Trustees,
which nominates Independent Trustees and considers other related matters, and
the Audit Committee, which selects the Fund's independent public accountants and
reviews accounting policies and controls. In addition, Independent Trustees from
time to time have established and served on task forces and subcommittees
focusing on particular matters such as investment, accounting and shareholder
service issues.
Compensation of Officers and Trustees of the Fund
Each Independent Trustee receives compensation for his or her services, which
includes an annual retainer and an attendance fee for each meeting attended. The
Independent Trustee who serves as lead trustee receives additional compensation
for his or her service. No additional compensation is paid to any Independent
Trustee for travel time to meetings, attendance at directors' educational
seminars or conferences, service on industry or association committees,
participation as speakers at directors' 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.
The Independent Trustees also serve in the same capacity for other funds managed
by the Advisor. These funds differ broadly in type and complexity and in some
cases have substantially different Trustee fee schedules. The
52
<PAGE>
following table shows the aggregate compensation received by each Independent
Trustee during 1999 from each Trust and from all of the Scudder funds as a
group.
-------------------------------- --------------------- -------------------------
NAME VALUE EQUITY TRUST ALL SCUDDER FUNDS
-------------------------------- --------------------- -------------------------
Henry P. Becton, Jr.** $0 $140,000 (30 funds)
-------------------------------- --------------------- -------------------------
Dawn-Marie Driscoll** 0 150,000 (30 funds)
-------------------------------- --------------------- -------------------------
Edgar R. Fiedler+** 340 73,230 (29 funds)
-------------------------------- --------------------- -------------------------
Keith R. Fox 22,100 160,325 (23 funds)
-------------------------------- --------------------- -------------------------
Joan E. Spero 24,700 175,275 (23 funds)
-------------------------------- --------------------- -------------------------
Jean Gleason Stromberg** 0 40,935 (16 funds)
-------------------------------- --------------------- -------------------------
Jean C. Tempel** 0 140,000 (30 funds)
-------------------------------- --------------------- -------------------------
* Value Equity Trust consists of 4 funds: Scudder Large Company Value
Fund, Scudder Select 500 Fund, Scudder Select 1000 Growth Fund, and
Value Fund.
** Newly elected Trustee. On July 13, 2000, shareholders of the Fund
elected a new Board of Trustees. See the "Trustees and Officers"
section for the newly-constituted Board of Trustees.
+ Mr. Fiedler's total compensation includes the $9,900 accrued, but not
received, through the deferred compensation program.
Members of the Board of Trustees who are employees of the Advisor or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Advisor, or its affiliates, as a result of which
they may be deemed to participate in fees paid by the Fund.
SHAREHOLDER RIGHTS
The Fund is a 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 Trustees have the authority to issue additional series of
shares. If more than one series of shares were issued and a series were unable
to meet its obligations, the remaining series might have to assume the
unsatisfied obligations of that series.
The Fund's activities are supervised by the Trust's Board of Trustees. The Trust
has adopted a plan pursuant to Rule 18f-3 (the "Plan") under the 1940 Act to
permit the Trust to establish a multiple class distribution system. The Fund has
six classes, Class AARP, Class S, Class A, Class B, Class C and Class I, which
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 Fund's combined
prospectus.
Each class of shares will represent interests in the same portfolio of
investments of the Series, and be identical in all respects to each other class,
except as set forth below. The only differences among the various classes of
shares of the Series will relate solely to: (a) different distribution fee
payments or service fee payments associated with any Rule 12b-1 Plan for a
particular class of shares and any other costs relating to implementing or
amending such Rule 12b-1 Plan (including obtaining shareholder approval of such
Rule 12b-1 Plan or any amendment thereto) which will be borne solely by
shareholders of such class; (b) different service fees; (c) different account
minimums; (d) the bearing by each class of its Class Expenses, as defined in
Section 2(b) below; (e) the voting rights related to any Rule 12b-1 Plan
affecting a specific class of shares; (f) separate exchange privileges; (g)
different conversion features and (h) different class names and designations.
Expenses currently designated as "Class Expenses" by the Trust's Board of
Trustees under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.
Each share of each class of the 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 the Fund shall vote
together on any matter, except to the extent otherwise required by the 1940 Act,
or when the Board of Trustees has
53
<PAGE>
determined that the matter affects only the interest of shareholders of one or
more classes of the Fund, in which case only the shareholders of such class or
classes of the Fund shall be entitled to vote thereon. Any matter shall be
deemed to have been effectively acted upon with respect to the 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 Fund 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 the Fund represents an equal proportionate interest in the 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 the 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 the Fund are entitled to
receive the assets attributable to the Fund that are available for distribution,
and a proportionate distribution, based upon the relative net assets of the
Fund, of any general assets not attributable to the Fund that are available for
distribution.
The Trustees, in their discretion, may authorize the division of shares of the
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, 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.
54
<PAGE>
The Trust has a Declaration of Trust which provides that obligations of the Fund
are not binding upon the Trustees individually but only upon the property of the
Fund, that the Trustees and officers will not be liable for errors of judgment
or mistakes of fact or law, and that the 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.
Additional Information
Other Information
The CUSIP numbers of the classes are:
Class A: 920390-861
Class B: 920390-853Class C: 920390-846
Class I: 920390-838
The Fund has a fiscal year ending July 31. On June 7, 1999, the Board of the
Fund changed the fiscal year end from September 30 to July 31.
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Advisor in light of the Fund's investment objectives and policies,
its other portfolio holdings and tax considerations, and should not be construed
as recommendations for similar action by other investors.
Portfolio securities of the Fund are held separately pursuant to a custodian
agreement, by the Fund's custodian, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110.
The law firm of Dechert is counsel to the Fund.
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 the Fund must look solely to the property of the Fund for
the enforcement of any claims against the 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 the Fund. Upon the
initial purchase of shares of the 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 the Fund as no other series
of the Trust assumes any liabilities for obligations entered into on behalf of
the Fund.
The Fund's Shares prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund 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 and its amendments are available for inspection by the public at the
SEC in Washington, D.C.
Financial Statements
The financial statements, including the investment portfolio of the Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Fund dated July 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.
55
<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.
56
<PAGE>
Factors giving security to 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.
57
<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.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(9) Establishment and Designation of Classes of Shares of Beneficial Interest,
$.01 Par Value, Scudder Large Company Value Fund - AARP Shares, S Shares, A
Shares, B Shares, C Shares and I Shares is to be filed by amendment.
(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.
Part C - Page 1
<PAGE>
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(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.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(9)(d) Amended and Restated Establishment and Designation of Shares of Beneficial
Interest, Classes A, B, and C of Scudder Large Company Value Fund, is 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.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(6) Amendment to the By-Laws of Registrant, dated November 13, 2000 is 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
Part C - Page 2
<PAGE>
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.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(6) Investment Management Agreement between the Registrant, on behalf of Scudder
Select 500 Fund, and Scudder Kemper Investments, Inc., dated August 28, 2000
(Incorporated by reference to Post-Effective Amendment No. 44 to the
Registration Statement.).
(7) Investment Management Agreement between the Registrant, on behalf of Scudder
Select 1000 Growth Fund, and Scudder Kemper Investments, Inc., dated October
2, 2000(Incorporated by reference to Post-Effective Amendment No. 44 to the
Registration Statement.)
(8) Investment Management Agreement between the Registrant, on behalf of Scudder
Large Company Value Fund, and Scudder Kemper Investments, Inc., dated
October 2, 2000 is incorporated by reference to Post-Effective Amendment No.
42 to the Registration Statement.
(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 May 8, 2000 (Incorporated by reference to Post-Effective
Amendment No. 44 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.)
(4) Amendment dated December 7, 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. 44 to the Registration Statement.)
(5) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc., dated November 13, 2000, is filed herein.
(f) Inapplicable.
Part C - Page 3
<PAGE>
(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.)
(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) Sub-custodian 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.)
(9) Amendment to the Custodian Agreement between the Registrant and State Street
Bank is filed herein.
Part C - Page 4
<PAGE>
(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) 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.)
Part C - Page 5
<PAGE>
(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.)
(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) 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, (Incorporated by reference
to Post-Effective Amendment No. 44 to the Registration Statement.)
(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.)
Part C - Page 6
<PAGE>
(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.)
(17) Revised Fund Accounting Services Agreement between the Registrant (on behalf
of Scudder Large Company Value Fund) and Scudder Fund Accounting
Corporation, dated November 13, 2000, is filed herein.
(18) Amended and Restated Administrative Services Agreement (and Fee Schedule
thereto) between the Registrant, on behalf of Scudder Large Company Value
Fund, and Scudder Kemper, Investments, Inc., dated November 13, 2000, is
filed herein
(19) Shareholder Services Agreement between the Registrant and Kemper
Distributors, Inc., dated December 29, 2000, is filed herein.
(20) Agency Agreement between the Registrant and Kemper Service Company, dated
November 13, 2000, is filed herein.
(i) Opinion and Consent of Legal Counsel is filed herein.
(j) Consent of Independent Accountants is filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m) (1) Rule 12b-1 Plan for Scudder Medium Term Tax Free Fund Class B and C Shares,
dated November 13, 2000, is filed herein.
(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.)
(1) Plan With Respect to Scudder Large Company Value Fund Pursuant to Rule
18f-3, dated March 14, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(2) Amended and Restated Plan With Respect to Scudder Large Company Value Fund
Pursuant to Rule 18f-3 dated May 8, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(3) Plan With Respect to Scudder Select 500 Fund Pursuant to Rule 18f-3, dated
March 14, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
Part C - Page 7
<PAGE>
(4) Amended and Restated Plan With Respect to Scudder Select 500 Fund Pursuant
to Rule 18f-3 dated May 8, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(5) Plan With Respect to Scudder Select 1000 Growth Fund Pursuant to Rule 18f-3,
dated March 14, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(6) Amended and Restated Plan With Respect to Scudder Select 1000 Growth Fund
Pursuant to Rule 18f-3 dated May 8, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(7) Amended and Restated Plan with respect to the Registrant pursuant to Rule
18f-3 is 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.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
</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 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
Part C - Page 8
<PAGE>
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 (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
Part C - Page 9
<PAGE>
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
---- ------------------------------------
<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.
Part C - Page 10
<PAGE>
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 ##
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.**
Part C - Page 11
<PAGE>
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
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
Part C - Page 12
<PAGE>
@@@ 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.
<TABLE>
<CAPTION>
(1) (2) (3)
Scudder Investor Services, Inc.
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
------------------ ------------------------------- -----------------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154-0010
Ann P. Burbank Vice President None
Two International Place
Boston, MA 02110-4103
Mark S. Casady President, Director and Assistant None
Two International Place Treasurer
Boston, MA 02110-4103
Linda C. Coughlin Director and Senior Vice President Trustee and President
Two International Place
Boston, MA 02110-4103
Scott B. David Vice President None
Two International Place
Boston, MA 02110-4103
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154-0010
Part C - Page 13
<PAGE>
Scudder Investor Services, Inc.
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
------------------ ------------------------------- -----------------------
William F. Glavin Vice President None
Two International Place
Boston, MA 02110-4103
Robert J. Guerin Vice President None
Two International Place
Boston, MA 02110-4103
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110-4103
James J. McGovern Chief Financial Officer and Treasurer None
345 Park Avenue
New York, NY 10154-0010
Kimberly S. Nassar Vice President None
Two International Place
Boston, MA 02110-4103
Gloria S. Nelund Vice President None
345 Park Avenue
New York, NY 10154-0010
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110-4103
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110-4103
Kevin G. Poole Vice President None
Two International Place
Boston, MA 02110-4103
Kathryn L. Quirk Director, Senior Vice President, Chief Vice President and
345 Park Avenue Legal Officer and Assistant Clerk Assistant Secretary
New York, NY 10154-0010
Howard S. Schneider Vice President None
Two International Place
Boston, MA 02110-4103
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110-4103
</TABLE>
(c)
Part C - Page 14
<PAGE>
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(d)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Name Positions and Offices with Positions and
---- Kemper Distributors, Inc. Offices with Registrant
------------------------- -----------------------
<S> <C> <C>
Thomas V. Bruns President None
Linda C. Coughlin Director and Vice Chairman None
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Treasurer None
Linda J. Wondrack Vice President and Chief Compliance Officer Vice President
Paula Gaccione Vice President None
Michael E. Harrington Managing Director None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and Secretary
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director and Chairman President
Terrence S. McBride Vice President None
Robert Froelich Managing Director None
C. Perry Moore Senior Vice President and Managing Director None
Lorie O'Malley Managing Director None
William F. Glavin Managing Director None
Gary N. Kocher Managing Director None
Susan K. Crenshaw Vice President None
Part C - Page 15
<PAGE>
Johnston A. Norris Managing Director and Senior Vice President None
John H. Robison, Jr. Managing Director and Senior Vice President None
Robert J. Guerin Vice President None
Kimberly S. Nassar Vice President None
</TABLE>
(e) Not applicable
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.
Part C - Page 16
<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 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 22nd day of December 2000.
VALUE EQUITY TRUST
By /s/ John Millette
-----------------
John Millette
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>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Linda C. Coughlin
--------------------------------------
Linda C. Coughlin Trustee and President (Chief December 22, 2000
Executive Officer)
/s/ Henry P. Becton, Jr.
--------------------------------------
Henry P. Becton, Jr.* Trustee December 22, 2000
/s/Dawn-Marie Driscoll
--------------------------------------
Dawn-Marie Driscoll* Trustee December 22, 2000
/s/ Edgar R. Fiedler
--------------------------------------
Edgar R. Fiedler * Trustee December 22, 2000
/s/ Keith R. Fox
--------------------------------------
Keith R. Fox* Trustee December 22, 2000
/s/ Joan E. Spero
--------------------------------------
Joan E. Spero* Trustee December 22, 2000
/s/ Jean Gleason Stromberg
--------------------------------------
Jean Gleason Stromberg * Trustee December 22, 2000
/s/ Jean C. Tempel
--------------------------------------
Jean C. Tempel* Trustee December 22, 2000
/s/ Steven Zaleznick
--------------------------------------
Steven Zaleznick* Trustee December 22, 2000
/s/ John R. Hebble
--------------------------------------
John R. Hebble Treasurer (Chief Financial Officer) December 22, 2000
</TABLE>
<PAGE>
*By: /s/ John Millette
-----------------
John Millette**
Secretary
**Attorney-in-fact pursuant to the powers of attorney
contained in and incorporated by reference to Post-
Effective Amendment No. 34 and Post-Effective Amendment No.
40 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. 44
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 44
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
VALUE EQUITY TRUST
<PAGE>
VALUE EQUITY TRUST
EXHIBIT INDEX
Exhibit (a)(9)(d)
Exhibit (b)(6)
Exhibit (e)(5)
Exhibit (g)(9)
Exhibit (h)(17)
Exhibit (h)(18)
Exhibit (h)(19)
Exhibit (h)(20)
Exhibit (i)
Exhibit (j)
Exhibit (m)(1)
Exhibit (n)(7)
