Filed electronically with the Securities and Exchange
Commission on March 2, 1999.
File No. 2-13628
File No. 811-43
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. 103 / X /
---
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 55 / X /
--
Investment Trust
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(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
Thomas F. McDonough
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Scudder Kemper Investments, Inc.
--------------------------------
Two International Place, Boston, MA 02110
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
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<CAPTION>
<S> <C>
/ / Immediately upon filing pursuant to paragraph ( b ) / / days after filing pursuant to paragraph ( a ) ( 1 )
/ / days after filing pursuant to paragraph ( a ) ( 2 ) / / On ( date ) pursuant to paragraph ( a ) ( 2 ) of Rule 485.
/ X / On May 1, 1999 pursuant to paragraph ( a ) ( 1 ) / / On ( date ) pursuant to paragraph ( b )
/ / If Appropriate, check the following box:
This post-effective amendment designates a new effective date for a previously filed post-effective amendment
</TABLE>
<PAGE>
INVESTMENT TRUST
Scudder Dividend & Growth Fund
Scudder Real Estate Investment Fund
Scudder S&P 500 Index Fund
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<PAGE>
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Scudder Dividend & Growth Fund
Prospectus
May 1, 1999
Seeking high current income and long-term growth of capital through investment
in income-paying equity securities.
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
No-Load/No Sales Charge
"The place to plan your retirement"
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<PAGE>
CONTENTS
INVESTMENT OBJECTIVE
An overview of the fund's goal and strategy, main risks,
performance and expenses
ABOUT THE FUND
Additional information that you should know about the fund
MAIN INVESTMENT STRATEGIES, OTHER INVESTMENTS
AND MAIN RISKS
A MESSAGE FROM THE PRESIDENT
INVESTMENT ADVISER
DISTRIBUTIONS
TAXES
FINANCIAL HIGHLIGHTS
ABOUT YOUR INVESTMENT
Information about managing your fund account
TRANSACTION INFORMATION
BUYING AND SELLING SHARES
PURCHASES
EXCHANGES AND REDEMPTIONS
INVESTMENT PRODUCTS AND SERVICES
2
<PAGE>
INVESTMENT OBJECTIVE
The fund seeks to provide high current income and long-term growth of capital.
Unless otherwise indicated, the fund's investment objective and policies may be
changed without a vote of shareholders.
MAIN INVESTMENT STRATEGIES
The fund pursues its goal by investing primarily in dividend-paying common
stocks, preferred stocks, securities convertible into common stocks and real
estate investment trusts (REITs). REITs pool investor funds for allocation to
income-producing real estate or real estate-related loans or interests. A REIT
is not taxed on income distributed to shareholders if it complies with several
IRS requirements relating to its organization, ownership, assets and income and,
further, if it distributes to its shareholders at least 95% of its taxable
income each year. Under normal conditions, the fund will invest between 40 and
80% of its assets in dividend-paying common stocks.
In managing the fund's portfolio, the portfolio management team employ a
disciplined investment process that seeks to identify higher-yielding stocks
which the managers believe offer the potential for returns over time that are
greater than, or equal to, that of the Standard & Poor's Corporation 500
Composite Stock Price Index. The fund will generally sell a stock if its
dividend yields fall below the yield on the S&P 500 Index or if the yield is at
the lower end of the stock's historic range. Typically, companies that meet
these criteria are medium- to large-sized companies. In selecting convertible
and REIT securities for the fund, the managers seek out securities that they
believe will give the fund participation in attractive equity investments and
the added benefits of the yield and downside protection that convertible
securities can offer.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
OTHER INVESTMENTS
To a more limited extent, the fund may, but is not required to, make the
following investments:
The fund may invest up to 20% of its net assets in non-convertible debt
securities when the portfolio managers' believe that the capital appreciation on
debt securities is likely to exceed that on common stocks over a period of time
such as during a period of unusually high interest rates.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities or that are based on indices).
RISK MANAGEMENT STRATEGIES
The fund manages its risk by diversifying its assets among industries, market
sectors, and companies. It also invests in high-dividend-paying stocks whose
prices have historically tended to fall less in down markets compared to other
classes of financial assets such as bonds or cash equivalents. The fund may, but
is not required to, use certain derivatives in an attempt to manage risk. The
use of derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash and
in other money market and short-term instruments. In such a case, the fund would
not be pursuing, and may not achieve, its objective.
MAIN RISKS
The primary factor affecting this fund's performance is stock market movements
(i.e., the fund's share price fluctuates with changes in the general level of
the market). To the extent that the fund invests in the securities of REITs, the
fund's performance may be affected by changes in economic conditions that affect
real estate values
3
<PAGE>
or interest rates. Investments in foreign securities also carry risks due to the
possibility of inadequate or inaccurate information about companies, potential
political disturbances and fluctuations in currency exchange rates.
The portfolio management team's skill in choosing appropriate investments for
the fund will determine in large part the fund's ability to achieve its
investment objective. In addition, the portfolio management team's attempts to
limit downside risk may also reduce performance in a strong market.
There are market and investment risks with any security and the value of an
investment in the fund will fluctuate over time and it is possible to lose money
invested in the fund.
Past performance
As this is a new fund, no past performance data are available.
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<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund.
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Shareholder fees: Fees paid directly from your investment.
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Maximum sales charge (load) imposed on purchases (as % of NONE
offering price)
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Maximum deferred sales charge (load) NONE
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Maximum sales charge (load) imposed on reinvested NONE
dividends/distribution
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Redemption fee (as % of amount redeemed, if applicable) NONE*
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Exchange fee NONE*
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Annual fund operating expenses (expenses that are deducted from fund assets):
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Management fee x.xx%
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Distribution (12b-1) fees NONE
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Other expenses x.xx%
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Total annual fund operating expenses x.xx%**
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Expense reimbursement x.xx%
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Net expenses x.xx%**
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* If you wish to receive your redemption proceeds via wire, there is a $5 wire
service fee. For additional information, please refer to "About Your Investment
- - Exchanges and redemptions."
** From January 1, 1998 until April 30, 1999 total annual fund operating
expenses were contractually maintained at 0.75%.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The expenses
would be the same whether you sold your shares at the end of each period or
continued to hold them.
- --------------------------------------------------------------------------------
One Year $___
- --------------------------------------------------------------------------------
Three Years $___
- --------------------------------------------------------------------------------
Five Years $___
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Ten Years $___
- --------------------------------------------------------------------------------
Actual fund expenses and return vary from year to year, and may be higher or
lower than those shown.
5
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the fund's
financial performance for the periods indicated. [Certain information reflects
financial results for a single fund share outstanding throughout the fiscal
period (a).] The total return figures represent the rate that a shareholder
would have earned (or lost) on an investment in the fund assuming reinvestment
of all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP whose report, along with the fund's financial
statements, is included in the annual report, which is available upon request by
calling Scudder Investor Relations at 1-800-225-2470, or, for existing
shareholders, call the Scudder Automated Information Line (SAIL) at
1-800-343-2890.
[INSERT TABLE]
6
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A message from the President
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $280 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares. We also manage mutual funds in a special program for the American
Association of Retired Persons, as well as the fund options available through
Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise The
Japan Fund and numerous other open- and closed-end funds that invest in this
country and other countries around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds; IRAs, 401(k)s,
Keoghs and other retirement plans are also available.
Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.
The Scudder Family of Funds is offered without commissions to purchase or redeem
shares or to exchange from one fund to another. There are no distribution
(12b-1) fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
Investment adviser
The fund retains the investment management firm of Scudder Kemper Investments,
Inc., the ("Adviser"), Two International Place, Boston, MA, to manage the fund's
daily investment and business affairs subject to the policies established by the
Board of Trustees. The Adviser actively manages your investment in the fund.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities.
Until April 30, 1999, the Adviser agreed to maintain the annualized expenses of
the fund at no more than 0.75% of the average daily net assets of the fund. As a
result of this waiver, the Adviser received an investment management fee of
_____% of the fund's average daily net assets for the fiscal year ended December
31, 1998.
Portfolio management
The fund is managed by a team of investment professionals who each plays an
important role in the fund's management process. Team members work together to
develop investment strategies and select securities for the fund's portfolio.
They are supported by the Adviser's large staff of economists, research
analysts, traders and other investment specialists who work in the Adviser's
offices across the United States and abroad. The Adviser believes its team
approach benefits fund investors by bringing together many disciplines and
leveraging its extensive resources.
The following investment professionals are associated with the fund as
indicated:
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Name and Title Joined the Fund Responsibilities and Background
- --------------------------------------------------------------------------------------
<S> <C> <C>
Robert T. Hoffman 1998 Mr. Hoffman joined the Adviser in 1990
Lead Manager as a portfolio manager. Mr. Hoffman
has more than 16 years of pension fund
management experience.
- --------------------------------------------------------------------------------------
Nicholas Anisimov 1998 Mr. Anisimov joined the Adviser in 1987
Manager as an analyst. Mr. Anisimov joined the
fund as a
- --------------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------------
Name and Title Joined the Fund Responsibilities and Background
- --------------------------------------------------------------------------------------
portfolio manager in 1998.
Mr. Anisimov is the senior analyst
responsible for the research of
convertible securities for the Adviser
- --------------------------------------------------------------------------------------
Lori J. Ensinger 1998 Ms. Ensinger joined the Adviser in 1993
Manager as a portfolio manager. Prior to
joining the Adviser, Ms. Ensinger was a
senior portfolio manager at an
investment firm.
- --------------------------------------------------------------------------------------
</TABLE>
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
fund could be adversely affected if computer systems on which the fund relies,
which primarily include those used by the Adviser, its affiliates or other
service providers, are unable to process correctly date-related information on
and after January 1, 2000. The risk is commonly called the Year 2000 issue.
Failure to address successfully the Year 2000 issue could result in
interruptions to and other material adverse effects on the fund's business and
operations, such as problems with calculating net asset value and difficulties
in implementing the fund's purchase and redemption procedures. The Adviser has
commenced a review of the Year 2000 issue as it may affect the fund and is
taking steps it believes are reasonably designed to address the Year 2000 issue,
although there can be no assurances that these steps will be sufficient. In
addition, there can be no assurances that the Year 2000 issue will not have an
adverse effect on the issuers whose securities are held by the fund or on global
markets or economies generally.
Euro conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and operation of the fund. The Euro was
introduced on January 1, 1999 by eleven countries of the European Economic and
Monetary Union (EMU). The introduction of the Euro requires the redenomination
of European debt and equity securities over a period of time, which may result
in various accounting differences and/or tax treatments.
The Adviser is working to address Euro-related issues and understands that other
key service providers are taking similar steps. However, at this time no one
knows precisely what the degree of impact will be. To the extent that the market
impact or effect on fund holdings is negative, it could hurt the fund's
performance. Additional questions are raised by the fact that certain other
European Community members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999.
Distributions
The fund intends to distribute dividends from its net investment income
quarterly, in March, June, September and December. The fund intends to
distribute net realized capital gains after utilization of capital loss
carryforwards, if any, in November or December. An additional distribution may
be made at a later date, if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such 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.
A shareholder may choose to receive distributions in cash or have them
reinvested in additional shares of a fund. If an investment is in the form of a
retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account. Distributions are generally taxable,
whether received in cash or reinvested. Exchanges among funds are also taxable
events.
8
<PAGE>
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders, regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income. A portion of dividends from ordinary income may qualify for
the dividends-received deduction for corporations.
Unless your investment is in a tax-deferred account, you may want to avoid
investing a large amount close to the date of a distribution because you may
receive part of your investment back as a taxable distribution.
A sale or exchange of shares is a taxable event and may result in a capital gain
or loss, which may be long-term or short-term, generally depending on how long
you owned the shares.
The fund sends detailed tax information about the amount and type of its
distributions by January 31 of the following year.
The fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Any such withheld amounts may be credited against the
shareholder's U.S. federal income tax liability.
Shareholders may be subject to state, local and foreign taxes on fund
distributions and dispositions of fund shares. You should consult your tax
advisor regarding the particular consequences of an investment in the fund.
9
<PAGE>
About Your Investment
Transaction information
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the fund as of the close of regular trading on the New York Stock Exchange,
normally 4 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Net asset value per share is calculated by dividing the value of
total fund assets, less all liabilities, by the total number of shares
outstanding. Market prices are used to determine the value of the fund's assets.
If market prices are not readily available for a security or if a security's
price is not considered to be market indicative, that security may be valued by
another method that the Board or its delegate believes accurately reflects fair
value. In those circumstances where a security's price is not considered to be
market indicative, the security's valuation may differ from an available market
quotation.
Processing time
All purchase and redemption requests received in good order at the fund's
transfer agent by the close of regular trading on the New York Stock Exchange
are executed at the net asset value per share calculated at the close of trading
that day. All other requests that are in good order will be executed the
following business day.
Signature guarantees
A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain a guarantee from most brokerage houses and financial
institutions, although not from a notary public. The fund will normally send
redemption proceeds within one business day following the redemption request,
but may take up to seven business days (or longer in the case of shares recently
purchased by check). For more information, please call [1-800-225-5163]
[1-800-53 JAPAN].
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of fund shares (including exchanges) for any reason, including when
there is evidence of a pattern of frequent purchases and sales made in response
to short-term fluctuations in the fund's share price.
Minimum balances
Generally, shareholders who maintain a non-fiduciary account balance of less
than $2,500 in the fund and have not established an automatic investment plan
will be assessed, an annual $10.00 per fund charge; this fee is paid to the
fund. The fund reserves the right, following 60 days written notice to
shareholders, to redeem all shares in accounts that have a value below $1,000
where such a reduction in value has occurred due to a redemption, exchange or
transfer out of the account.
Third party transactions
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than Scudder Investor Services,
Inc.), that member may charge a fee for that service.
Redemption-in-kind
The fund reserves the right to honor requests for redemption or repurchase
orders by making payment in whole or in part in readily marketable securities
("redemption in kind") if the amount of such a request is large enough to affect
operations (for example, if the request is greater than $250,000 or 1% of the
fund's assets). These securities will be chosen by the fund and valued as they
are for purposes of computing the fund's net asset value. A shareholder may
incur transaction expenses in converting these securities to cash.
10
<PAGE>
Buying and selling shares
Please refer to the following charts for information on how to buy and sell fund
shares. Additional information, including special investment features, may be
found in the Shareholder Services Guide. For information about No-Fee IRAs, Roth
IRAs and other retirement options, call Scudder Investor Relations at
1-800-225-2470. For information on establishing 401(k) and 403(b) plans, call
Scudder Defined Contribution Services at 1-800-323-6105.
Purchases
To open an account
The minimum initial investment is $2,500; $1,000 for IRAs. Group retirement
plans (401(k), 403(b), etc.) have similar or lower minimums - see appropriate
plan literature. Make checks payable to "The Scudder Funds."
- --------------------------------------------------------------------------------
By Mail Send your completed and signed application and check
by regular mail to: or by express, registered, or
certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- --------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to complete your
application with the help of a Scudder representative. Investor
Centers are located in Boca Raton, Boston, Chicago, New York and
San Francisco.
- --------------------------------------------------------------------------------
To buy additional shares
The minimum additional investment is $100; $50 for IRAs. Group retirement plans
(401(k), 403(b), etc.) have similar or lower minimums - see appropriate plan
literature. Make checks payable to "The Scudder Funds."
- --------------------------------------------------------------------------------
By Mail Send a check with a Scudder investment slip, or with a
letter of instruction including your account number and the
complete fund name, to the appropriate address listed above.
- --------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed above.
- --------------------------------------------------------------------------------
By Telephone Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
By Automatic You may arrange to make investments of $50 or more on a
Investment regular basis through automatic deductions from your bank
Plan checking account. Please call 1-800-225-5163 for more
information and an enrollment form.
- --------------------------------------------------------------------------------
11
<PAGE>
Exchanges and redemptions
To exchange shares
The minimum investments are $2,500 to establish a new account and $100 to
exchange among existing accounts.
- --------------------------------------------------------------------------------
By To speak with a service representative, call 1-800-225-5163
Telephone from 8 a.m. to 8 p.m. eastern time. To access SAIL(TM), the
Scudder Automated Information Line, call 1-800-343-2890
(24 hours a day).
- --------------------------------------------------------------------------------
By Mail Print or type your instructions and include:
or Fax - the name of the fund and class and the account number
you are exchanging from;
- your name(s) and address as they appear on your
account;
- the dollar amount or number of shares you wish to
exchange;
- the name of the fund and class you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- --------------------------------------------------------------------------------
To sell shares
- --------------------------------------------------------------------------------
By To speak with a service representative, call 1-800-225-5163 from 8
Telephone a.m. to 8 p.m. eastern time. To access SAIL(TM), the Scudder
Automated Information Line, call 1-800-343-2890 (24 hours a day).
You may have redemption proceeds sent to your predesignated bank
account, or redemption proceeds of up to $100,000 sent to your
address of record.
- --------------------------------------------------------------------------------
By Mail Send your instructions for redemption to the appropriate address
or Fax or fax number above and include:
- the name of the fund and class and account number you are
redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
- --------------------------------------------------------------------------------
By You may arrange to receive automatic cash payments periodically.
Automatic Call 1-800-225-5163 for more information and an enrollment form.
Withdrawal
Plan
- --------------------------------------------------------------------------------
12
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds]
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series -- Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
13
<PAGE>
Retirement Programs and Education accounts
- --------------------------------------------------------------------------------
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan **]]
Scudder Horizon Advanage **]]]
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-end funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc. Scudder Global High Income Fund, Inc.
The Brazil Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Montgomery Street Income
Securities, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
] Funds within categories are listed in order from expected least risk to
most risk. Certain Scudder funds or classes thereof may not be available
for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family of
Funds.
]] A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470.
]]] A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by
Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are traded on
the New York Stock Exchange and, in some cases, on various foreign stock
exchanges.
14
<PAGE>
Additional information about the fund may be found in the Statement of
Additional Information, the Shareholder Service Guide and in shareholder
reports. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Service Guide
contains more detailed information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the fund's
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By phone: In person:
- --------------------------------------------------------------------------------
Call Scudder Investor Relations Public Reference Room
at 1-800-225-2470 Securities and Exchange
Or Commission,
For existing Scudder investors, call Washington, D.C.
the Scudder Automated Information Line (Call 1-800-SEC-0330 for more
(SAIL) at 1-800-343-2890 (24 hours a day). information).
- --------------------------------------------------------------------------------
By mail: By internet:
- --------------------------------------------------------------------------------
Scudder Investor Services, Inc. http://www.sec.gov
Two International Place http://www.scudder.com
Boston, MA 02110-4103
Or
Public Reference Section,
Securities and Exchange
Commission,
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number: 811-642
Printed with SOYINK Printed on recycled paper
15
<PAGE>
SCUDDER DIVIDEND & GROWTH FUND
A No-Load (No Sales Charges) Mutual Fund Seeking
High Current Income and Long-Term Growth of Capital
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Dividend & Growth Fund
dated May 1, 1999, as amended from time to time, copies of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder S&P 500 Index Fund dated
December 31, 1998, is incorporated by reference and is hereby deemed to be part
of this Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
Objective and Policies.......................................................................................1
Primary investments..........................................................................................1
Why invest in the Fund?.....................................................................................2
Other Information on the S&P 500 Index.......................................................................3
Master/feeder Structure......................................................................................3
Investment Restrictions.....................................................................................15
PURCHASES............................................................................................................16
Additional Information About Opening An Account.............................................................16
Additional Information About Making Subsequent Investments..................................................17
Additional Information About Making Subsequent Investments by QuickBuy......................................17
Checks......................................................................................................18
Wire Transfer of Federal Funds..............................................................................18
Share Price.................................................................................................18
Share Certificates..........................................................................................18
Other Information...........................................................................................18
EXCHANGES AND REDEMPTIONS............................................................................................19
Exchanges...................................................................................................19
Redemption by Telephone.....................................................................................20
Redemption by QuickSell.....................................................................................20
Redemption by Mail or Fax...................................................................................21
Redemption-in-Kind..........................................................................................21
Other Information...........................................................................................21
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................22
The No-Load Concept.........................................................................................22
Internet access.............................................................................................23
Dividend and Capital Gain Distribution Options..............................................................24
Scudder Investor Centers....................................................................................25
Reports to Shareholders.....................................................................................25
Transaction Summaries.......................................................................................25
THE SCUDDER FAMILY OF FUNDS..........................................................................................25
SPECIAL PLAN ACCOUNTS................................................................................................30
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................30
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........30
Scudder IRA: Individual Retirement Account.................................................................30
Scudder Roth IRA: Individual Retirement Account............................................................31
Scudder 403(b) Plan.........................................................................................32
Automatic Withdrawal Plan...................................................................................32
Group or Salary Deduction Plan..............................................................................32
Automatic Investment Plan...................................................................................33
Uniform Transfers/Gifts to Minors Act.......................................................................33
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.............................................................................33
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
PERFORMANCE INFORMATION..............................................................................................34
Average Annual Total Return.................................................................................34
Cumulative Total Return.....................................................................................34
Comparison of Fund Performance..............................................................................35
ORGANIZATION OF THE FUND.............................................................................................38
INVESTMENT ADVISER...................................................................................................39
Personal Investments by Employees of the Adviser............................................................42
TRUSTEES AND OFFICERS................................................................................................42
REMUNERATION.........................................................................................................44
Responsibilities of the Board--Board and Committee Meetings.................................................44
Compensation of Officers and Trustees of the Fund...........................................................45
DISTRIBUTOR..........................................................................................................46
TAXES................................................................................................................47
PORTFOLIO TRANSACTIONS...............................................................................................51
Brokerage Commissions.......................................................................................51
Portfolio Turnover..........................................................................................52
NET ASSET VALUE......................................................................................................52
ADDITIONAL INFORMATION...............................................................................................53
Experts.....................................................................................................53
Other Information...........................................................................................53
FINANCIAL STATEMENTS.................................................................................................54
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies" in the Fund's prospectus.)
Objective and Policies
Scudder Dividend & Growth Fund (the "Fund"), a diversified series of
Investment Trust, seeks to provide high current income and long-term growth of
capital through investment in income paying equity securities. The Fund invests
primarily in dividend paying common stocks, preferred stocks, securities
convertible into common stock, and Real Estate Investment Trusts ("REITs"). The
Fund's investment adviser, Scudder Kemper Investments Inc. (the "Adviser")
expects that the average gross income yield of the Fund will be higher than the
yield of the Standard and Poor's Corporation 500 Composite Price Index (the "S&P
500 Index"), a commonly accepted benchmark for U.S. stock market performance.
While broadly diversified and conservatively managed, the Fund's share
price will move up and down with changes in the general level of the financial
markets, particularly the U.S. stock market. Investors should be comfortable
with stock market risk and view the Fund only as a long-term investment.
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 the Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then financial position and needs. There can be no assurance that the Fund's
objective can be met.
Primary investments
Under normal market conditions, the Fund will invest primarily in
income-paying equity securities, which the Adviser, believes offers a high level
of current income and potential for long-term capital appreciation. The Adviser
believes that an actively managed portfolio of dividend paying stocks,
convertible securities, and REITs offers the potential for a higher level of
income and lower average share price volatility than the S&P 500 Index, a
commonly accepted benchmark for U.S. stock market performance. The Fund may also
purchase such securities which do not pay current dividends but which offer
prospects for growth of capital and future income.
Common Stocks. Under normal circumstances, the Fund will invest between
40% and 80% of its net assets in dividend paying common stocks. The Adviser
applies a disciplined investment approach to selecting these stocks of primarily
medium-to-large sized U.S. companies. The first stage of this process involves
analyzing a selected pool of income paying equity securities, to identify stocks
that have high yields relative to the yield of the S&P 500 Index. In the
Adviser's opinion, this subset of higher-yielding stocks offers the potential
for returns over time that are greater than or equal to the S&P 500 Index, at
less risk than this market index. The higher dividends offered by these stocks
may act as a "cushion" when markets are volatile and because stocks with higher
yields tend to sell at more attractive valuations (e.g., lower price-to-earning
ratios and lower price-to-book ratios).
Once this subset of higher-yielding stocks is identified, the Adviser
conducts fundamental analysis of each company's financial strength,
profitability, projected earnings, sustainability of dividends, and ability of
management. The Fund's portfolio may include stocks which are out of favor in
the market, but which, in the opinion of the Adviser, offer compelling
valuations and potential for long-term appreciation in price and dividends. In
investing the Fund's portfolio among different industry sectors, the Adviser
evaluates how each sector reacts to economic factors such as interest rates,
inflation, Gross Domestic Product, and consumer spending. The Fund's portfolio
is constructed by attaining a proper balance of stocks in these sectors based on
the Adviser's economic forecasts.
The Adviser applies a disciplined criteria for selling stocks in the
Fund's portfolio as well. When the Adviser determines that the relative yield of
a stock declines too far below the yield of the S&P 500 Index, or that the yield
is at the lower end of the stock's historic range, the stock generally is sold
from the Fund's portfolio. Similarly, if the Adviser's fundamental analysis
determines that the stock's dividend is at risk, or that market expectations for
the stock are too high, the stock is targeted for potential sale. In summary,
the Adviser applies disciplined buy and sell criteria,
<PAGE>
fundamental company and industry analysis, and economic forecasts in managing
the Fund to pursue long-term price appreciation and income with lower overall
volatility than the market.
Convertible securities. Under normal market conditions, the Adviser
will invest between 5% and 30% of the Fund's net assets in convertible
securities; that is, bonds, warrants, notes, debentures, preferred stocks,
coupon paying debt, zero coupon securities and other securities which are
convertible, or will become convertible, into common stock. Convertible
securities are investments that provide income, with generally higher yields
than common stocks, and offer the opportunity for capital appreciation by virtue
of their conversion or exchange features.
Investment in convertible securities generally entails less volatility
than investment in the common stock of the same corporate issuer. A unique
feature of convertible securities is that as the market price of the underlying
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. Conversely, 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.
Real Estate Investment Trusts (REITs). Under normal market conditions,
the Fund will invest between 5% and 30% of the Fund's net assets in REITs. REITs
pool investor funds for allocation to income-producing real estate or real
estate-related loans or interests. A REIT is not taxed on income distributed to
shareholders if it complies with several IRS requirements relating to its
organization, ownership, assets and income and, further, if it distributes to
its shareholders at least 95% of its taxable income each year.
REITs are typically classified as equity REITs, mortgage REITs or
hybrid REITs. Equity REITs own properties and, as such, derive their income
primarily from rents and lease payments. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive their
income primarily from interest payments. Hybrid REITs combine the
characteristics of both equity REITs and mortgage REITs. It is expected that the
Fund will invest primarily in the equity form of REITs.
Other investments
While the Fund emphasizes U.S. investments, it can commit a portion of
its assets to income paying equity securities and income producing convertible
securities of foreign companies that meet the criteria applicable to domestic
investments.
For temporary defensive purposes, the Fund may invest without limit in
high quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as U.S. Government obligations and corporate debt instruments when the
Adviser deems such a positions advisable in light of economic or market
conditions.
The Fund may invest up to 20% of its net assets in non-convertible debt
securities when the Adviser anticipates that capital appreciation on debt
securities is likely to equal or exceed the capital appreciation on common
stocks over a selected time, such as during periods of unusually high interest
rates. As interest rates fall, the prices of debt securities tend to rise. The
Fund may also invest in money market securities in anticipation of meeting
redemptions or paying Fund expenses. More information about investment
techniques is provided under "Additional information about policies and
investments."
Why invest in the Fund?
Scudder Dividend & Growth Fund offers a convenient, diversified, and
professionally managed way to take advantage of the income opportunities,
potential for long-term capital appreciation, and lower overall price volatility
of income paying equity securities. The Fund will strategically allocate its
assets among dividend paying common stock of medium-to large-sized U.S.
companies, convertible securities, and REITs.
2
<PAGE>
The Adviser believes that a portfolio of higher income common stocks,
identified through a disciplined investment approach, can have favorable risk
and return characteristics. Convertible securities, in the opinion of the
Adviser, can offer higher income than the underlying common stock, with better
protection against the downside volatility. Further, such investments can offer
a degree of participation in the upward price movement of associated common
stock. REITs represent a distinct asset class and can help diversify a
portfolio, as historically real estate investments have provided solid returns
while not always moving in tandem with traditional investments such as stocks,
bonds, and cash.
The Fund is designed for investors seeking stock market participation
through an income-producing, conservatively managed portfolio. The Fund may
serve as a core equity holding for conservative investors, such as individuals
nearing or already in retirement. For more aggressive investors, the Fund may
help to balance a portfolio of investments with greater volatility. The Fund may
be an excellent retirement vehicle, for individuals investing on their own or
through group retirement plans, as the Fund's income may grow and compound with
tax-advantaged treatment.
[To be Updated]
Other Information on the S&P 500 Index
[GRAPHIC OMITTED]
Past performance is no guarantee of future results. Dividend and Growth
Composite is a blend of historical yield, return, and risk data from three
indices representing different types of investments. The blended composite
consists of 60% S&P 500 Index, 20% CS First Boston Convertible Securities Index,
and 20% National Association Real Estate Investment Trust Index. Performances of
the unmanaged indices are not intended to reflect actual fund performance. The
S&P 500 Index's cumulative total return for the same time period was notably
higher than the return for the composite index.*
Master/feeder 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 structure as described below.
- --------------------------
* Performances of the unmanaged indices are historical and do not include
the impact of expenses. The S&P 500 Index, a registered trademark of
McGraw-Hill, is an unmanaged index of the leading 500 companies. The
First Boston Corporation index represents the universe of convertible
bonds relevant to an institutional fund manager. It is weighted by the
market value of the individual bonds or shares outstanding to properly
represent the relative opportunities open to an institutionally sized
fund. For inclusion in the index, securities must have S&P's rating of
B- or better and a minimum issue size of $50 million. NAREIT is made up
of all tax-qualified REITs listed on the New York Stock Exchange,
American Stock Exchange, and the NASDAQ National Market System. The
data is market weighted. Source: Ibbotson Associates
3
<PAGE>
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.
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. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include
fixed-income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions, or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONS). Zero coupon securities pay no cash income and are 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
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.
4
<PAGE>
Warrants. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
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 securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in the 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
maturities of 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 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(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). 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 have 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 holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if the Fund is
"diversified" under the 1940 Act.
The U.S. 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 bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Foreign Securities. While the Fund generally emphasizes
investments in companies domiciled in the U.S., it may invest in listed and
unlisted foreign securities that meet the same criteria as the Fund's domestic
holdings. The Fund may invest in foreign securities when the anticipated
performance of the foreign securities is believed by the Adviser to offer more
potential than domestic alternatives in keeping with the investment objective of
the Fund.
5
<PAGE>
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 and 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 (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 are less than the volume and
liquidity 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 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 possible liability to the purchaser. 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
nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability or diplomatic developments
which could affect U.S. investments in those countries. Investments in foreign
securities may also entail certain risks, such as possible currency blockages or
transfer restrictions and the difficulty of enforcing rights in other 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.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
the value of these assets for 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, if any, into U.S. dollars on a daily basis. It may 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, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward foreign
currency exchange contracts. (See "Currency Transactions" for more information.)
6
<PAGE>
To the extent that the Fund invests in foreign securities, the Fund's
share price could reflect the movements of both the different stock and bond
markets in which it is invested and the currencies in which the investments are
denominated; the strength or weakness of the U.S. dollar against foreign
currencies could account for part of that Fund's investment performance.
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," "not readily marketable," or
"illiquid" restricted securities, i.e., which cannot be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") or the
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.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid securities. Disposing of illiquid securities may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
illiquid securities.
Generally speaking, restricted securities may be sold in the U.S. 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 the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
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 Adviser 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 Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("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
Fund acquires a security ("Obligation") and the seller agrees, at the time of
sale, to repurchase the Obligation at a specified time and price. Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such obligations kept at least equal to the repurchase price on a daily
basis. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
held by the Fund's custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, as amended (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 result in 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
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the
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obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the Obligation, in which case the Fund may incur a loss if
the proceeds to the Fund of its sale of the securities underlying the repurchase
agreement to a third party are less than the repurchase price. To protect
against such potential loss, if the market value (including interest) 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 (including interest) 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 enforce the seller's contractual obligation to deliver additional securities.
Real Estate Investment Trusts. 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 (the "Code") 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, 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.
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 the Fund's portfolio, or enhancing potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
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 futures contracts, currency swaps
or options on currencies, 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 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.
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The ability of the Fund to utilize these Strategic Transactions successfully
will depend on the Adviser's ability to predict pertinent market movements,
which cannot be assured. The Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments.
Strategic Transactions will not be used to alter the fundamental investment
purposes and characteristics of the Fund, and each Fund will segregate assets
(or as provided by applicable regulations, enter into certain offering
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 Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to 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.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital appreciation, the
Fund may invest in debt securities including bonds of private issuers, bonds of
foreign governments and supranational organizations. 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 high quality bonds, rated Aaa, Aa or A by Moody's or AAA,
AA or A by S&P or, if unrated, judged to be of equivalent quality as determined
by the Adviser.
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.
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."
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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.
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 of 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 Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied.
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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 Adviser. 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 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, 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.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, 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 nstrument 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 management and return enhancement 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
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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, 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 an NRSRO or are
determined to be of equivalent credit quality by the Adviser.
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. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally be
used 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
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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 Adviser considers that the Austrian schilling is correlated
to the German deutschemark (the "D-mark"), the Fund holds securities denominated
in schillings and the Adviser believes that the value of schillings will decline
against the U.S. dollar, the Adviser may enter into a commitment or option to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to 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.
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 Adviser, 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 Adviser'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
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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 Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. 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
Adviser. 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.
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 securities 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
securities 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 securities 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 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
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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, in connection with such options, the Fund will
segregate an amount of 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 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 assets may consist of cashor liquid 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 securities
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, if the Fund held a futures or forward contract,
instead of segregating assets , 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, assets equal to any remaining obligation would need to be
segregated.
Investment Restrictions
Unless specified to the contrary, the following fundamental policies
may not be changed without the approval of a majority of the outstanding voting
securities of the Fund which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the 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 has elected to be classified as a diversified series of an
open-end investment company.
In addition, as a matter of fundamental policy, the Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
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<PAGE>
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests
in indebtedness in accordance with the Fund's objective and
policies may be deemed to be loans.
Nonfundamental policies may be changed without shareholder approval. As
a matter of nonfundamental policy, the Fund may not:
(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 the 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 the 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.
PURCHASES
(See "Purchases" and "Transaction information" in the Fund's prospectus.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
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members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. by letter, fax, TWX, or
telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification or social security number, address and telephone
number. The investor must then call the bank to arrange a wire transfer to The
Scudder Funds, Boston, MA 02110, ABA Number 011000028, DDA Account Number
9903-5552. The investor must give the Scudder fund name, account name and the
new account number. Finally, the investor must send the completed and signed
application to the Fund promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder pension and profit sharing, Scudder 401(k) and
Scudder 403(b) Plan holders), members of the NASD, and banks. Orders placed in
this manner may be directed to any Scudder Investor Services, Inc. office listed
in the Fund's prospectus. A two-part invoice of the purchase will be mailed out
promptly following receipt of a request to buy. Payment should be attached to a
copy of the invoice for proper identification. Federal regulations require that
payment be received within three business days. If payment is not received
within that time, the shares may be canceled. In the event of such cancellation
or cancellation at the purchaser's request, the purchaser will be responsible
for any loss incurred by the Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Fund shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, the Fund may hold the redemption proceeds for a period of
up to seven business days. If you purchase shares and there are insufficient
funds in your bank account the purchase will be canceled and you will be subject
to any losses or fees incurred in the transaction. QuickBuy transactions are not
available for most retirement plan accounts. However, QuickBuy transactions are
available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
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The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Fund shall have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange, on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by the
Custodian of "wired funds," but the right to charge investors for this service
is reserved.
Boston banks are closed on certain local holidays although the Exchange
may be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day the
Exchange is open for trading. Orders received after the close of regular trading
on the Exchange will be executed at the next business day's net asset value. If
the order has been placed by a member of the NASD, other than the Distributor,
it is the responsibility of that member broker, rather than the Fund, to forward
the purchase order to Scudder Service Corporation (the "Transfer Agent") in
Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Fund management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by
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<PAGE>
such brokers or their authorized designees. Further, if purchases or redemptions
of the Fund's shares are arranged and settlement is made at an investor's
election through any other authorized NASD member, that member may, at its
discretion, charge a fee for that service. The Board of Trustees and the
Distributor, also the Fund's principal underwriter, each has the right to limit
the amount of purchases by, and to refuse to sell to, any person. The Trustees
and the Distributor may suspend or terminate the offering of shares of the Fund
at any time for any reason.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g., certification of exempt status from exempt investors), will
be returned to the investor.
The Fund may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in
the Fund's prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described
under "Transaction Information--Redeeming shares--Signature guarantees" in the
Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the net asset value
determined on that day. Exchange orders received after the close of regular
trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the phone or in writing. Automatic
exchanges will continue until the shareholder requests by phone or in writing to
have the feature removed, or until the originating account is depleted. The
Trust and the Transfer Agent each reserve the right to suspend or terminate the
privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares, and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
and the Transfer Agent each reserve the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
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The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder Funds or classes thereof. For more information,
please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may request to have the proceeds mailed
or wired to their predesignated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption proceeds
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone redemption
proceeds are advised that if the savings bank is not a participant in the
Federal Reserve System, redemption proceeds must be wired through a commercial
bank which is a correspondent of the savings bank. As this may delay receipt by
the shareholder's account, it is suggested that investors wishing to use a
savings bank discuss wire procedures with their bank and submit any special wire
transfer information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to the
designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank
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<PAGE>
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, normally 4 p.m.
eastern time, shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. QuickSell requests
received after the close of regular trading on the Exchange will begin their
processing and be redeemed at the net asset value calculated the following
business day. QuickSell transactions are not available for Scudder IRA accounts
and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds will be credited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request documents such as, but not restricted to, stock
powers, trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waivers of tax required in some states
when settling estates.
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven days of payment for shares tendered for repurchase or redemption may
result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order with a proper original signature
guarantee, as described in the Fund's prospectus under "Transaction
information--Signature guarantees," should be sent with a copy of the invoice to
Scudder Funds, c/o Scudder Confirmed Processing, Two International Place,
Boston, Massachusetts 02110-4103. Failure to deliver shares or required
documents (see above) by the settlement date may result in cancellation of the
trade and the shareholder will be responsible for any loss incurred by the Fund
or the principal underwriter by reason of such cancellation. Net losses
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<PAGE>
on such transactions which are not recovered from the shareholder will be
absorbed by the principal underwriter. Any net gains so resulting will accrue to
the Fund. For this group, repurchases will be carried out at the net asset value
next computed after such repurchase requests have been received. The
arrangements described in this paragraph for repurchasing shares are
discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Fund does not
impose a repurchase charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemption of shares,
including redemptions undertaken to effect an exchange for shares of another
Scudder fund, may result in tax consequences (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding. (See
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times (a) during which
the Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the Exchange is restricted for any reason, (c) during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during which the SEC by order permits a suspension of the right of redemption or
a postponement of the date of payment or of redemption; provided that applicable
rules and regulations of the SEC (or any succeeding governmental authority)
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Trustees. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an UGMA, UTMA,
IRA and other retirement accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for an UGMA, UTMA, IRA and other retirement accounts) is
established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in the Fund, without establishing an AIP, will be assessed an annual
$10.00 per fund charge with the fee to be reinvested in the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder at the address
of record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.
FEATURES AND SERVICES OFFERED BY THE FUND
(See "Shareholder benefits" in the Fund's prospectus.)
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based Rule 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal
22
<PAGE>
services and/or maintenance of shareholder accounts. Asset-based sales charges
and service fees are typically paid pursuant to distribution plans adopted under
12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Scudder pioneered the no-load concept when it created the nation's
first no-load fund in 1928, and later developed the nation's first family of
no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder Family of Funds no-load fund over investing the
same amount in a load fund that collects an 8.50% front-end load, a load fund
that collects only a 0.75% 12b-1 and/or service fee, and a no-load fund charging
only a 0.25% 12b-1 and/or service fee. The hypothetical figures in the chart
show the value of an account assuming a constant 10% rate of return over the
time periods indicated and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
====================================================================================================================
Scudder No-Load Fund with
YEARS No-Load Fund 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1
12b-1 Fee Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
- --------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- --------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
====================================================================================================================
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're
23
<PAGE>
interested in following. The "Personal Page" also offers easy navigation to
other parts of the site. Fund performance data from both Scudder and Lipper
Analytical Services, Inc. are available on the site. Also offered on the site is
a news feature, which provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be given to the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
Contact Scudder" in the Fund's prospectus for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
24
<PAGE>
Scudder Investor Centers
Investors may visit any of the Centers maintained by the Distributor
listed in the Fund's prospectus. The Centers are designed to provide individuals
with services during any business day. Investors may pick up literature or find
assistance with opening an account, adding monies or special options to existing
accounts, making exchanges within the Scudder Family of Funds, redeeming shares
or opening retirement plans. Checks should not be mailed to the Centers but
should be mailed to "The Scudder Funds" at the address listed under "How to
contact Scudder" in the prospectus.
Reports to Shareholders
The Fund issues to its shareholders unaudited semiannual financial
statements and annual financial statements audited by independent accountants,
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets and financial highlights. Each distribution
will be accompanied by a brief explanation of the source of the distribution.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Fund's prospectuses.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital and, consistent therewith, to maintain the liquidity of
capital and to provide current income. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
25
<PAGE>
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
TAX FREE
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
- --------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
26
<PAGE>
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As
a secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
- --------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
27
<PAGE>
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Dividend & Growth Fund seeks high current income and long-term
growth of capital through investment in income paying equity
securities.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund** seeks long-term growth of capital through
investment in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund** seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.
- --------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
28
<PAGE>
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
GLOBAL GROWTH
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity
securities.
Scudder Global Discovery Fund** seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts)
of Japanese companies.
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; no-load funds with no commissions to purchase or redeem
shares or Rule 12b-1 distribution fees; individual attention from a service
representative of Scudder Investor Relations; and easy telephone exchanges into
other Scudder funds. Certain Scudder funds or classes thereof may not be
available for purchase or exchange. For more information, please call
1-800-225-5163.
- --------------------------
29
<PAGE>
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
from state to state. It is advisable for an investor considering the funding of
the investment plans described below to consult with an attorney or other
investment or tax adviser with respect to the suitability requirements and tax
aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
30
<PAGE>
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ----------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund(s) may be purchased as the underlying investment for
an individual Retirement Account which meets the requirements of Section 408A of
the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
31
<PAGE>
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all shares of the Fund under the Plan have been liquidated or upon receipt
by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after
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notification. An investor in a plan who has not purchased shares for six months
shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
(See "Distribution and performance
information--Dividends and capital gains
distributions" in the Fund's prospectus.)
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 follow 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 taxes for which shareholders may then be able to
claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Internal Revenue 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.")
The Fund intends to distribute investment company taxable income,
exclusive of net short-term capital gains in excess of net long-term capital
losses, in March, June, September and December each year. Distributions of net
capital gains realized during each fiscal year will be made annually before the
end of the Fund's fiscal year on December 31. Additional distributions,
including distributions of net short-term capital gains in excess of net
long-term capital losses, may be made, if necessary.
Both types of distributions will be made in shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent.
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PERFORMANCE INFORMATION
(See "Distribution and performance information--Performance information"
in the Fund's prospectus.)
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year and the life of the Fund, 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 finding 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 payment 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.
Cumulative Total Return
Cumulative total return is the compound 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 finding the
cumulative rate 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 Return for the periods ended December 31, 1998
One Year Life of Fund*
N/A -4.00%
* For the period July 17, 1998 (commencement of operations) to
December 31, 1998.
Quotations of the Fund's performance are historical and are not
intended to indicate future performance. An investor's shares when redeemed may
be worth more or less than their original cost. Performamnce of fhe Fund will
vary based on changes in market condiditons and the level of the Fund's
expenses.
Total Return
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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.
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. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
Index and statistics published by the Small Business Administration.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees 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 Adviser 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. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
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
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subject to inflation risk, which is the risk of erosion of the value of an
investment as prices increase over a long time period. The risks/returns
associated with an investment in bond or equity funds depend upon many factors.
For bond funds these factors include, but are not limited to, a fund's overall
investment objective, the average portfolio maturity, credit quality of the
securities held, and interest rate movements. For equity funds, factors include
a fund's overall investment objective, the types of equity securities held and
the financial position of the issuers of the securities. The risks/returns
associated with an investment in international bond or equity funds also will
depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
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<PAGE>
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SmartMoney, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
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<PAGE>
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
ORGANIZATION OF THE FUND
(See "Fund organization" in the Fund's prospectus.)
The Fund is a series of Investment Trust, a Massachusetts business
trust established under a Declaration of Trust dated September 20, 1984, as
amended. The name of the Trust was changed, effective May 28, 1998, from Scudder
Investment Trust. The Trust's authorized capital consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share. The Trust's shares
are currently divided into six series, Scudder Growth and Income Fund, Scudder
Large Company Growth Fund, Classic Growth Fund, Scudder S&P 500 Index Fund,
Scudder Real Estate Investment Fund and Scudder Dividend & Growth Fund.
The Trustees have the authority to issue additional series of shares
and to designate the relative rights and preferences as between the different
series. Each share of the Fund has equal rights with each other share of the
Fund 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 prospectus.
The assets of the 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 the 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 the
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 the Trust or any series, 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.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
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.
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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.
The Declaration of Trust 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 will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, 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. 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.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Fund's prospectus.)
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("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 has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Fund, Inc., Scudder Funds Trust, Scudder Global High Income Fund, Inc., Scudder
GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund, Inc., Scudder
International Fund, Inc., Scudder Municipal Trust, Scudder Mutual Funds, Inc.,
Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, Global/International Fund, Inc., Investment
Trust, Value Equity Trust, The Argentina Fund, Inc., The Brazil Fund, Inc., The
Korea Fund, Inc., The Japan Fund, Inc., and Scudder Spain and Portugal Fund,
Inc. Some of the foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
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Pursuant to an Agreement between Scudder Kemper Investments, Inc. and
AMA Solutions, Inc., a subsidiary of the American Medical Association (the
"AMA"), dated May 9, 1997, the Adviser has agreed, subject to applicable state
regulations, to pay AMA Solutions, Inc. royalties in an amount equal to 5% of
the management fee received by the Adviser with respect to assets invested by
AMA members in Scudder funds in connection with the AMA InvestmentLink(SM)
Program. The Adviser will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal securities laws. Any person
who participates in the AMA InvestmentLink(SM) Program will be a customer of the
Adviser(or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser 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 Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The investment management agreement between the Fund and the Adviser is
dated June 1, 1998 and was approved by the Trustees on May 5, 1998 and by the
initial shareholder of the Fund on May 26, 1998. The investment management
agreement (the "Agreement") will continue in effect for an initial term ending
on September 30, 1999. The Agreement will continue in effect 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 the Agreement or interested
persons of the Adviser or the Trust, cast in person at a meeting called for the
purpose of voting on such approval, and either by a vote of the Trust's Trustees
on behalf of the Fund 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 terminates in
the event of its assignment.
Under the Agreement, the Adviser 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 Adviser also
advises and assists the officers of the Trust in taking such steps as are
necessary or appropriate to carry out the decisions of its Trustees and the
appropriate committees of the Trustees regarding the conduct of the business of
the Fund.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) 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.
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Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with the Adviser, which is substantially identical
to the current investment management agreement, except for the dates of
execution and termination. The Agreement became effective on September 7, 1998,
upon the termination of the then current investment management agreement and was
approved at a shareholder meeting held in December 1998.
The Agreement, dated September 7, 1998, was approved by the Trustees of
the Trust on August 11, 1998. The Agreement will continue in effect until
September 30, 1999 and from year to year thereafter only if their continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Trust's Trustees or of a majority of the outstanding
voting securities of the Fund. The Agreement may be terminated at any time
without payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
Under the Agreement, the Adviser 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 Adviser 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 or Boston, Massachusetts) of the
Trust affiliated with the Adviser and makes available, without expense to the
Fund, the services of such Trustees, officers and employees of the Adviser as
may duly be elected officers 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 these services, the Fund will pay the Adviser an annual fee equal
to 0.75% of the Fund's average daily net assets, payable monthly, provided the
Fund will make such interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser has agreed until April 30, ____, to maintain the total
annualized expenses of the Fund at no more than 0.75% of the average daily net
assets of the Fund. For the period July 17, 1998 (commencement of operations) to
December 31, 1998, the Adviser did not impose a portion of its management fee
amounting to $_______, and the fee paid to the Adviser amounted to $_______.
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; fees and
expenses of the Fund's accounting agent; 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
Adviser; 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.
41
<PAGE>
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Trust who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser 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
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser'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 Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, 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 monthly 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 Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter,
Name, Age Position Scudder Investor
and Address with Trust Principal Occupation** Services, Inc.
- ----------- ---------- ---------------------- --------------
<S> <C> <C> <C>
Daniel Pierce (65)+*= President and Trustee Managing Director of Scudder Director, President and
Kemper Investments, Inc. Assistant Treasurer
Henry P. Becton, Jr. (55) Trustee President and General Manager, --
125 Western Avenue WGBH Educational Foundation
Allston, MA 02134
42
<PAGE>
Position with
Underwriter,
Name, Age Position Scudder Investor
and Address with Trust Principal Occupation** Services, Inc.
- ----------- ---------- ---------------------- --------------
Dawn-Marie Driscoll (52) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates
Peter B. Freeman (66) Trustee Corporate Director and Trustee --
100 Alumni Avenue
Providence, RI 02906
George M. Lovejoy, Jr. (69)= Trustee President and Director, Fifty --
50 Congress Street Associates (real estate
Suite 543 corporation)
Boston, MA 02109-4002
Wesley W. Marple, Jr. (67)= Trustee Professor of Business --
413 Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
Kathryn L. Quirk (46)++*= Trustee, Vice President Managing Director of Scudder Director, Senior Vice
and Assistant Secretary Kemper Investments, Inc. President, Chief Legal
Officer and Assistant
Clerk
Jean C. Tempel (56) Trustee Venture Partner, --
Ten Post Office Square Internet Capital Corp.
Suite 1325
Boston, MA 02109-4603
Bruce F. Beaty (40)++ Vice President Principal of Scudder Kemper --
Investments, Inc.
Philip S. Fortuna (41)@ Vice President Managing Director of Scudder Vice President
Kemper Investments, Inc.
William F. Gadsden (44)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Jerard K. Hartman (65)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Robert T. Hoffman (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Thomas W. Joseph (60)+ Vice President Principal of Scudder Kemper Director, Vice President,
Investments, Inc. Treasurer and Assistant
Clerk
43
<PAGE>
Position with
Underwriter,
Name, Age Position Scudder Investor
and Address with Trust Principal Occupation** Services, Inc.
- ----------- ---------- ---------------------- --------------
Valerie F. Malter (40)++ Vice President Principal of Scudder Kemper --
Investments, Inc.
Thomas F. McDonough (52)+ Vice President and Principal of Scudder Kemper Clerk
Secretary Investments, Inc.
John Hebble (40)+ Treasurer Senior Vice President, --
Scudder Kemper Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Vice President, Scudder Kemper --
Investments, Inc.; Associate,
Dechert Price & Rhoads (law
firm) 1989 to 1997
* Mr. Pierce and Ms. Quirk are considered by the Trust and counsel to be persons who are "interested
persons" of the Adviser or of the Fund, within the meaning of the Investment Company Act of 1940, as
amended.
** Unless otherwise stated, all the Trustees and officers have been associated with their respective
companies for more than five years, but not necessarily in the same capacity.
= Messrs. Lovejoy, Pierce Marple and Ms. Quirk are members of the Executive Committee for Investment
Trust, which has the power to declare dividends from ordinary income and distributions of realized
capital gains to the same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 101 California Street, Suite 4100, San Francisco, California
</TABLE>
The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder Funds.
[To be Updated]
To the knowledge of the Trust, as of March 31, 1999, all Directors and
officers as a group owned beneficially (as the term is defined in Section 13(d)
under the Securities Exchange Act of 1934) less than 1% of the shares of
Dividend & Growth Fund outstanding on such date.
To the knowledge of the Trust, except as stated above, as of March 31,
1999, no person owned beneficially more than 5% of the Fund's outstanding
shares.
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 Scudder Kemper Investments, Inc. These "Independent Trustees"
have primary responsibility for assuring that the Fund is managed in the best
interests of its shareholders.
44
<PAGE>
The Board of Trustees meets at least quarterly to review the investment
performance of each 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
The Independent Trustees receive the following compensation from the
Funds of Investment Trust: an annual trustee's fee of $2,400 for a Fund in which
assets do not exceed $100 million, $4,800 for a Fund in which total net assets
exceed $100 million, but do not exceed $1 billion, and $7,200 for a Fund in
which total net assets exceed $1 billion; a fee of $150 for attendance at each
board meeting, audit committee meeting, or other meeting held for the purposes
of considering arrangements between the Trust on behalf of the Fund and the
Adviser or any affiliate of the Adviser; $75 for attendance at any other
committee meeting (although in some cases the Independent Trustees have waived
committee meeting fees); and reimbursement of expenses incurred for travel to
and from Board Meetings. The Independent Trustee who serves as lead or liaison
trustee receives an additional annual retainer fee of $500 from each Fund. 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, service on special trustee task forces or subcommittees or service
as lead or liaison trustee. Independent Trustees do not receive any employee
benefits such as pension, retirement 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 Adviser. These funds differ broadly in type an complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1998 from the Trust and from all of Scudder funds as a group.
[To Be Updated]
45
<PAGE>
<TABLE>
<CAPTION>
Name Investment Trust* All Scudder Funds
---- ----------------- -----------------
<S> <C>
Henry P. Becton, Jr.
Trustee
Dawn-Marie Driscoll**
Trustee
Peter B. Freeman**
Trustee
George M. Lovejoy, Jr.
Trustee
Wesley W. Marple, Jr.
Trustee
Jean C. Tempel
Trustee
</TABLE>
* In 1998, Investment Trust consisted of eight funds: Scudder Growth and
Income Fund, Scudder Large Company Growth Fund, Classic Growth Fund,
Scudder S&P 500 Index Fund, Scudder Real Estate Investment Fund,
Scudder Dividend & Growth Fund, Scudder Tax Managed Growth Fund and
Scudder Tax Managed Small Company Fund. Scudder Real Estate Investment
Fund commenced operations on April 8, 1998, Scudder Dividend & Growth
Fund commenced operations on July 17, 1998, and both Scudder Tax
Managed Growth Fund and Scudder Tax Managed Small Company Fund
commenced operations on September 18, 1998.
** Elected as Trustee to the Trust October 24, 1997.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. . The Trust's underwriting agreement dated
September 7, 1998 will remain in effect until September 30, 1999 and from year
to year thereafter only if its continuance is approved annually by a majority of
the members of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of the
Board of Trustees or a majority of the outstanding voting securities of the
Fund. The underwriting agreement was last approved by the Trustees on August 11,
1998.voting securities of the Fund. The underwriting agreement was last approved
by the Trustees on August 14, 1997.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in
various states, as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor); notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.
46
<PAGE>
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
Note: Although the Fund does not currently have a 12b-1 Plan, the Fund
would also pay those fees and expenses permitted to be paid or
assumed by the Fund pursuant to a 12b-1 Plan, if any, were adopted
by the Fund, notwithstanding any other provision to the contrary
in the underwriting agreement.
As agent, the Distributor currently offers shares of the Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
(See "Distribution and performance information--Dividends and capital
gains distributions" and "Transaction information--Tax information,
Tax identification number" in the Fund's prospectus.)
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 percent 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.
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 generally is made up of 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.
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 taxable to individual shareholders at a maximum 20% to 28% capital gains
rate (depending on the Fund's holding period for the assets giving rise to the
gain), will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between the shareholder's pro rata
share of such gains and the shareholder's tax credit. If the Fund makes such an
election, it may not be treated as having met the excise tax distribution
requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
47
<PAGE>
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 70% 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 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 individual
shareholders at a maximum 20% to 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the 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.
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 declared in
October, November or December with a record date 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.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income 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 ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). 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 ($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.
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
48
<PAGE>
U.S. may reduce or eliminate these foreign taxes, however, and foreign countries
generally do not impose taxes on capital gains in respect of investments by
foreign investors.
The Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and will be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code except in the case of certain
electing individual shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend.
Equity options (including covered call options written 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 will be recognized by the Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option, and
in the case of the exercise of a put option, on the Fund's holding period for
the underlying property. The purchase of a put option may constitute a short
sale for federal income tax purposes, causing an adjustment in the holding
period of any property in the Fund's portfolio similar to the property
underlying the put option. If the Fund writes an 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 short-term capital gain or loss. If a call option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.
Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), 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 capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
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
nonequity option or other position 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, the operation of which may cause
deferral of losses, adjustments in the holding periods of securities and
conversion of short-term capital losses into long-term capital losses, certain
tax elections exist for them which reduce or eliminate the operation of these
rules. The Fund will monitor its transactions in options, foreign currency
futures and forward contracts and may make certain tax elections in connection
with these investments.
49
<PAGE>
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.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
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 options, futures
and forward contracts, 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.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election 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 stock would be
deductible as ordinary losses to the extent of any net mark-to-market gains
previously included in income in prior years. The effect of this election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to the Fund-level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain their
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.
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.
50
<PAGE>
The Fund will be required to report to the Internal Revenue Service
(the "IRS") all distributions of investment company 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 investment company
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.
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.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for 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 Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by 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 Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes, or who supply research, market and
statistical information to the Fund or the Adviser. The term "research, market
and statistical information" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission (to the extent applicable) in excess of that which
another broker might charge for executing the same transaction solely on account
of the receipt of research, market or statistical information. The
51
<PAGE>
Adviser will not place orders with broker/dealers on the basis that the
broker/dealer has or has not sold shares of the Fund. Except for implementing
the policy stated above, there is no intention to place portfolio transactions
with particular brokers or dealers or groups thereof. In effecting transactions
in over-the-counter securities, orders are placed with the principal market
makers for the security being traded unless, after exercising care, it appears
that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to 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.
[To be Updated]
For the period July 17, 1998 (commencement of operations) to December
31, 1998, the Fund paid brokerage commissions of $_______. For the fiscal period
period ended December 31, 1998, $_______ (___% 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
Adviser. The total amount of brokerage commissions aggregated $_______, of which
$_______ ( % of all brokerage transactions) were transactions which included
research commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. A higher rate
involves greater brokerage transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. For the fiscal
period ended December 31, 1998, the Fund had an annualized portfolio turnover
rate of ____%.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. 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"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the Nasdaq
Stock Market ("Nasdaq") system is valued at its most recent sale price. Lacking
52
<PAGE>
any sales, the security is valued at the most recent bid quotation. 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. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.
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
purchased 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 Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by 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.
ADDITIONAL INFORMATION
Experts
The Statement of Assets and Liabilities incorporated by reference to
the Statement of Additional Information will be so included or incorporated by
reference in reliance on the report of Coopers & Lybrand, L.L.P., One Post
Office Square, Boston, Massachusetts 02109, independent accountants, and given
on the authority of that firm as experts in accounting and auditing. Coopers &
Lybrand, L.L.P. is responsible for performing annual audits of the financial
statements and financial highlights of the Fund in accordance with Generally
Accepted Auditing Standards, and the preparation of federal tax returns.
Other Information
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 Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of Scudder Dividend & Growth Fund is: 460965 502.
53
<PAGE>
The Fund has a fiscal year end of December 31.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as Custodian.
Costs of $15,000 incurred by Scudder Dividend & Growth Fund in
conjunction with its organization are amortized on a straight line basis over a
five year period beginning July 17, 1998.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for the Fund. SSC also serves as shareholder service
agent and provides subaccounting and recordkeeping services for shareholder
accounts in certain retirement and employee benefit plans. The Fund pays SSC an
annual fee for each account maintained for a participant. For the period July
17, 1998 (commencement of operations) to December 31, 1998, SSC imposed fees
amounting to $_______, of which $_______ was unpaid at August 31, 1998, and did
not jmpose fees amounting to $_______.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Annual service fees are paid by the Fund to Scudder Trust Company, Two
International Place, Boston, Massachusetts 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset values for the Fund. The Fund pays SFAC an annual fee equal to 0.065% of
the first $150 million of average daily net assets, 0.04% of such assets in
excess of $150 million and 0.02% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the period July 17, 1998
(commencement of operations) to December 31, 1998, SFAC imposed fees amounting
to $_______, of which $_______ was unpaid at August 31, 1998, and did not impose
fees amounting to $_______.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement 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. This 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
Dividend & Growth 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 December 31, 1998, are incorporated herein
by reference, and are hereby deemed to be a part of this Statement of Additional
Information.
54
<PAGE>
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Scudder Real Estate Investment
Fund
Prospectus
May 1, 1999
Seeking long term capital growth andcurrent income through investment in real
estate securities.
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
No-Load/No Sales Charge
"The place to plan your retirement"
1
<PAGE>
CONTENTS
INVESTMENT OBJECTIVE
An overview of the fund's goal and strategy, main risks,
performance and expenses
ABOUT THE FUND
Additional information that you should know about the fund
MAIN INVESTMENT STRATEGIES, OTHER INVESTMENTS
AND MAIN RISKS
A MESSAGE FROM THE PRESIDENT
INVESTMENT ADVISER
DISTRIBUTIONS
TAXES
FINANCIAL HIGHLIGHTS
ABOUT YOUR INVESTMENT
Information about managing your fund account
TRANSACTION INFORMATION
BUYING AND SELLING SHARES
PURCHASES
EXCHANGES AND REDEMPTIONS
INVESTMENT PRODUCTS AND SERVICES
2
<PAGE>
INVESTMENT OBJECTIVE
The fund seeks long-term capital growth and current income.
MAIN INVESTMENT STRATEGIES
The fund pursues its investment objective by investing primarily in equity
securities of companies in the real estate industry. Under normal circumstances,
the fund will invest at least 80% of its total assets in real estate investment
trusts ("REIT's) and the securities of other companies that are principally
engaged in the real estate industry. A company will be considered to be
principally engaged in the real estate industry if, at least 50% of its revenue
or the market values of its assets is attributable to the ownership,
construction, management, financing or sale of residential, commercial or
industrial real estate. Companies whose securities may be purchased include
companies directly or indirectly involved in the real estate industry, including
real estate brokers and developers, real estate operating companies, hotel and
real estate chains, builders, mortgage lenders, building supply manufacturers,
and distributors and real estate partnerships. REITs pool investor funds for
allocation to income-producing real estate or real estate-related loans or
interests. A REIT is not taxed on income distributed to shareholders if it
complies with several IRS requirements relating to its organization, ownership,
assets and income and, further, if it distributes to its shareholders at least
95% of its taxable income each year.
In managing its portfolio, the portfolio management team uses a disciplined
quantitative investment strategy to identify those REIT and other real estate
equity securities that may offer added portfolio diversification and competitive
total returns over time. Factors considered include growth potential, earnings
estimates, and quality of management. The Adviser uses an internally developed
model to identify a portfolio of REITs and other real estate equity securities
that may offer added portfolio diversification and competitive total return
potential over time.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
OTHER INVESTMENTS
To a more limited extent, the fund may, but is not required to, make the
following investments:
The fund may invest up to 10% of its total assets in the securities of foreign
real estate companies.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities or that are based on indices).
RISK MANAGEMENT STRATEGIES
The fund manages its risk by diversifying its assets within the real estate
industry, both geographically and by property class. The fund also seeks to
assess the risk of each individual security and its impact on the return
patterns of the portfolio, in order to lessen volatility of the fund's share
price relative to the real estate securities sector. The fund may, but is not
required to, use certain derivatives in an attempt to manage risk. The use of
derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash and
in other money market and short-term instruments. In such a case, the fund would
not be pursuing its objectives, and may not achieve its goals.
3
<PAGE>
MAIN RISKS
The primary factors affecting this fund's performance are changes in economic
conditions that affect real estate values and property taxes, interest rates,
the cash flows of underlying real estate assets and the creditworthiness of the
issuer of the securities, and movements in the stock market. The fund's share
price may move up and down significantly, even over short periods of time, due
to the fact that the fund invests substantially all of its assets in the real
estate industry. Investments in securities of foreign real estate companies also
carry risks due to the possibility of inadequate or inaccurate information about
companies, potential political disturbances and fluctuations in currency
exchange rates.
The portfolio management team's skill in choosing appropriate investments for
the fund will determine in large part the fund's ability to achieve its
investment objective.
The fund's assets are concentrated in securities related to the real estate
industry. This means that at least 25% of it's the fund's total assets will be
invested in holdings in this industry at all times. Therefore, the fund may be
subject to greater market fluctuations than a mutual fund that invests in a
broader range of securities.
The fund is a non-diversified investment company, it may invest a relatively
high percentage of its assets in a limited number of issuers than a diversified
investment company. Accordingly, the fund's investment returns are more likely
to be impacted by changes in the market value and returns of any one portfolio
holding.
There are market and investment risks with any security and the value of an
investment in the fund will fluctuate over time and it is possible to lose money
invested in the fund.
Past performance
As this is a new fund, no past performance data are available.
4
<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
<S> <C>
Shareholder fees: Fees paid directly from your investment.
-------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of NONE
offering price)
-------------------------------------------------------------------------------
Maximum deferred sales charge (load) NONE
-------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested NONE
dividends/distribution
-------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) 1.00%*
-------------------------------------------------------------------------------
Exchange fee 1.00%*
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
-------------------------------------------------------------------------------
Management fee x.xx%
-------------------------------------------------------------------------------
Distribution (12b-1) fees NONE
-------------------------------------------------------------------------------
Other expenses x.xx%
-------------------------------------------------------------------------------
Total annual fund operating expenses x.xx%**
-------------------------------------------------------------------------------
Expenses reimbursement x.xx%
-------------------------------------------------------------------------------
Net expenses x.xx%**
-------------------------------------------------------------------------------
</TABLE>
* There is a 1% fee retained by the fund which is imposed only on redemptions
or exchanges of shares held less than one year. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For additional
information, please refer to "About Your Investment - Exchanges and
redemptions."
** From April 6, 1998 (commencement of operations) until April 30, 1999 total
annual fund operating expenses were contractually maintained at 1.25%.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The expenses
would be the same whether you sold your shares at the end of each period or
continued to hold them.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
One Year $___
- --------------------------------------------------------------------------------
Three Years $___
- --------------------------------------------------------------------------------
Five Years $___
- --------------------------------------------------------------------------------
Ten Years $___
- --------------------------------------------------------------------------------
</TABLE>
Actual fund expenses and return vary from year to year, and may be higher or
lower than those shown.
5
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the fund's
financial performance for the periods indicated. [Certain information reflects
financial results for a single fund share outstanding throughout the fiscal
period (a).] The total return figures represent the rate that a shareholder
would have earned (or lost) on an investment in the fund assuming reinvestment
of all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP whose report, along with the fund's financial
statements, is included in the annual report, which is available upon request by
calling Scudder Investor Relations at 1-800-225-2470, or, for existing
shareholders, call the Scudder Automated Information Line (SAIL) at
1-800-343-2890.
[INSERT TABLE]
6
<PAGE>
A message from the President
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $280 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares. We also manage mutual funds in a special program for the American
Association of Retired Persons, as well as the fund options available through
Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise The
Japan Fund and numerous other open- and closed-end funds that invest in this
country and other countries around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds; IRAs, 401(k)s,
Keoghs and other retirement plans are also available.
Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.
The Scudder Family of Funds is offered without commissions to purchase or redeem
shares or to exchange from one fund to another. There are no distribution
(12b-1) fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
Investment adviser
The fund retains the investment management firm of Scudder Kemper Investments,
Inc., the ("Adviser"), Two International Place, Boston, MA, to manage the fund's
daily investment and business affairs subject to the policies established by the
Board of Trustees. The Adviser actively manages your investment in the fund.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities.
Until December 31, 1998, the Adviser agreed to maintain the annualized expenses
of the fund at no more than 1.25% of the average daily net assets of the fund.
As a result of this waiver, the Adviser received an investment management fee of
_____% of the fund's average daily net assets at fiscal year end.
Portfolio management
The fund is managed by a team of investment professionals who each plays an
important role in the fund's management process. Team members work together to
develop investment strategies and select securities for the fund's portfolio.
They are supported by the Adviser's large staff of economists, research
analysts, traders and other investment specialists who work in the Adviser's
offices across the United States and abroad. The Adviser believes its team
approach benefits fund investors by bringing together many disciplines and
leveraging its extensive resources.
The following investment professionals are associated with the fund as
indicated:
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
<S> <C> <C>
Name and Title Joined the Fund Responsibilities and Background
- --------------------------------------------------------------------------------------
Philip S. Fortuna 1998 Mr. Fortuna joined the Adviser in 1986
Co-Lead Manager as manager of institutional equity
accounts. Since then Mr. Fortuna has
served as director of quantitative
services from 1987 to 1993 and director
of investment operations from 1993 to
1995. Mr. Fortuna is currently director
of the Adviser's quantitative group.
Mr. Fortuna joined the fund as co-lead
manager in 1998.
- --------------------------------------------------------------------------------------
Jennifer P. Carter 1998 Ms. Carter joined the Adviser in 1992
Co-Lead Manager as a senior quantitative analyst. Ms.
Carter joined the fund as co-lead
manager in 1998.
- --------------------------------------------------------------------------------------
James M. Eysenbach 1998 Mr. Eysenbach joined the Adviser in
Manager 1991 as a senior quantitative analyst.
Since then Mr. Eysenbach has served as
director of quantitative services from
1993 to 1997 and has been co-manager of
quantitative equity products since
1995. Mr. Eysenbach joined the fund as
a portfolio manager in 1998.
- --------------------------------------------------------------------------------------
</TABLE>
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
fund could be adversely affected if computer systems on which the fund relies,
which primarily include those used by the Adviser, its affiliates or other
service providers, are unable to correctly process date-related information on
and after January 1, 2000. The risk is commonly called the Year 2000 issue.
Failure to successfully address the Year 2000 issue could result in
interruptions to and other material adverse effects on the fund's business and
operations, such as problems with calculating net asset value and difficulties
in implementing the fund's purchase and redemption procedures. The Adviser has
commenced a review of the Year 2000 issue as it may affect the fund and is
taking steps it believes are reasonably designed to address the Year 2000 issue,
although there can be no assurances that these steps will be sufficient. In
addition, there can be no assurances that the Year 2000 issue will not have an
adverse effect on the issuers whose securities are held by the fund or on global
markets or economies generally.
Euro conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and operation of the fund. The Euro was
introduced on January 1, 1999 by eleven countries of the European Economic and
Monetary Union (EMU). The introduction of the Euro requires the redenomination
of European debt and equity securities over a period of time, which may result
in various accounting differences and/or tax treatments.
The Adviser is working to address Euro-related issues and understands that other
key service providers are taking similar steps. However, at this time no one
knows precisely what the degree of impact will be. To the extent that the market
impact or effect on a fund holdings is negative, it could hurt the fund's
performance.
DistributionsAdditional questions are raised by the fact that certain other
European Community members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999.]
Distributions
8
<PAGE>
The funds intends to distribute dividends from its net investment income
quarterly in March, June, September and December, and to distribute net realized
capital gains after utilization of capital loss carryforwards, if any, in
November or December. An additional distribution may be made at a later date, if
necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such 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.
A shareholder may choose to receive distributions in cash or have them
reinvested in additional shares of a fund. If an investment is in the form of a
retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account. Distributions are generally taxable,
whether received in cash or reinvested. Exchanges among funds are also taxable
events.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders, regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income.
Unless your investment is in a tax-deferred account, you may want to avoid
investing a large amount close to the date of a distribution because you may
receive part of your investment back as a taxable distribution.
A sale or exchange of shares is a taxable event and may result in a capital gain
or loss, which may be long-term or short-term, generally depending on how long
you owned the shares.
The fund sends detailed tax information about the amount and type of its
distributions by January 31 of the following year.
The fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Any such withheld amounts may be credited against the
shareholder's U.S. federal income tax liability.
Shareholders may be subject to state, local and foreign taxes on fund
distributions and dispositions of fund shares. You should consult your tax
advisor regarding the particular consequences of an investment in the fund.
9
<PAGE>
About Your Investment
Transaction information
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the fund as of the close of regular trading on the New York Stock Exchange,
normally 4 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Net asset value per share is calculated by dividing the value of
total fund assets, less all liabilities, by the total number of shares
outstanding. Market prices are used to determine the value of the fund's assets.
If market prices are not readily available for a security or if a security's
price is not considered to be market indicative, that security may be valued by
another method that the Board or its delegate believes accurately reflects fair
value. In those circumstances where a security's price is not considered to be
market indicative, the security's valuation may differ from an available market
quotation.
Processing time
All purchase and redemption requests received in good order at the fund's
transfer agent by the close of regular trading on the New York Stock Exchange
are executed at the net asset value per share calculated at the close of trading
that day. All other requests that are in good order will be executed the
following business day.
Signature guarantees
A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain a guarantee from most brokerage houses and financial
institutions, although not from a notary public. The fund will normally send
redemption proceeds within one business day following the redemption request,
but may take up to seven business days (or longer in the case of shares recently
purchased by check). For more information, please call [1-800-225-5163]
[1-800-53 JAPAN].
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of fund shares (including exchanges) for any reason, including when
there is evidence of a pattern of frequent purchases and sales made in response
to short-term fluctuations in the fund's share price.
Minimum balances
Generally, shareholders who maintain a non-fiduciary account balance of less
than $2,500 in the fund and have not established an automatic investment plan
will be assessed, an annual $10.00 per fund charge; this fee is paid to the
fund. The fund reserves the right, following 60 days written notice to
shareholders, to redeem all shares in accounts that have a value below $1,000
where such a reduction in value has occurred due to a redemption, exchange or
transfer out of the account.
Third party transactions
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than Scudder Investor Services,
Inc.), that member may charge a fee for that service.
10
<PAGE>
Buying and selling shares
Please refer to the following charts for information on how to buy and sell fund
shares. Additional information, including special investment features, may be
found in the Shareholder Services Guide. For information about No-Fee IRAs, Roth
IRAs and other retirement options, call Scudder Investor Relations at
1-800-225-2470. For information on establishing 401(k) and 403(b) plans, call
Scudder Defined Contribution Services at 1-800-323-6105.
Purchases
To open an account
The minimum initial investment is $2,500; $1,000 for IRAs. Group retirement
plans (401(k), 403(b), etc.) have similar or lower minimums - see appropriate
plan literature. Make checks payable to "The Scudder Funds."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C>
By Mail Send your completed and signed application and check
by regular mail to: or by express, registered, or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- -------------------------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- -------------------------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to complete your
application with the help of a Scudder representative. Investor
Centers are located in Boca Raton, Boston, Chicago, New York and
San Francisco.
- -------------------------------------------------------------------------------------------------
To buy additional shares
The minimum additional investment is $100; $50 for IRAs. Group retirement plans
(401(k), 403(b), etc.) have similar or lower minimums - see appropriate plan
literature. Make checks payable to "The Scudder Funds."
- -------------------------------------------------------------------------------------------------
By Mail Send a check with a Scudder investment slip, or with a
letter of instruction including your account number and the
complete fund name, to the appropriate address listed above.
- -------------------------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- -------------------------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to make an additional investment
in your Scudder fund account. Investor Center locations are listed
above.
- -------------------------------------------------------------------------------------------------
By Telephone Call 1-800-225-5163 for instructions.
- -------------------------------------------------------------------------------------------------
By Automatic You may arrange to make investments of $50 or more on a regular
Investment basis through automatic deductions from your bank checking
Plan account. Please call 1-800-225-5163 for more information and an
enrollment form.
- -------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Exchanges and redemptions
To exchange shares
The minimum investments are $2,500 to establish a new account and $100 to
exchange among existing accounts.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
By Telephone To speak with a service representative, call 1-800-225-5163 from 8
a.m. to 8 p.m. eastern time. To access SAIL(TM), the Scudder
Automated Information Line, call 1-800-343-2890 (24 hours a day).
- -------------------------------------------------------------------------------------------
By Mail or Fax Print or type your instructions and include:
- the name of the fund and class and the account number you
are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the fund and class you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions or by express, registered, or by fax to:
by regular mail to: or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA 02107-2291 Braintree, MA 02184
- -------------------------------------------------------------------------------------------
To sell shares
- -------------------------------------------------------------------------------------------
By Telephone To speak with a service representative, call
1-800-225-5163 from 8 a.m. to 8 p.m. eastern time. To access
SAIL(TM), the Scudder Automated Information Line, call
1-800-343-2890 (24 hours a day). You may have redemption
proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address
of record.
- -------------------------------------------------------------------------------------------
By Mail or Fax Send your instructions for redemption to the appropriate address
or fax number above and include:
- the name of the fund and class and account number you are
redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
- -------------------------------------------------------------------------------------------
By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Plan Call 1-800-225-5163 for more information and an enrollment form.
- -------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds]
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series -- Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
13
<PAGE>
Retirement Programs and Education accounts
- --------------------------------------------------------------------------------
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan **]]
Scudder Horizon Advanage **]]]
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-end funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc. Scudder Global High Income Fund, Inc.
The Brazil Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Montgomery Street Income
Securities, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
] Funds within categories are listed in order from expected least risk to
most risk. Certain Scudder funds or classes thereof may not be available
for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family of
Funds.
]] A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470.
]]] A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by
Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are traded on
the New York Stock Exchange and, in some cases, on various foreign stock
exchanges.
14
<PAGE>
Additional information about the fund may be found in the Statement of
Additional Information, the Shareholder Service Guide and in shareholder
reports. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Service Guide
contains more detailed information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the fund's
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By phone: In person:
- --------------------------------------------------------------------------------
Call Scudder Investor Relations Public Reference Room
at 1-800-225-2470 Securities and Exchange
Or Commission,
For existing Scudder investors, call Washington, D.C.
the Scudder Automated Information Line (Call 1-800-SEC-0330 for more
(SAIL) at 1-800-343-2890 (24 hours a day). information).
- --------------------------------------------------------------------------------
By mail: By internet:
- --------------------------------------------------------------------------------
Scudder Investor Services, Inc. http://www.sec.gov
Two International Place http://www.scudder.com
Boston, MA 02110-4103
Or
Public Reference Section,
Securities and Exchange
Commission,
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number:
Printed with SOY INK Printed on recycled paper
15
<PAGE>
SCUDDER REAL ESTATE INVESTMENT FUND
A No-Load (No Sales Charges) Mutual Fund Seeking
Long-Term Capital Growth and Current Income by Investing
Primarily in Equity Securities of Companies in the Real Estate Industry
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Real Estate Investment
Fund dated May 1, 1999, as amended from time to time, copies of which may be
obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder S&P 500 Index Fund dated
December 31, 1998, is incorporated by reference and is hereby deemed to be part
of this Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Master/feeder structure......................................................................................2
Specialized Investment Techniques............................................................................2
Investment Restrictions.....................................................................................11
PURCHASES............................................................................................................12
Additional Information About Opening An Account.............................................................12
Additional Information About Making Subsequent Investments..................................................13
Additional Information About Making Subsequent Investments by QuickBuy......................................13
Checks......................................................................................................14
Wire Transfer of Federal Funds..............................................................................14
Share Price.................................................................................................14
Share Certificates..........................................................................................14
Other Information...........................................................................................14
EXCHANGES AND REDEMPTIONS............................................................................................15
Special Redemption and Exchange Information.................................................................15
Exchanges...................................................................................................15
Redemption by Telephone.....................................................................................16
Redemption by QuickSell.....................................................................................17
Redemption by Mail or Fax...................................................................................17
Other Information...........................................................................................18
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................19
The No-LoadConcept..........................................................................................19
Internet access.............................................................................................20
Dividend and Capital Gain Distribution Options..............................................................21
Scudder Investor Centers....................................................................................21
Reports to Shareholders.....................................................................................21
Transaction Summaries.......................................................................................21
THE SCUDDER FAMILY OF FUNDS..........................................................................................22
SPECIAL PLAN ACCOUNTS................................................................................................26
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................27
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........27
Scudder IRA: Individual Retirement Account.................................................................27
Scudder Roth IRA: Individual Retirement Account............................................................28
Scudder 403(b) Plan.........................................................................................29
Automatic Withdrawal Plan...................................................................................29
Group or Salary Deduction Plan..............................................................................29
Automatic Investment Plan...................................................................................29
Uniform Transfers/Gifts to Minors Act.......................................................................30
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................30
PERFORMANCE INFORMATION..............................................................................................31
Average Annual Total Return.................................................................................31
Cumulative Total Return.....................................................................................31
Total Return................................................................................................31
Comparison of Fund Performance..............................................................................32
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
ORGANIZATION OF THE FUND.............................................................................................35
INVESTMENT ADVISER...................................................................................................36
Personal Investments by Employees of the Adviser............................................................39
TRUSTEES AND OFFICERS................................................................................................40
REMUNERATION.........................................................................................................42
Responsibilities of the Board--Board and Committee Meetings.................................................42
Compensation of Officers and Trustees of the Fund...........................................................42
DISTRIBUTOR..........................................................................................................43
TAXES................................................................................................................44
PORTFOLIO TRANSACTIONS...............................................................................................48
Brokerage Commissions.......................................................................................48
Portfolio Turnover..........................................................................................49
NET ASSET VALUE......................................................................................................49
ADDITIONAL INFORMATION...............................................................................................50
Experts.....................................................................................................50
Other Information...........................................................................................50
FINANCIAL STATEMENTS.................................................................................................51
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies" in the Fund's prospectus.)
Scudder Real Estate Investment Fund (the "Fund") is a non-diversified,
no-load series of Scudder Investment Trust (the "Trust"), an open-end management
investment company which continuously offers and redeems shares at net asset
value. The Fund is a company of the type commonly known as a mutual fund.
General Investment Objective and Policies
The Fund's investment objective is to seek long-term growth of capital
and current income by investing primarily in equity securities of companies in
the real estate industry. The Fund's investment adviser, Scudder Kemper
Investments, Inc. (the "Adviser"), uses a systematic, proprietary investment
approach to identify real estate investment trusts and other real estate equity
securities that, in the opinion of the Adviser, offer substantial total return
potential over time.
The Fund seeks to provide long-term capital growth and above-average
dividend income relative to other equity securities, while enhancing the
long-term diversification of the asset classes in an investor's total personal
portfolio.
The Fund will invest in a wide array of income-producing real estate
equity securities, identified through a disciplined, quantitative investment
strategy; however, investment in the Fund does entail above-average investment
risk. Shares of the Fund should be purchased with a long-term horizon in mind.
To encourage long-term investment, a 1% redemption and exchange fee on shares
held less than one year, described more fully below, is payable to the Fund for
the benefit of remaining shareholders.
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 the Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment. There can be no
assurance that the Fund's objective will be met.
Investments
The Fund attempts to achieve its investment objective by investing,
under normal circumstances, at least 80% of its total assets in real estate
investment trusts ("REITs") and the securities of other companies that are
principally engaged in the real estate industry. A company will be considered to
be principally engaged in the real estate industry if, in the determination of
the Adviser, at least 50% of its revenue or at least 50% of the market value of
its assets is attributable to the ownership, construction, management, financing
or sale of residential, commercial or industrial real estate. Eligible
investments for the Fund include companies directly and indirectly involved in
the real estate industry, including real estate brokers and developers, real
estate operating companies, hotel and real estate chains, builders, mortgage
lenders, manufacturers and distributors of building supplies, real estate master
limited partnerships, equity REITs, mortgage REITs and hybrid REITs. The Adviser
uses a proprietary, computer-based model to identify real estate securities
that, in its opinion, are selling at reasonable valuations, while offering
attractive long-term growth prospects.
The Fund may invest up to 10% of its total assets in securities of
foreign real estate companies. The Fund may also invest up to 20% of its total
assets in preferred stocks, convertible securities, warrants and rights,
repurchase agreements and reverse repurchase agreements.
In addition, the Fund may engage in strategic transactions, using such
derivatives contracts as index options and futures, to increase stock market
participation, enhance liquidity and manage transaction costs.
For temporary defensive purposes, the Fund may invest without limit in
cash and cash equivalents and U.S. Treasury, agency and instrumentality
obligations. The investments may be utilized when the Adviser deems such a
<PAGE>
position advisable in light of economic or market conditions. It is impossible
to predict accurately for how long such alternative strategies may be utilized.
More information about these investment techniques is provided under
"Specialized investment techniques."
Real estate investment trusts
The Fund expects to invest a substantial portion of its assets in
shares of REITs. REITs pool investor funds for allocation to income-producing
real estate or real estate-related loans or interests. These could involve
office buildings, shopping centers, malls, factory outlet centers, manufactured
home communities, industrial properties, self-storage facilities, recreational
facilities, health-care facilities, apartment complexes and hotels. A REIT is
not taxed on income distributed to shareholders if it complies with several IRS
requirements relating to its organization, ownership, assets and income and,
further, if it distributes to its shareholders at least 95% of its taxable
income each year.
REITs are typically classified as equity REITs, mortgage REITs or
hybrid REITs. Equity REITs own properties and, as such, derive their income
primarily from rents and lease payments. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive their
income primarily from interest payments. Hybrid REITs combine the
characteristics of both equity REITs and mortgage REITs. Of these three basic
types of REITs, the Fund expects to invest predominantly in equity REITs.
Master/feeder 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 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.
Specialized Investment Techniques
Real Estate Investment Trusts. Investment in REITs may subject the Fund to risks
similar to those associated with the direct ownership of real estate (in
addition to securities markets risks). REITs are sensitive to various factors,
such as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, supply and demand, and the management
skill and creditworthiness of the issuer. REITs may also be affected by tax and
regulatory requirements.
REITs in which the Fund invests may be affected by changes in
underlying real estate values, which may have an exaggerated effect to the
extent that certain REITs may concentrate investments in particular geographic
regions or property types. Additionally, rising interest rates may cause
investors in REITs to demand a higher annual yield from future distributions,
which may in turn decrease market prices for equity securities issued by REITs.
Rising interest rates also generally increase the costs of obtaining financing,
which could cause the value of the Fund's investments to decline. 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 such mortgage REITs. In addition, a mortgage REIT may be
affected by the ability of borrowers to repay when due, the debt extended by the
REIT. Similarly, equity REITs may be affected by the ability of tenants to pay
rent.
2
<PAGE>
A REIT must distribute dividends at least equal to 95% of its taxable
income annually and, thus, is unable to retain significant amounts of capital
with which to grow. Therefore, REITs depend more than other businesses upon
their ability to access capital markets. Without raising new capital, REITs
would not be able to acquire or develop additional properties, and growth would
be highly dependent on improved results from existing properties. REITs are also
subject to heavy cash flow dependency, defaults by borrowers and the possibility
of failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the registration requirements of the Investment Company Act of 1940 (the "1940
Act").
Industry Concentration. The Fund "concentrates," for purposes of the Investment
Company Act of 1940 (the "1940 Act"), its assets in securities related to the
real estate industry, which means that at least 25% of its total assets will be
invested in these holdings at all times. As a result, the Fund may be subject to
greater market fluctuation than a fund which has securities representing a
broader range of investment alternatives.
Certain REITs have relatively small market capitalization, which may
tend to increase the volatility of the market price of securities issued by such
REITs. 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. By investing in REITs
indirectly through the Fund, a shareholder will bear not only his proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of the
REITs. 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 or the 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 Securities Act of 1933. The Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event the Fund may be liable to purchasers
of such securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser 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 may not invest more than 15% of its net assets in securities
that are deemed to be illiquid.
Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign broker-dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker-dealer has been determined
by the Adviser to be at least as high as that of other obligations the Fund may
purchase.
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
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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 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 instrument purchased for the
Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. However, if the
market value of the Obligation subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund 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 enforce the seller's contractual obligation to deliver additional securities.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
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 time and price. The Fund
will maintain a segregated account, as described under "Use of Segregated and
Other Special Accounts" in connection with outstanding reverse repurchase
agreements. Reverse repurchase agreements are deemed to be borrowings subject to
the Fund's investment restrictions applicable to that activity. The Fund will
enter into a reverse repurchase agreement only when the Adviser 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.
Investing in Foreign Securities. The Fund may invest up to 10% of the Fund's
total assets in listed and unlisted 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 United States securities and which may favorably or
unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting and 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 (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 markets are less than the volume and
liquidity in the United States and at times, volatility of price can be greater
than in the United States. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been 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 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
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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 United
States. 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 United
States and foreign countries may be less reliable than within the United States,
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 nationalization,
expropriation, the imposition of withholding or confiscatory taxes, political,
social, or economic instability, or diplomatic developments which could affect
United States investments in those countries. Investments in foreign securities
may also entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest are either
fixed income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).
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Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the 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.
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 the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for hedging
various market risks, managing the effective maturity or duration of the
fixed-income securities in the Fund's portfolio, or enhancing potential gain.
These strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
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, 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 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 the
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 total 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 Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter the fundamental investment purposes and characteristics of the Fund,
and each Fund will segregate assets (or as provided by applicable regulations,
enter into certain offering 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 Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to 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
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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.
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.
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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 of 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 they are 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 Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. 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 are determined to be of equivalent
credit quality by the Adviser. The staff of the Securities and Exchange
Commission (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 its assets in illiquid securities. The Fund can invest
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, 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.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities), and on
securities indices and futures contracts other than futures on individual
corporate debt and individual equity securities. The Fund may also purchase and
sell put options in foreign sovereign debt, Eurodollar instruments and
currencies. The Fund will not sell put options if, as a result, more than 50% of
the Fund's total 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.
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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 or equity market changes, and for duration management,
risk management, and return enhancement purposes. In addition, the Fund may
enter into financial futures contracts or purchase or sell put and call options
on such futures as a hedge against anticipated currency market changes. 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 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 managementand return enhancement 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.
Swaps, Caps, Floorand 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 they do 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
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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 Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. 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
Adviser. 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.
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, State Street Bank and Trust Company (the "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 securities 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 securities 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 securities 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 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, in connection with such
options, the Fund will segregate an
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amount of 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 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 assets may consist of cashor liquid 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 high grade
securities 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, if the Fund held a futures or forward contract,
instead of segregating assets, 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, assets equal to any remaining obligation would need to be
segregated.
Investment Restrictions
Unless specified to the contrary, the following restrictions may not be
changed without the approval of a majority of the outstanding voting securities
of the Fund which, under the 1940 Act and the rules thereunder and as used in
this Statement of Additional Information, means the lesser of (1) 67% or more of
the 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 has elected to be classified as a non-diversified series of an
open-end investment company.
In addition, as a matter of fundamental policy, the Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) 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;
(4) 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;
(5) purchase physical commodities or contracts relating to
physical commodities; or
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(6) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests
in indebtedness in accordance with the Fund's objective and
policies may be deemed to be loans.
As a matter of nonfundamental policy, the Fund may not:
(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 the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either 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 the 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.
PURCHASES
(See "Purchases" and "Transaction information" in the Fund's prospectus.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. by letter, fax, TWX, or
telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the
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<PAGE>
new account, the tax identification or social security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, Boston, MA 02110, ABA Number 011000028, DDA
Account Number 9903-5552. The investor must give the Scudder fund name, account
name and the new account number. Finally, the investor must send the completed
and signed application to the Fund promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder pension and profit sharing, Scudder 401(k) and
Scudder 403(b) Plan holders), members of the NASD, and banks. Orders placed in
this manner may be directed to any Scudder Investor Services, Inc. office listed
in the Fund's prospectus. A two-part invoice of the purchase will be mailed out
promptly following receipt of a request to buy. Payment should be attached to a
copy of the invoice for proper identification. Federal regulations require that
payment be received within three business days. If payment is not received
within that time, the shares may be canceled. In the event of such cancellation
or cancellation at the purchaser's request, the purchaser will be responsible
for any loss incurred by the Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Fund shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, the Fund may hold the redemption proceeds for a period of
up to seven business days. If you purchase shares and there are insufficient
funds in your bank account the purchase will be canceled and you will be subject
to any losses or fees incurred in the transaction. QuickBuy transactions are not
available for most retirement plan accounts. However, QuickBuy transactions are
available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
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Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Fund shall have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange, on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by the
Custodian of "wired funds," but the right to charge investors for this service
is reserved.
Boston banks are closed on certain local holidays although the Exchange
may be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day the
Exchange is open for trading. Orders received after the close of regular trading
on the Exchange will be executed at the next business day's net asset value. If
the order has been placed by a member of the NASD, other than the Distributor,
it is the responsibility of that member broker, rather than the Fund, to forward
the purchase order to Scudder Service Corporation (the "Transfer Agent") in
Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Fund management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
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<PAGE>
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g., certification of exempt status from exempt investors), will
be returned to the investor.
The Fund may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in
the Fund's prospectus.)
Special Redemption and Exchange Information
In general, shares of the Fund may be exchanged or redeemed at net
asset value. However, shares of the Fund held for less than one year are
redeemable at a price equal to 99% of the then current net asset value per
share. This 1% discount, referred to in the prospectus and this statement of
additional information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.
The redemption discount will not be applied to (a) a redemption of
shares of the Fund outstanding for one year or more, (b) shares purchased
through certain retirement plans, including 401(k) plans, 403(b) plans, 457
plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans, (c)
a redemption of reinvestment shares (i.e., shares purchased through the
reinvestment of dividends or capital gains distributions paid by the Fund), (d)
a redemption of shares due to the death of the registered shareholder of a Fund
account, or, due to the death of all registered shareholders of a Fund account
with more than one registered shareholder, (i.e., joint tenant account), upon
receipt by Scudder Service Corporation of appropriate written instructions and
documentation satisfactory to Scudder Service Corporation, or (e) a redemption
of shares by the Fund upon exercise of its right to liquidate accounts (i)
falling below the minimum account size by reason of shareholder redemptions or
(ii) when the shareholder has failed to provide tax identification information.
However, if shares are purchased for a retirement plan account through a broker,
financial institution or recordkeeper maintaining an omnibus account for the
shares, such waiver may not apply. (Before purchasing shares, please check with
your account representative concerning the availability of the fee waiver.) In
addition, this waiver does not apply to IRA and SEP-IRA accounts. For this
purpose and without regard to the shares actually redeemed, shares will be
treated as redeemed as follows: first, reinvestment shares; second, purchased
shares held one year or more; and third, purchased shares held for less than one
year. Finally, if a redeeming shareholder acquires Fund shares through a
transfer from another shareholder, applicability of the discount, if any, will
be determined by reference to the date the shares were originally purchased, and
not from the date of transfer between shareholders.
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in another fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges into a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus.
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<PAGE>
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset value determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over telephone or in writing. Automatic
Exchanges will continue until the shareholder requests by telephone or in
writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged may be subject to the Fund's 1% redemption
fee. (See "Special Redemption and Exchange Information." An exchange into
another Scudder fund is a redemption of shares, and therefore may result in tax
consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Fund and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain a prospectus of the Scudder fund into which the
exchange is being contemplated from the Distributor. The exchange privilege may
not be available for certain Scudder Funds or classes thereof. For more
information, please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may request to have the proceeds mailed
or wired to their predesignated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption proceeds
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
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If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone redemption
proceeds are advised that if the savings bank is not a participant in the
Federal Reserve System, redemption proceeds must be wired through a commercial
bank which is a correspondent of the savings bank. As this may delay receipt by
the shareholder's account, it is suggested that investors wishing to use a
savings bank discuss wire procedures with their bank and submit any special wire
transfer information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to the
designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net asset
value per share calculated at the close of trading on the day of your call.
QuickSell requests received after the close of regular trading on the Exchange
will begin their processing and be redeemed at the net asset value calculated
the following business day. QuickSell transactions are not available for Scudder
IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds will be credited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request documents such as, but not restricted to, stock
powers, trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waivers of tax required in some states
when settling estates.
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should
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<PAGE>
be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven days of payment for shares tendered for repurchase or redemption may
result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order with a proper original signature
guarantee, as described in the Fund's prospectus under "Transaction
information--Signature guarantees," should be sent with a copy of the invoice to
Scudder Funds, c/o Scudder Confirmed Processing, Two International Place,
Boston, Massachusetts 02110-4103. Failure to deliver shares or required
documents (see above) by the settlement date may result in cancellation of the
trade and the shareholder will be responsible for any loss incurred by the Fund
or the principal underwriter by reason of such cancellation. Net losses on such
transactions which are not recovered from the shareholder will be absorbed by
the principal underwriter. Any net gains so resulting will accrue to the Fund.
For this group, repurchases will be carried out at the net asset value next
computed after such repurchase requests have been received. The arrangements
described in this paragraph for repurchasing shares are discretionary and may be
discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Fund does not
impose a repurchase charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemption of shares,
including redemptions undertaken to effect an exchange for shares of another
Scudder fund, may result in tax consequences (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding. (See
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times (a) during which
the Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the Exchange is restricted for any reason, (c) during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during which the SEC by order permits a suspension of the right of redemption or
a postponement of the date of payment or of redemption; provided that applicable
rules and regulations of the SEC (or any succeeding governmental authority)
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Trustees. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an UGMA, UTMA,
IRA and other retirement accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for an UGMA, UTMA, IRA and other retirement accounts) is
established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in the Fund, without establishing an AIP, will be assessed an annual
$10.00 per fund charge with the fee to be reinvested in the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
18
<PAGE>
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder at the address
of record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.
FEATURES AND SERVICES OFFERED BY THE FUND
(See "Shareholder benefits" in the Fund's prospectus.)
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based Rule 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Scudder pioneered the no-load concept when it created the nation's
first no-load fund in 1928, and later developed the nation's first family of
no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder Family of Funds' no-load fund over investing the
same amount in a load fund that collects an 8.50% front-end load, a load fund
that collects only a 0.75% 12b-1 and/or service fee, and a no-load fund charging
only a 0.25% 12b-1 and/or service fee. The hypothetical figures in the chart
show the value of an account assuming a constant 10% rate of return over the
time periods indicated and reinvestment of dividends and distributions.
19
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
Scudder No-Load Fund with
YEARS Family of Funds 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1
No-Load Fund 12b-1 Fee Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
- --------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- --------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
====================================================================================================================
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
20
<PAGE>
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be given to the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
Contact Scudder" in the Fund's prospectus for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Centers maintained by the Distributor
listed in the Fund's prospectus. The Centers are designed to provide individuals
with services during any business day. Investors may pick up literature or find
assistance with opening an account, adding monies or special options to existing
accounts, making exchanges within the Scudder Family of Funds, redeeming shares
or opening retirement plans. Checks should not be mailed to the Centers but
should be mailed to "The Scudder Funds" at the address listed under "How to
contact Scudder" in the prospectus.
Reports to Shareholders
The Fund issues to its shareholders unaudited semiannual financial
statements and annual financial statements audited by independent accountants,
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets and financial highlights. Each distribution
will be accompanied by a brief explanation of the source of the distribution.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
21
<PAGE>
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Funds' prospectuses.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital and, consistent therewith, to maintain the liquidity of
capital and to provide current income. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
- ----------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
22
<PAGE>
TAX FREE
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
- ----------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
23
<PAGE>
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As
a secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
24
<PAGE>
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
SCUDDER CHOICE SERIES
Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.
Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.
Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.
GLOBAL GROWTH
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity
securities.
25
<PAGE>
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts)
of Japanese companies.
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; no-load funds with no commissions to purchase or redeem
shares or Rule 12b-1 distribution fees; individual attention from a service
representative of Scudder Investor Relations; and easy telephone exchanges into
other Scudder funds. Certain Scudder funds or classes thereof may not be
available for purchase or exchange. For more information, please call
1-800-225-5163.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
26
<PAGE>
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
27
<PAGE>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ----------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
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IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all shares of the Fund under the Plan have been liquidated or upon receipt
by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the
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<PAGE>
same dollar amount each period, when shares are priced low the investor will
purchase more shares than when the share price is higher. Over a period of time
this investment approach may allow the investor to reduce the average price of
the shares purchased. However, this investment approach does not assure a profit
or protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance
information--Dividends and capital gains
distributions" in the Fund's prospectus.)
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes net investment income and any
excess of net realized short-term capital gains over net realized long-term
capital losses. The Fund may follow 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 then be asked to claim a credit against their federal income
tax liability. (See "TAXES.")
According to preference, shareholders may receive distributions in cash
or have them reinvested in additional shares of the Fund. If an investment is in
the form of a retirement plan, all dividends and capital gains distributions
must be reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains distributions, if any,
are taxable to individual shareholders at a maximum 20% or 28% capital gains
rate (depending on the Fund's holding period for the assets giving rise to the
gain), regardless of the length of time shareholders have owned their shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income.
A portion of the dividends paid by REITs may represent a return of
capital. As a result, it is expected that a portion of the Fund's dividends may
also be a return of capital. Return of capital dividends are not taxed
currently, but you must deduct them from the cost basis of your investment in
the Fund thereby affecting the capital gain or loss you realize when you sell or
exchange Fund shares. REITs may also pay capital gain distributions to
shareholders.
REITs do not provide information about the tax status of their
distributions until after calendar year-end. As a result, the Fund cannot
determine the proportion of its distributions that are dividends, capital gains
or a return of capital until after the January 31 deadline for 1099-DIV
reporting. Therefore, the Fund plans to request permission from the IRS each
year to mail tax forms to shareholders in February so that the information you
receive is complete and accurate.
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<PAGE>
PERFORMANCE INFORMATION
(See "Distribution and performance information--Performance
information" in the Fund's prospectus.)
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year and the life of the Fund, 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 finding 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 payment 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.
Cumulative Total Return
Cumulative total return is the compound 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 finding the
cumulative rate 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 Return for the periods ended December 31, 1998
One Year Life of Fund*
N/A -13.00%
* For the period April 8, 1998 (commencement of operations) to
December 31, 1998.
Quotations of the Fund's performance are historical and are not
intended to indicate future performance. An investor's shares when redeemed may
be worth more or less than their original cost. Performamnce of fhe Fund will
vary based on changes in market condiditons and the level of the Fund's
expenses.
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<PAGE>
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.
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. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
Index and statistics published by the Small Business Administration.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Trust, 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 Adviser 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. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
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.
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<PAGE>
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
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<PAGE>
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SmartMoney, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
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<PAGE>
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
ORGANIZATION OF THE FUND
(See "Fund organization" in the Fund's prospectus.)
The Fund is a non-diversified series of Scudder Investment Trust, a
Massachusetts business trust established under a Declaration of Trust dated
September 20, 1984, as amended. The name of the Trust was changed, effective May
15, 1991, from Scudder Growth and Income Fund. The Trust's authorized capital
consists of an unlimited number of shares of beneficial interest, par value
$0.01 per share. The Trust's shares are currently divided into five series,
Scudder Growth and Income Fund, Scudder Large Company Growth Fund, Scudder
Classic Growth Fund, Scudder S&P 500 Index Fund and Scudder Real Estate
Investment Fund.
The Trustees have the authority to issue additional series of shares
and to designate the relative rights and preferences as between the different
series. Each share of the Fund has equal rights with each other share of the
Fund 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 prospectus.
The assets of the 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 the 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 the
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 the Trust or any series, 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.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon
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<PAGE>
only by shareholders of the series involved. Additionally, approval of the
investment advisory agreement is a matter to be determined separately by each
series.
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.
The Declaration of Trust 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 will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, 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. 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.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Fund's prospectus.)
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U.S. It was established as a partnership in 1919
and pioneered the practice of providing investment counsel to individual clients
on a fee basis. In 1928 it introduced the first no-load mutual fund to the
public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("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 has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Scudder Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds,
Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder
Pathway Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, The Argentina Fund, Inc., The Brazil
Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and Scudder Spain and
Portugal Fund, Inc. Some of the foregoing companies or trusts have two or more
series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and
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includes the AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust,
AARP Managed Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between Scudder Kemper Investments, Inc. and
AMA Solutions, Inc., a subsidiary of the American Medical Association (the
"AMA"), dated May 9, 1997, the Adviser has agreed, subject to applicable state
regulations, to pay AMA Solutions, Inc. royalties in an amount equal to 5% of
the management fee received by the Adviser with respect to assets invested by
AMA members in Scudder funds in connection with the AMA InvestmentLink(SM)
Program. The Adviser will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal securities laws. Any person
who participates in the AMA InvestmentLink(SM) Program will be a customer of the
Adviser (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser 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 Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The investment management agreement between the Fund and the Adviser is
dated March 2, 1998 and was approved by the Trustees on February 10, 1998 and by
the initial shareholder of the Fund on February 26, 1998. The investment
management agreement (the "Agreement") will continue in effect for an initial
term ending on September 30, 1999. The Agreement will continue in effect 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 the Agreement or
interested persons of the Adviser or the Trust, cast in person at a meeting
called for the purpose of voting on such approval, and either by a vote of the
Trust's Trustees on behalf of the Fund 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 terminates in the event of its assignment.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) 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.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with the Adviser, which is substantially identical
to the current investment management agreement, except for the dates of
execution and termination. The Agreement became effective on
37
<PAGE>
September 7, 1998, upon the termination of the then current investment
management agreement and was approved at a shareholder meeting held in December
1998.
The Agreement, dated September 7, 1998, was approved by the Trustees of
the Trust on August 11, 1998. The Agreement will continue in effect until
September 30, 1999 and from year to year thereafter only if their continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Trust's Trustees or of a majority of the outstanding
voting securities of the Fund. The Agreement may be terminated at any time
without payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
Under the Agreement, the Adviser 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 Adviser also
advises and assists the officers of the Trust in taking such steps as are
necessary or appropriate to carry out the decisions of its Trustees and the
appropriate committees of the Trustees regarding the conduct of the business of
the Fund.
Under the Agreement, the Adviser 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 Adviser 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 or Boston, Massachusetts) of the
Trust affiliated with the Adviser and makes available, without expense to the
Fund, the services of such Trustees, officers and employees of the Adviser as
may duly be elected officers 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 these services, the Fund will pay the Adviser an annual fee equal
to 0.80% of the Fund's average daily net assets, payable monthly, provided the
Fund will make such interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser has agreed until December 31, ____ to maintain the total
annualized expenses of the Fund at no more than 1.25% of the average daily net
assets of the Fund. For the period April 8, 1998 (commencement of operations) to
December 31, 1998, the Adviser did not impose a portion of its management fee
amounting to $_______, and the fee paid to the Adviser amounted to
$-------.
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; fees and
expenses of the Fund's accounting agent; 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
38
<PAGE>
of Trustees, officers and employees of the Fund who are not affiliated with the
Adviser; 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 Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Trust who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser 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
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser'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 Adviser may serve as adviser to other funds with similar investment
objectives and policies to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, 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 monthly 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 Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
39
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Scudder Investor
and Address with Trust Principal Occupation** Services, Inc.
- ----------- ---------- ---------------------- --------------
<S> <C> <C> <C>
Daniel Pierce (65)+*= President and Trustee Chairman of the Board and Director, Vice President
Managing Director of Scudder and Assistant Treasurer
Kemper Investments, Inc.
Henry P. Becton, Jr. (55) Trustee President and General Manager, --
125 Western Avenue WGBH Educational Foundation
Allston, MA 02134
Dawn-Marie Driscoll (52) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates
Peter B. Freeman (66) Trustee Director, The A.H. Belo --
100 Alumni Avenue Company; Trustee, Eastern
Providence, RI 02906 Utilities Associates (public
utility holding company);
Director, AMICA Life Insurance
Co.; Director, AMICA Insurance
Co.
George M. Lovejoy, Jr. 69)= Trustee President and Director, Fifty --
50 Congress Street Associates (real estate
Suite 543 corporation)
Boston, MA 02109-4002
Wesley W. Marple, Jr. (67)= Trustee Professor of Business --
413 Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
Kathryn L. Quirk (46)++*= Trustee, Vice President Managing Director of Scudder Director, Assistant
and Assistant Secretary Kemper Investments, Inc. Treasurer and Senior Vice
President
Jean C. Tempel (56) Trustee Venture Partner, --
Ten Post Office Square Internet Capital Corp.
Suite 1325
Boston, MA 02109-4603
40
<PAGE>
Position with
Underwriter,
Name, Age Position Scudder Investor
and Address with Trust Principal Occupation** Services, Inc.
- ----------- ---------- ---------------------- --------------
Bruce F. Beaty (40)++ Vice President Senior Vice President of --
Scudder Kemper Investments, Inc.
Philip S. Fortuna (41)++ Vice President Managing Director of Scudder Vice President
Kemper Investments, Inc.
William F. Gadsden (44)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Jerard K. Hartman (65)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John R. Hebble (40)+ Treasurer Senior Vice President of --
Scudder Kemper Investments, Inc.
Robert T. Hoffman (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Thomas W. Joseph (60)+ Vice President Senior Vice President of Director, Vice President,
Scudder Kemper Investments, Inc. Treasurer and Assistant
Clerk
Valerie F. Malter (40)++ Vice President Senior Vice President of --
Scudder Kemper Investments, Inc.
Thomas F. McDonough (52)+ Vice President and Senior Vice President of Clerk
Secretary Scudder Kemper Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Director of Mutual Fund --
Administration
* Mr. Pierce and Ms. Quirk are considered by the Fund and counsel to be persons who are "interested persons"
of the Adviser or of the Fund, within the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
= Messrs. Lovejoy, Pierce, Marple and Ms. Quirk are members of the Executive Committee for the Trust, which
has the power to declare dividends from ordinary income and distributions of realized capital gains to the
same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
</TABLE>
The Trustees and officers of the Fund also serve in similar capacities
with other Scudder Funds.
All Trustees and officers as a group owned less than 1% of the Fund's
outstanding shares at the commencement of operations.
41
<PAGE>
[To be Updated]
To the knowledge of the Trust, as of March 31, 1999, all Directors and
officers as a group owned beneficially (as the term is defined in Section 13(d)
under the Securities Exchange Act of 1934) less than 1% of the shares of
Dividend & Growth Fund outstanding on such date.
To the knowledge of the Trust, except as stated above, as of March 31,
1999, no person owned beneficially more than 5% of the Fund's outstanding
shares.
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 Scudder Kemper 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 each 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
The Independent Trustees receive the following compensation from the
Funds of Investment Trust: an annual trustee's fee of $2,400 for a Fund in which
assets do not exceed $100 million, $4,800 for a Fund in which total net assets
exceed $100 million but do not exceed $1 billion, and $7,200 for a Fund in which
total net assets exceed $1 billion; a fee of $150 for attendance at each board
meeting, audit committee meeting, or other meeting held for the purposes of
considering arrangements between the Trust on behalf of the Fund and the Adviser
or any affiliate of the Adviser; $75 for attendance at any other committee
meeting (although in some cases the Independent Trustees have waived committee
meeting fees); and reimbursement of expenses incurred for travel to and from
Board Meetings. The Independent Trustee who serves as lead or liaison trustee
receives an additional annual retainer fee of $500 from each Fund. 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, service on special trustee task forces or subcommittees or service
as lead or liaison trustee. Independent Trustees do not receive any employee
benefits such as pension, retirement 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 Scudder. These funds differ broadly in type an complexity and
in some cases have substantially different Trustee fee schedules. The following
table shows the aggregate compensation received by each Independent Trustee
during 1998 from the Trust and from all of Scudder funds as a group.
42
<PAGE>
[To be Updated]
<TABLE>
<CAPTION>
Name Investment Trust* All Scudder Funds
---- ----------------- -----------------
<S> <C>
Henry P. Becton, Jr.
Trustee
Dawn-Marie Driscoll** Trustee
Peter B. Freeman**
Trustee
George M. Lovejoy, Jr.
Trustee
Wesley W. Marple, Jr.
Trustee
Jean C. Tempel
Trustee
</TABLE>
* In 1998, r Investment Trust consisted of eight funds: Scudder Growth
and Income Fund, Scudder Large Company Growth Fund, Scudder Classic
Growth Fund, Scudder S&P 500 Index Fund, Scudder Real Estate Investment
Fund, Scudder Dividend & Growth Fund, Scudder Tax Managed Growth Fund
and Scudder Tax Managed Small Company Fund. Scudder Real Estate
Investment Fund commenced operations on April 8, 1998, Scudder Dividend
& Growth Fund commenced operations on July 17, 1998, and both Scudder
Tax Managed Growth Fund and Scudder Tax Managed Small Company Fund
commenced operations on September 18, 1998.
** Elected as trustee on October 24, 1997.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement dated
September 7, 1998 will remain in effect until September 30, 1999 and from year
to year thereafter only if its continuance is approved annually by a majority of
the members of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of the
Board of Trustees or a majority of the outstanding voting securities of the
Fund. The underwriting agreement was last approved by the Trustees on August 11,
1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in
various states, as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor);
43
<PAGE>
notices, proxy statements, reports or other communications to shareholders of
the Fund; the cost of printing and mailing confirmations of purchases of shares
and any prospectuses accompanying such confirmations; any issuance taxes and/or
any initial transfer taxes; a portion of shareholder toll-free telephone charges
and expenses of shareholder service representatives; the cost of wiring funds
for share purchases and redemptions (unless paid by the shareholder who
initiates the transaction); the cost of printing and postage of business reply
envelopes; and a portion of the cost of computer terminals used by both the Fund
and the Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
Note: Although the Fund does not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Fund would
also pay those fees and expenses permitted to be paid or assumed
by the Fund pursuant to a 12b-1 Plan, if any, were adopted by the
Fund, notwithstanding any other provision to the contrary in the
underwriting agreement.
As agent, the Distributor currently offers shares of the Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
(See "Distribution and performance information--Dividends and capital
gains distributions" and "Transaction information--Tax information,
Tax identification number" in the Fund's prospectus.)
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 percent 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.
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 generally is made up of 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.
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 taxable to individual shareholders at a maximum 20% or 28% capital gains
rate (depending on
44
<PAGE>
the Fund's holding period for the assets giving rise to the gain), will be able
to claim a proportionate share of federal income taxes paid by the Fund on such
gains as a credit against the shareholder's federal income tax liability, and
will be entitled to increase the adjusted tax basis of the shareholder's Fund
shares by the difference between the shareholder's pro rata share of such gains
and the shareholder's tax credit. If the Fund makes such an election, it may not
be treated as having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any 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 70% 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 individual
shareholders at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the 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.
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 declared in
October, November or December with a record date 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.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income 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 ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). 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 ($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
45
<PAGE>
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be recognized by the Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option, and
in the case of the exercise of a put option, on the Fund's holding period for
the underlying property. The purchase of a put option may constitute a short
sale for federal income tax purposes, causing an adjustment in the holding
period of any property in the Fund's portfolio similar to the property
underlying the put option. If the Fund writes an 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 short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.
Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), 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 capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
Subchapter M of the Code requires the Fund to realize less than 30% of
its annual gross income from the sale or other disposition of stock, securities
and certain options, futures and forward contracts held for less than three
months. The Fund's options, futures and forward transactions may increase the
amount of gains realized by the Fund that are subject to this 30% limitation.
Accordingly, the amount of such transactions that the Fund may undertake may be
limited.
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
nonequity option or other position 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, the operation of which may cause
deferral of losses, adjustments in the holding periods of securities and
conversion of short-term capital losses into long-term capital losses, certain
tax elections exist for them which reduce or eliminate the operation of these
rules. The Fund will monitor its transactions in options, foreign currency
futures and forward contracts 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 material 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
46
<PAGE>
apply to certain transactions closed in the 90-day period ending with the 30th
day after the close of the Fund's taxable year, if certain conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
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 options, futures
and forward contracts, 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.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
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 losses to the extent of any net
mark-to-market gains included in income in prior years. 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.
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
(the "IRS") all distributions of investment company 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 investment company
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.
47
<PAGE>
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.
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.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by 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 Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for 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, market or statistical information. The Adviser will not
place orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of 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 Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the 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.
48
<PAGE>
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to 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.
[To be Updated]
For the period April 8, 1998 (commencement of operations) to December
31, 1998, the Fund paid brokerage commissions of $_______. For the fiscal period
period ended December 31, 1998, $_______ (___% 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
Adviser. The total amount of brokerage commissions aggregated $_______, of which
$_______ ( % of all brokerage transactions) were transactions which included
research commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. A higher rate
involves greater brokerage transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. For the fiscal
period ended December 31, 1998, the Fund had an annualized portfolio turnover
rate of ____%.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. 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"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the Nasdaq
Stock Market ("Nasdaq") system is valued at its most recent sale price. Lacking
any sales, the security is valued at the most recent bid quotation. 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. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.
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
purchased 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
49
<PAGE>
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by 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.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the Fund's prospectus,
and the Financial Statements incorporated by reference to the Statement of
Additional Information will be so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, One Post Office Square,
Boston, Massachusetts 02109, independent accountants, and given on the authority
of that firm as experts in accounting and auditing. Effective July 1, 1998,
Coopers & Lybrand L.L.P. and Price Waterhouse LLP merged to become
PricewaterhouseCoopers LLP. PricewaterhouseCoopers, LLP is responsible for
performing annual audits of the financial statements and financial highlights of
each Fund in accordance with generally accepted auditing standards, and the
preparation of federal tax returns.
Other Information
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 Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of Scudder Real Estate Investment Fund is: 460965-60-1.
The Fund has a fiscal year end of December 31.
The firm of Dechert Price & Rhoads is counsel to the Fund.
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<PAGE>
The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as Custodian.
Estimated costs of $12,000 incurred by Scudder Real Estate Investment
Fund in conjunction with its organization are amortized over the five-year
period beginning March 2, 1998.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for the Fund. SSC also serves as shareholder service
agent and provides subaccounting and recordkeeping services for shareholder
accounts in certain retirement and employee benefit plans. The Fund pays SSC an
annual fee for each account maintained for a participant. The Fund, or the
Adviser (including any affiliate of the Adviser), or both, may pay unaffiliated
third parties for providing recordkeeping and other administrative services with
respect to accounts of participants in retirement plans or other beneficial
owners of a Fund's shares whose interests are held in an omnibus account. . For
the period April 6, 1998 (commencement of operations) to December 31, 1998, SSC
imposed fees amounting to $_______, of which $_______ was unpaid at August 31,
1998, and did not jmpose fees amounting to $_______.
Annual service fees are paid by the Fund to Scudder Trust Company, Two
International Place, Boston, Massachusetts 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Adviser, computes net asset values
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.025% of the first $150 million of average daily net assets, 0.0075%
of such assets in excess of $150 million and 0.0045% of such assets in excess of
$1 billion, plus holding and transaction charges for this service. For the
period April 8, 1998 (commencement of operations) to December 31, 1998, SFAC
imposed fees amounting to $_______, of which $_______ was unpaid at August 31,
1998, and did not impose fees amounting to $_______.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement 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. This 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 Real
Estate Investment Trust, 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 December 31, 1998, are incorporated herein
by reference, and are hereby deeemed to be a part of this Statement of
Additional Information.
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<PAGE>
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Scudder S&P 500 Index Fund
Prospectus
May 1, 1999
Offering you a convenient and efficient means of participating in the stock
market as measured by the S&P 500
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
No-Load/No Sales Charge
"The place to plan your retirement"
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<PAGE>
CONTENTS
INVESTMENT OBJECTIVE
An overview of the fund's goal and strategy, main risks,
performance and expenses
MAIN INVESTMENT STRATEGIES
MAIN RISKS
A MESSAGE FROM THE PRESIDENT
INVESTMENT MANAGER AND ADMINISTRATOR FOR THE FUND
INVESTMENT ADVISER AND ADMINISTRATOR FOR THE PORTFOLIO
DISTRIBUTIONS
TAXES
FINANCIAL HIGHLIGHTS
ABOUT YOUR INVESTMENT
Information about managing your fund account
TRANSACTION INFORMATION
BUYING AND SELLING SHARES
PURCHASES
EXCHANGES AND REDEMPTIONS
INVESTMENT PRODUCTS AND SERVICES
2
<PAGE>
Investment Objective
The fund seeks to match as closely as possible (before expenses), the
performance of the Standard & Poor's Corporation 500 Composite Stock Price Index
(S&P 500 Index).
The fund is a feeder fund in a master-feeder fund arrangement. The fund pursues
its goal by investing substantially all its assets in a master portfolio - the
Equity 500 Index Portfolio (portfolio), which has the same investment objective
as the fund. Bankers Trust Company is the investment adviser to the portfolio
(Bankers Trust or Adviser). Scudder Kemper Investments, Inc. is the investment
manager to the fund (Scudder Kemper or Manager) and, as such, monitors the
fund's investments in the portfolio.
Unless otherwise stated, the investment objective of both the fund and the
portfolio may be changed without a vote of shareholders.
Main investment strategies
Equity 500 Index Portfolio. The portfolio will usually invest at least 80% of
its assets in the common stocks of the companies that comprise the S&P 500
Index, except the stock of Bankers Trust Corporation. The portfolio's securities
are allocated among common stocks in approximately the same weightings as those
of the stocks comprising the S&P 500 Index, to make its investment
characteristics similar to those of the S&P 500 Index as a whole. The Adviser
may exclude or remove any S&P 500 Index stock from the portfolio if the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been impaired by financial conditions or other extraordinary
events.
Up to 20% of the portfolio's assets may be invested in short-term debt
securities and money market instruments as well as stock index futures and
options. The portfolio intends to buy futures in anticipation of buying stocks.
Futures contracts and options on futures contracts may be used as a low-cost
method of gaining exposure to a particular securities market without directly
investing in those securities. In selecting futures and options, the Adviser
will assess such factors as current and anticipated stock prices, relative
liquidity and price levels in the options and futures markets compared to the
securities markets, and the portfolio's cash flow and cash management needs.
To match the risk and return characteristics of the S&P 500 Index as closely as
possible, the portfolio invests in a statistically selected sample of the stocks
found in the S&P 500 Index, using a process known as "optimization."
Optimization allows the portfolio to select stocks whose industry weightings,
market capitalizations, and fundamental characteristics (price to book ratios,
price to earnings ratios, debt to asset ratios, and dividend yields) closely
match those of the stocks in the S&P 500 Index. In using optimization, the
portfolio first buys the stocks that make up the larger portions of the S&P 500
Index's value in roughly the same proportion as the Index. Next, smaller stocks
are analyzed and selected. In selecting smaller stocks, the Adviser tries to
match the industry and risk characteristics of all the smaller companies of the
S&P 500 Index without buying all of those stocks. Over the long term, the
Adviser seeks a correlation between the performance of the portfolio (before
expenses) and the S&P 500 Index of 98% or better. A figure of 100% would
indicate perfect correlation.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Main risks
The primary factor affecting this fund's performance is the stock market. The
fund's share price will fluctuate - up and down - with changes in the levels of
the U.S. stock market. The U.S. stock market tends to be cyclical,
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<PAGE>
with periods when stock prices generally rise and periods when stock prices
generally decline. Stock prices could decline generally or underperform other
investments. Moreover, the returns on large U.S. companies' stock, such as those
that comprise the S&P 500 Index, could trail the returns of the stock of medium
or small companies.
The fund and the portfolio may not be able to mirror the S&P 500 Index closely
enough to meet the S&P 500 Index's performance for a number of reasons,
including the portfolio's incidence of brokerage and other costs in buying and
selling stocks, the cash flow in and out of the fund and the portfolio due to
such things as shareholder redemptions and investments, and the underperformance
of stocks selected by the Adviser.
If the Adviser incorrectly judges factors in selecting options and futures
strategies, or if the price changes in the portfolio's futures and options
positions are not well correlated with those of its other investments, the
portfolio would not be pursuing, and may not achieve, its investment objective.
The Portfolio could also be exposed to risk if it could not close out its
futures and options positions because of an illiquid secondary market.
There are market and investment risks with any security and the value of an
investment in the fund will fluctuate over time and it is possible to lose money
invested in the fund.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed and comparing this
information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.
Total return for years ended December 31 [Bar Graphics to be Inserted]
- ---------------------------------
Total Return: ----% ---%
- ---------------------------------
Year: 1998 1997
- ---------------------------------
Since the fund's inception on August 29, 1997, the fund's highest return for a
calendar quarter was ____% (the ___ quarter of ___), and the fund's lowest
return for a calendar quarter was ____% (the ___ quarter of ___).
- ---------------------------------------------------------------------------
Average annual total returns
- ---------------------------------------------------------------------------
For periods ended
December 31, 1998 Fund S&P 500 Index
- ------------------------------------------------------------------------
One Year ___% __%
- ------------------------------------------------------------------------
Five Year N/A __%
- ------------------------------------------------------------------------
Ten Year N/A __%
- ------------------------------------------------------------------------
Since Inception (8/29/97) ___% __%
- ------------------------------------------------------------------------
The Standard & Poor's Corporation 500 Composite Stock Price Index (S&P 500
Index) is an unmanaged capitalization-weighted measure of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange, and
Nasdaq Stock Market.
Index returns assume reinvestment of dividends and, unlike fund returns, do not
reflect any fees or expenses.
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Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund.
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of NONE
offering price)
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load) NONE
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested NONE
dividends/distribution
- --------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE*
- --------------------------------------------------------------------------------
Exchange fee NONE*
- --------------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
- --------------------------------------------------------------------------------
Management fee x.xx%
- --------------------------------------------------------------------------------
Distribution (12b-1) fees NONE
- --------------------------------------------------------------------------------
Other expenses x.xx%
- --------------------------------------------------------------------------------
Total annual fund operating expenses x.xx%**
- --------------------------------------------------------------------------------
Expense reimbursement x.xx%
- --------------------------------------------------------------------------------
Net expenses x.xx%**
- --------------------------------------------------------------------------------
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "About Your Investment --
Exchanges and redemptions."
** Total fund operating expenses are contractually maintained at x.xx%
through ________
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The expenses
would be the same whether you sold your shares at the end of each period or
continued to hold them.
- --------------------------------------------------------------------------------
One Year $___
- --------------------------------------------------------------------------------
Three Years $___
- --------------------------------------------------------------------------------
Five Years $___
- --------------------------------------------------------------------------------
Ten Years $___
- --------------------------------------------------------------------------------
Actual fund expenses and return vary from year to year, and may be higher or
lower than those shown.
5
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Financial highlights
The financial highlights table is intended to help you understand the fund's
financial performance for the periods indicated. The total return figures
represent the rate that an investor would have earned (or lost) on an investment
in the fund assuming reinvestment of all dividends and distributions. This
information has been audited by PricewaterhouseCoopers LLP whose report, along
with the fund's financial statements, is included in the annual report, which is
available upon request by calling Scudder Investor Relations at 1-800-225-2470,
or, for existing investors, call the Scudder Automated Information Line (SAIL)
at 1-800-343-2890.
[INSERT TABLE]
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A message from the President
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $280 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares. We also manage mutual funds in a special program for the American
Association of Retired Persons, as well as the fund options available through
Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise The
Japan Fund and numerous other open- and closed-end funds that invest in this
country and other countries around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds; IRAs, 401(k)s,
Keoghs and other retirement plans are also available.
Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.
The Scudder Family of Funds is offered without commissions to purchase or redeem
shares or to exchange from one fund to another. There are no distribution
(12b-1) fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
Investment manager and administrator
The fund retains the investment management firm of Scudder Kemper Investments,
Inc., (the "Manager"), Two International Place, Boston, MA, to monitor the
fund's investments in the portfolio subject to the policies established by the
Board of Trustees. Currently, the Manager does not actively participate in the
investment process for the fund. However, in the event the Board of Trustees
determines it is in the best interests of the fund's shareholders to withdraw
its investment in the portfolio, the Manager would become responsible for
directly managing the assets of the fund. In such event, the fund would pay the
manager an annual fee of 0.15% of the average daily net assets of the fund,
accrued daily and paid monthly. Currently, the Manager receives no investment
management fee.
Under an Administrative Services Agreement with the fund, the Manager provides
shareholder services, administration and distribution assistance, and receives a
fee, accrued daily and paid monthly, at the rate of 0.10% of the average daily
net assets of the fund.
Until ____________, the Manager agreed, under the Administrative Services
Agreement, to maintain the annualized expenses of the fund at no more than
_____% of the average daily net assets of the fund. As a result of this waiver,
the Manager received an administrative services fee of _____% of the fund's
average daily net assets at fiscal year end.
Investment adviser and administrator
The portfolio has retained the services of Bankers Trust Company as investment
adviser, (the "Adviser"). Bankers Trust Company, a New York banking corporation
with principal offices at 130 Liberty Avenue, New York, NY, is a wholly owned
subsidiary of Bankers Trust Corporation, and one of the nation's leading
managers of index funds. The Adviser has been advised by its counsel that the
Adviser currently may perform the services for the portfolio described in this
prospectus and the Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
The Adviser, subject to the supervision and direction of the Board of Trustees
of the portfolio, manages the portfolio in accordance with the portfolio's
investment objective and stated investment policies, makes investment decisions
for the portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the portfolio, and employs professional
investment managers and securities analysts who provide research services to the
portfolio. Under its Investment Advisory Agreement with the portfolio, the
7
<PAGE>
Adviser receives a fee, computed daily and paid monthly, at the rate of 0.075%
of the average daily net assets of the portfolio. For the fiscal year ended
December 31, 1998, the Adviser received an investment advisory fee of ____% of
the portfolio's average daily net assets on an annual basis. Professional
management can be an important advantage for investors who do not have the time
or expertise to invest directly in individual securities.
On November 30, 1998, Bankers Trust Corporation entered into an Agreement and
Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including retail and commercial banking, investment banking and
insurance. The transaction is contingent upon various regulatory approvals, as
well as the approval of the fund's shareholders. If the transaction is approved
and completed, Deutsche Bank AG, as the Adviser's new parent company, will
control operations of the Adviser. Bankers Trust believes that, under this new
arrangement, the services provided to the fund will be maintained at their
current level.
Under an Administration and Services Agreement with the portfolio, the Adviser
provides shareholder services, administration and distribution assistance, and
receives a fee, computed daily and paid monthly, at the rate of 0.05% of the
average daily net assets of the portfolio. The Agreement allows for the Adviser
to delegate one or more of its responsibilities to others, including affiliates
of ICC Distributors, Inc., at the Adviser's expense. Until __________, the
Adviser agreed, under the Administrative Services Agreement, to maintain the
annualized expenses of the portfolio at no more than _____% of the average daily
net assets of the portfolio. As a result of this waiver, the Manager received an
administrative services fee of ____% of the fund's average daily net assets at
fiscal year end.
Portfolio management
The following investment professional has day-to-day responsibility for the
portfolio:
Frank Salerno, Managing Director of the Adviser, joined the Adviser in 1981, and
has managed the portfolio since the portfolio commenced operations in December
1992.
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
fund could be adversely affected if computer systems on which the fund relies,
which primarily include those used by the Adviser, its affiliates or other
service providers, are unable to process correctly date-related information on
and after January 1, 2000. The risk is commonly called the Year 2000 issue.
Failure to address successfully the Year 2000 issue could result in
interruptions to and other material adverse effects on the fund's business and
operations, such as problems with calculating net asset value and difficulties
in implementing the fund's purchase and redemption procedures. The Adviser has
commenced a review of the Year 2000 issue as it may affect the fund and is
taking steps it believes are reasonably designed to address the Year 2000 issue,
although there can be no assurances that these steps will be sufficient. In
addition, there can be no assurances that the Year 2000 issue will not have an
adverse effect on the issuers whose securities are held by the fund or on global
markets or economies generally.
Distributions
Dividends and capital gains distributions
The fund intends to distribute dividends from its net investment income
quarterly in March, June, September and December. The fund intends to distribute
net realized capital gains after utilization of capital loss
8
<PAGE>
carryforwards, if any, in November or December. An additional distribution may
be made at a later date, if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such 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.
A shareholder may choose to receive distributions in cash or have them
reinvested in additional shares of a fund. If an investment is in the form of a
retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account. Distributions are generally taxable,
whether received in cash or reinvested. Exchanges among funds are also taxable
events.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders, regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income. A portion of dividends from ordinary income may qualify for
the dividends-received deduction for corporations.
Unless your investment is in a tax-deferred account, you may want to avoid
investing a large amount close to the date of a distribution because you may
receive part of your investment back as a taxable distribution.
A sale or exchange of shares is a taxable event and may result in a capital gain
or loss, which may be long-term or short-term, generally depending on how long
you owned the shares.
The fund sends detailed tax information about the amount and type of its
distributions by January 31 of the following year.
The fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Any such withheld amounts may be credited against the
shareholder's U.S. federal income tax liability.
Shareholders may be subject to state, local and foreign taxes on fund
distributions and dispositions of fund shares. You should consult your tax
advisor regarding the particular consequences of an investment in the fund.
9
<PAGE>
About Your Investment
Transaction information
Share price
Bankers Trust Company determines the net asset value per share of the fund as of
the close of regular trading on the New York Stock Exchange, normally 4 p.m.
eastern time, on each day the New York Stock Exchange is open for trading. Net
asset value per share is calculated by dividing the value of total fund assets
(i.e., the value of its investment in the portfolio and other assets), less all
liabilities attributable to that fund, by the total number of shares outstanding
for the fund.
Processing time
All purchase and redemption requests received in good order at the fund's
transfer agent by the close of regular trading on the New York Stock Exchange
are executed at the net asset value per share calculated at the close of trading
that day. All other requests that are in good order will be executed the
following business day.
Signature guarantees
A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain a guarantee from most brokerage houses and financial
institutions, although not from a notary public. The fund will normally send
redemption proceeds within one business day following the redemption request,
but may take up to seven business days (or longer in the case of shares recently
purchased by check). For more information, please call 1-800-225-5163.
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of fund shares (including exchanges) for any reason, including when
there is evidence of a pattern of frequent purchases and sales made in response
to short-term fluctuations in the fund's share price.
Minimum balances
Generally, shareholders who maintain a non-fiduciary account balance of less
than $2,500 in the fund and have not established an automatic investment plan
will be assessed, an annual $10.00 per fund charge; this fee is paid to the
fund. The fund reserves the right, following 60 days written notice to
shareholders, to redeem all shares in accounts that have a value below $1,000
where such a reduction in value has occurred due to a redemption, exchange or
transfer out of the account.
Third party transactions
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than Scudder Investor Services,
Inc.), that member may charge a fee for that service.
Redemption-in-kind
The fund reserves the right to honor requests for redemption or repurchase
orders by making payment in whole or in part in readily marketable securities
("redemption in kind") if the amount of such a request is large enough to affect
operations (for example, if the request is greater than $250,000 or 1% of the
fund's assets). These securities will be chosen by the fund and valued as they
are for purposes of computing the fund's net asset value. A shareholder may
incur transaction expenses in converting these securities to cash.
Buying and selling shares
Please refer to the following charts for information on how to buy and sell fund
shares. Additional information, including special investment features, may be
found in the Shareholder Services Guide. For information about No-Fee IRAs, Roth
IRAs and other retirement options, call Scudder Investor Relations at
1-800-225-2470. For information on establishing 401(k) and 403(b) plans, call
Scudder Defined Contribution Services at 1-800-323-6105.
10
<PAGE>
Purchases
To open an account
The minimum initial investment is $2,500; $1,000 for IRAs. Group retirement
plans (401(k), 403(b), etc.) have similar or lower minimums - see appropriate
plan literature. Make checks payable to "The Scudder Funds."
- --------------------------------------------------------------------------------
By Mail Send your completed and signed application and check
by regular mail to: or by express, registered, or
The Scudder Funds certified mail to:
P.O. Box 2291 The Scudder Funds
Boston, MA 02107-2291 66 Brooks Drive
Braintree, MA 02184
- --------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to complete your
application with the help of a Scudder representative.
Investor Centers are located in Boca Raton, Boston, Chicago,
New York and San Francisco.
- --------------------------------------------------------------------------------
To buy additional shares
The minimum additional investment is $100; $50 for IRAs. Group retirement plans
(401(k), 403(b), etc.) have similar or lower minimums - see appropriate plan
literature. Make checks payable to "The Scudder Funds."
- --------------------------------------------------------------------------------
By Mail Send a check with a Scudder investment slip, or with a
letter of instruction including your account number and the
complete fund name, to the appropriate address listed above.
- --------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed above.
- --------------------------------------------------------------------------------
By Telephone Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
By Automatic You may arrange to make investments of $50 or more on a
Investment Plan regular basis through automatic deductions from your bank
checking account. Please call 1-800-225-5163 for more
information and an enrollment form.
- --------------------------------------------------------------------------------
11
<PAGE>
Exchanges and redemptions
To exchange shares
The minimum investments are $2,500 to establish a new account and $100 to
exchange among existing accounts.
- --------------------------------------------------------------------------------
By To speak with a service representative, call 1-800-225-5163
Telephone from 8 a.m. to 8 p.m. eastern time. To access SAIL(TM), the
Scudder Automated Information Line, call 1-800-343-2890
(24 hours a day).
- --------------------------------------------------------------------------------
By Mail Print or type your instructions and include:
or Fax
- the name of the fund and the account number you are
exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to
exchange;
- the name of the fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions The Scudder Funds
by regular mail to: P.O. Box 2291
Boston, MA 02107-2291
or by express, registered, The Scudder Funds
or certified mail to: 66 Brooks Drive
Braintree, MA 02184
or by fax to: 1-800-821-6234
- --------------------------------------------------------------------------------
To sell shares
- --------------------------------------------------------------------------------
By To speak with a service representative, call 1-800-225-5163
Telephone from 8 a.m. to 8 p.m. eastern time. To access SAIL(TM), the
Scudder Automated Information Line, call 1-800-343-2890
(24 hours a day). You may have redemption proceeds sent to
your predesignated bank account, or redemption proceeds of up
to $100,000 sent to your address of record.
- --------------------------------------------------------------------------------
By Mail Send your instructions for redemption to the appropriate
or Fax address or fax number above and include:
- the name of the fund and account number you are redeeming
from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
- --------------------------------------------------------------------------------
By You may arrange to receive automatic cash payments
Automatic periodically. Call 1-800-225-5163 for more information and an
Withdrawal enrollment form.
Plan
- --------------------------------------------------------------------------------
12
<PAGE>
Investment products and services
The Scudder Family of Funds[
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series -- Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series -- Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
13
<PAGE>
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
- ------------------- ------------------
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**[[
Scudder Horizon Advantage**[[[
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
- -----------
[ Funds within categories are listed in order from expected least risk to
most risk. Certain Scudder funds or classes thereof may not be available
for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to federal,
state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family of
Funds.
++ Only the International Shares of the fund are part of the Scudder Family
of Funds.
[[ A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470.
[[[ A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by
Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are traded on
the New York Stock Exchange and, in some cases, on various other stock
exchanges.
14
<PAGE>
Additional information about the fund may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling the toll-free number
listed below. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Services Guide
contains more detailed information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the fund's
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By phone: In person:
- --------------------------------------------------------------------------------
Call Scudder Investor Relations at Public Reference Room
1-800-225-2470 Securities and Exchange Commission,
Or Washington, D.C.
For existing Scudder investors, call (Call 1-800-SEC-0330
the Scudder Automated Information Line for more information).
(SAIL) at 1-800-343-2890 (24 hours a day).
- --------------------------------------------------------------------------------
By mail: By internet:
- --------------------------------------------------------------------------------
Scudder Investor Services, Inc. http://www.sec.gov
Two International Place Boston, http://www.scudder.com
MA 02110-4103
Or
Public Reference Section Securities and
Exchange Commission, Washington,
D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number:
Printed with SOYINK Printed on recycled paper
<PAGE>
SCUDDER S&P 500 INDEX FUND
A No-Load(No Sales Charges) Mutual Fund
seeking to provide investment results that,
before expenses, correspond to the total return of
common stocks publicly traded in the United States,
as represented by the Standard & Poor's Corporation 500
Composite Stock Price Index
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of Scudder S&P 500 Index Fund dated
May 1, 1999, as amended from time to time, a copy of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder S&P 500 Index Fund dated December
31, 1998, is incorporated by reference and is hereby deemed to be part of this
Statement of Additional Information.
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investments and Investment Techniques........................................................................1
Additional Risk Factors......................................................................................6
Investment Restrictions......................................................................................7
Other Investment Policies....................................................................................9
PURCHASES............................................................................................................11
Additional Information About Opening An Account.............................................................11
Additional Information About Making Subsequent Investments..................................................11
Additional Information About Making Subsequent Investments by QuickBuy......................................11
Checks......................................................................................................12
Wire Transfer of Federal Funds..............................................................................12
Share Price.................................................................................................12
Share Certificates..........................................................................................13
Other Information...........................................................................................13
EXCHANGES AND REDEMPTIONS............................................................................................14
Exchanges...................................................................................................14
Redemption by Telephone.....................................................................................15
Redemption by QuickSell.....................................................................................15
Redemption by Mail or Fax...................................................................................16
Other Information...........................................................................................16
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................17
The No-Load Concept.........................................................................................17
Internet access.............................................................................................18
Dividends and Capital Gain Distribution Options.............................................................18
Diversification.............................................................................................19
Scudder Investor Centers....................................................................................19
Reports to Shareholders.....................................................................................19
Transaction Summaries.......................................................................................19
THE SCUDDER FAMILY OF FUNDS..........................................................................................19
SPECIAL PLAN ACCOUNTS................................................................................................24
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations
and Self-Employed Individuals..........................................................................24
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals........24
Scudder IRA: Individual Retirement Account.................................................................24
Scudder Roth IRA: Individual Retirement Account............................................................25
Scudder 403(b) Plan.........................................................................................26
Automatic Withdrawal Plan...................................................................................26
Group or Salary Deduction Plan..............................................................................26
Automatic Investment Plan...................................................................................27
Uniform Transfers/Gifts to Minors Act.......................................................................27
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................27
PERFORMANCE INFORMATION..............................................................................................28
Average Annual Total Return.................................................................................28
Cumulative Total Return.....................................................................................28
Total Return................................................................................................29
Comparison of Fund Performance..............................................................................29
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
FUND ORGANIZATION....................................................................................................32
INVESTMENT MANAGER AND ADMINISTRATOR OF THE FUND.....................................................................33
Personal Investments by Employees of Scudder................................................................35
INVESTMENT ADVISER AND ADMINISTRATOR OF THE PORTFOLIO................................................................35
Banking Regulatory Matters..................................................................................36
Administrator...............................................................................................37
Personal Investments by Employees of Bankers Trust..........................................................37
TRUSTEES AND OFFICERS OF THE FUND....................................................................................37
REMUNERATION.........................................................................................................39
Responsibilities of the Board--Board and Committee Meetings.................................................39
Compensation of Officers and Trustees of the Trust..........................................................40
TRUSTEES AND OFFICERS OF THE PORTFOLIO AND BT INSTITUTIONAL FUNDS....................................................41
REMUNERATION.........................................................................................................44
Control Persons and Principal Holders of Securities.........................................................44
Compensation of Officers and Trustees of the Portfolio......................................................44
DISTRIBUTOR..........................................................................................................45
TAXES................................................................................................................45
PORTFOLIO TRANSACTIONS...............................................................................................49
Brokerage Allocation And Other Practices....................................................................49
Portfolio Turnover..........................................................................................50
NET ASSET VALUE......................................................................................................50
ADDITIONAL INFORMATION...............................................................................................51
Experts.....................................................................................................51
Shareholder Indemnification.................................................................................52
Other Information...........................................................................................52
FINANCIAL STATEMENTS.................................................................................................53
APPENDIX A
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies" and
"Additional information about policies and investments"
in the Fund's prospectus.)
Scudder S&P 500 Index Fund (the "Fund") is a diversified, no-load
series of Scudder Investment Trust (the "Trust"), an open-end management
investment company which continuously offers and redeems its shares. It is a
company of the type commonly known as a mutual fund.
General Investment Objective and Policies
The Fund's investment objective is to match, as closely as possible
before the deduction of expenses) the total return of the the Standard & Poor's
Corporation 500 Composite Stock Price Index ("S&P 500 Index"), which emphasizes
the stocks of large U.S. Companies. As described in the Prospectus, the Trust
seeks to achieve the investment objective of the Fund by investing substantially
all of the investable assets of the Fund in an open-end management investment
company having the same investment objective as the Fund. The investment company
in which the Fund invests is the Equity 500 Index Portfolio (the "Portfolio"),
advised by Bankers Trust Company ("Bankers Trust" or the "Adviser"). The Fund
retains the investment management firm of Scudder Kemper Investments, Inc., a
Delaware corporation (the "Manager") as investment manager to the Fund to
monitor the Fund's investments in the Portfolio subject to the authority of and
supervision by the Trust's Board of Trustees.
Since the investment characteristics of the Fund will correspond
directly with those of the Portfolio in which the Fund invests all of its
investable assets, the following includes a discussion of the various
investments of and techniques employed by the Portfolio.
Investments and Investment Techniques
Equity Securities. The Portfolio may invest in equity securities listed on any
domestic or foreign securities exchange or traded in the over-the-counter market
as well as certain restricted or unlisted securities. As used herein, "equity
securities" are defined as common stock, preferred stock, trust or limited
partnership interests, rights and warrants to subscribe to or purchase such
securities, sponsored or unsponsored ADRs, EDRs, GDRs, and convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
Common stocks, the most familiar type, represent an equity (ownership) interest
in a corporation. They may or may not pay dividends or carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and on
overall market and economic conditions. Smaller companies are especially
sensitive to these factors.
Short-Term Instruments. When the Portfolio experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Portfolio's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Portfolio may hold short-term
investments (or shares of money market mutual funds) for a limited time pending
availability of such equity securities. Short-term instruments consist of
foreign and domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated AA or higher by Standard & Poor's Ratings Group
("S&P") or Aa or higher by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, of comparable quality in the opinion of Bankers Trust; (iii) commercial
paper; (iv) bank obligations, including negotiable certificates of deposit, time
deposits and banker's acceptances; and (v) repurchase agreements. At the time
the Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer of the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such
ratings are available, the instrument must be of comparable quality in the
opinion of Bankers Trust.
Certificates Of Deposit And Bankers' Acceptances. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to
<PAGE>
obtain funds to finance commercial transactions. Generally, an acceptance is a
time draft drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then "accepted" by
a bank that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
Commercial Paper. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see Appendix A.
Derivatives. The Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.
Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
A large institutional market has developed for certain securities that
are not registered under the 1933 Act, including repurchase agreements,
commercial paper, foreign securities, municipal securities and corporate bonds
and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on an issuer's
ability to honor a demand for repayment. The fact that there are contractual or
legal restrictions on resale of such investments to the general public or to
certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
the 15% limit on illiquid securities. Under the supervision of the Board of
Trustees of the Portfolio, the Adviser determines the liquidity of restricted
securities and,
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through reports from the Adviser, the Board will monitor trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (i) the frequency of trades and quotes for the security;
(ii) the number of dealers and other potential purchasers wishing to purchase or
sell the security; (iii) dealer undertakings to make a market in the security
and (iv) the nature of the security and of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Portfolio until settlement takes
place. At the time the Portfolio makes the commitment to purchase securities on
a when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Portfolio
identifies, as part of a segregated account, cash or liquid securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, the Portfolio will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flow. If the
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. It is the
current policy of the Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Portfolio's total
assets, less liabilities other than the obligations created by when-issued
commitments.
Lending Of Portfolio Securities. The Portfolio has the authority to lend up to
30% of the total value of its portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, the Portfolio may increase
its income by continuing to receive payments in respect of dividends and
interest on the loaned securities as well as by either investing the cash
collateral in short-term securities or obtaining yield in the form of a fee paid
by the borrower when irrevocable letters of credit and U.S. Government
Obligations are used as collateral. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive at
least 100% collateral from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the securities including accrued
interest rises above the level of the collateral; (iii) the Portfolio must be
able to terminate the loan at any time; (iv) the Portfolio must substitute
payments in respect of all dividends, interest or other distributions on the
loaned securities; and (v) voting rights on the loaned securities may pass to
the borrower; provided, however, that if a material event adversely affecting
the investment occurs, the Board of Trustees must retain the right to terminate
the loan and recall and vote the securities. Cash collateral may be invested in
a money market fund managed by Bankers Trust (or its affiliates) and Bankers
Trust may serve as the Portfolio's lending agent and may share in revenue
received from securities lending transactions as compensation for this service.
Repurchase Agreements. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back at a higher price at a
future date. In the event of the bankruptcy of the other party to a repurchase
agreement, the Portfolio could experience delays in recovering either its cash
or selling securities subject to the repurchase agreement. To the extent that,
in the meantime, the value of the securities repurchased had decreased or the
value of the securities had increased, the Portfolio could experience a loss. In
all cases, the Adviser must find the creditworthiness of the other party to the
transaction satisfactory.
Index Futures Contracts and Options on Index Futures Contracts
Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchanges and clear through their clearing
corporations. The Portfolio may enter into contracts for the purchase or sale
for future delivery of the Index.
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At the same time a futures contract on the Index is entered into, the Portfolio
must allocate cash or securities as a deposit payment ("initial margin").
Initital margin deposits are set by exchanges and may range between 1% and 10%
of a contract's face value. Daily thereafter, the futures contract is valued and
the payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
Although futures contracts (other than those that settle in cash) by their terms
call for the actual delivery or acquisition of the instrument underlying the
contract , in most cases the contractual obligation is fulfilled by offset
before the date of the contract without having to make or take delivery of the
the instrument underlying the contract. The offsetting of a contractual
obligation is accomplished by buying entering into an opposite position in the
identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange). Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the the instrument underlying the contract. Since all transactions
in the futures market are made, offset or fulfilled through a clearinghouse
associated with the exchange on which the contracts are traded, the Portfolio
will incur brokerage fees when it enters into futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of securities price trends by the Adviser may still not result
in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Portfolio, if the Adviser's investment
judgment about the general direction of the Index is incorrect, the Portfolio's
overall performance would be poorer than if it had not entered into any such
contract. For example, if the Portfolio has hedged against the possibility of a
decrease in the Index which would adversely affect the value of the securities
held in its portfolio and securities prices increase instead, the Portfolio will
lose part or all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Portfolio has insufficient cash, it may
have to sell securities from its portfolio to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
Options On Index Futures Contracts. The Portfolio may purchase and write options
on futures contracts with respect to the Index. The purchase of a call option on
an index futures contract is similar in some respects to the purchase of a call
option on such an index. For example, when the Portfolio is not fully invested
it may purchase a call option on an index futures contract to hedge against a
market advance.
The writing of a call option on a futures contract with respect to the Index may
constitute a partial hedge against declining prices of the underlying securities
which are deliverable upon exercise of the futures contract. If the futures
price at expiration of the option is below the exercise price, the Portfolio
will retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Portfolio's holdings. The
writing of a put option on an index futures contract may constitute a partial
hedge against increasing prices of the underlying securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
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The purchase of a put option on a futures contract with respect to the Index is
similar in some respects to the purchase of protective put options on the Index.
For example, the Portfolio may purchase a put option on an index futures
contract to hedge against the risk of lowering securities values.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract with respect to the Index is the premium paid for the option
plus related transaction costs. In addition to the correlation risks discussed
above, the purchase of such an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased.
The Board of Trustees of the Portfolio has adopted the requirement that index
futures contracts and options on index futures contracts be used only for cash
management purposes. In compliance with current CFTC regulations, the Portfolio
will not enter into any futures contracts or options on futures contracts if
immediately thereafter the amount of margin deposits on all the futures
contracts of the Portfolio and premiums paid on outstanding options on futures
contracts owned by the Portfolio would exceed 5% of the Portfolio's net asset
value, after taking into account unrealized profits and unrealized losses on any
such contracts.
Options On Securities Indexes. The Portfolio may write (sell) covered call and
put options to a limited extent on the Index ("covered options") in an attempt
to increase income. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the Index. The Portfolio may forgo the benefits
of appreciation on the Index or may pay more than the market price of the Index
pursuant to call and put options written by the Portfolio.
By writing a covered call option, the Portfolio forgoes, in exchange for the
premium less the commission ("net premium"), the opportunity to profit during
the option period from an increase in the market value of the Index above the
exercise price. By writing a covered put option, the Portfolio, in exchange for
the net premium received, accepts the risk of a decline in the market value of
the Index below the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written.
When the Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked prices. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on the Index. The Portfolio
would normally purchase a call option in anticipation of an increase in the
market value of the Index. The purchase of a call option would entitle the
Portfolio, in exchange for the premium paid, to purchase the underlying
securities at a specified price during the option period. The Portfolio would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Portfolio would normally purchase put options in anticipation of a decline
in the market value of the Index ("protective puts"). The purchase of a put
option would entitle the Portfolio, in exchange for the premium paid, to sell
the underlying securities at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the Index. The Portfolio would ordinarily
recognize a gain if the value of the Index decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if
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the value of the Index remained at or above the exercise price. Gains and losses
on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the Index.
The Portfolio has adopted certain other nonfundamental policies concerning index
option transactions which are discussed below. The Portfolio's activities in
index options may also be restricted by the requirements of the Code, for
qualification as a regulated investment company.
The hours of trading for options on the Index may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
Because options on securities indices require settlement in cash, the Adviser
may be forced to liquidate portfolio securities to meet settlement obligations.
Asset Coverage. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment leverage, the
Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
segregating with the Portfolio's Custodian or futures commission merchant liquid
securities in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.
Additional Risk Factors
In addition to the risks discussed above, the Portfolio's investments may be
subject to the following risk factors:
Year 2000 Matters. Like other mutual funds, financial and business organizations
and individuals around the world, the Portfolio could be adversely affected if
the computer systems used by Bankers Trust and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Bankers
Trust is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Portfolio's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Portfolio
nor can there be any assurance that the Year 2000 Problem will not have an
adverse effect on the companies whose securities are held by the Portfolio or on
global markets or economies, generally.
Special Information Concerning Master-Feeder Fund Structure. Unlike other
open-end management investment companies (mutual funds) which directly acquire
and manage their own portfolio securities, the Fund seeks to achieve its
investment objective by investing all of its assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund.
Therefore, an investor's interest in the Portfolio's securities is indirect. In
addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds, investment vehicles or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust at 1-800-730-1313.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested to
vote on matters pertaining to the Portfolio, the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes
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in the same proportion as the votes of the Fund's shareholders. Fund
shareholders who do not vote will not affect the Trust's votes at the Portfolio
meeting. The percentage of the Trust's votes representing the Fund's
shareholders not voting will be voted by the Trustees or officers of the Trust
in the same proportion as the Fund shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distrubution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio is also not a
fundamental policy. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio.
Rating Services. The ratings of Moody's and S&P represent their opinions as to
the quality of the Municipal Obligations and other securities that they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
are an initial criterion for selection of portfolio investments, the Adviser
also makes its own evaluation of these securities, subject to review by the
Portfolio's Board of Trustees. After purchase by the Portfolio, an obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event would require the Portfolio to
eliminate the obligation from its portfolio, but the Adviser will consider such
an event in its determination of whether the Portfolio should continue to hold
the obligation. A description of the ratings categories of Moddy's and S&P is
set forth in Appendix to this SAI.
Investment Restrictions
Fundamental Policies. The following investment restrictions are "fundamental
policies" of the Fund and the Portfolio and may not be changed with respect to
the Fund or the Portfolio without the approval of a "majority of the outstanding
voting securities" of the Fund or the Portfolio, as the case may be. "Majority
of the outstanding voting securities" under the Investment Company Act of 1940,
as amended (the "1940 Act"), and as used in this SAI and the Prospectus, means,
with respect to the Fund (or the Portfolio), the lesser of (i) 67% or more of
the outstanding voting securities of the Fund (or of the total beneficial
interests of the Portfolio) present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Fund or of the total beneficial
interests of the Portfolio) are present or represented by proxy or (ii) more
than 50% of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio). Whenever the Trust is requested to vote
on a fundamental policy of the Portfolio, the Trust will hold a meeting of the
Fund's shareholders and will cast its vote as instructed by the Fund's
shareholders. Fund shareholders who do not vote will not affect the Trust's
votes at the Portfolio meeting. The percentage of the Trust's votes representing
Fund shareholders not voting will be voted by the Trustees of the Trust in the
same proportion as the Fund shareholders who do, in fact, vote.
As a matter of fundamental policy, the Portfolio (or Fund) may not (except that
no investment restriction of the Fund shall prevent the Fund from investing all
of its assets in an open-end investment company with substantially the same
investment objective):
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1. borrow money or mortgage or hypothecate assets of the Fund
(Portfolio), except that in an amount not to exceed 1/3 of the
current value of the Fund's (Portfolio's) assets, it may borrow
money as a temporary measure for extraordinary or emergency
purposes and enter into reverse repurchase agreements or dollar
roll transactions, and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from
banks and only either to accommodate requests for the withdrawal
of beneficial interests while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security
transaction or other similar situations) or reverse repurchase
agreements, provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and
variation margin, are not considered a pledge of assets for
purposes of this restriction and except that assets may be
pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the
Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Additional
Restrictions" below. (As an operating policy, the Portfolio may
not engage in dollar roll transactions);
2. underwrite securities issued by other persons except insofar as
the Portfolio (Trust or Fund) may technically be deemed an
underwriter under the 1933 Act, in selling a portfolio security;
3. make loans to other persons except: (a) through the lending of
the Portfolio's (Fund's) portfolio securities and provided that
any such loans not exceed 30% of the Portfolio's (Fund's) total
assets (taken at market value); (b) through the use of repurchase
agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types
distributed publicly or privately;
4. purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and option
contracts) in the ordinary course of business (except that the
Portfolio (Trust)may hold and sell, for the Portfolio's (Fund's)
(portfolio, real estate acquired as a result of the Portfolio's
(Fund's) ownership of securities);
5. concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for
the achievement of the Portfolio's (Fund's) investment objective,
up to 25% of its total assets may be invested in any one
industry;
6. issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are
not considered to be the issuance of a senior security for
purposes of this restriction; and
7. with respect to 75% of the Fund's (Portfolio's) total assets,
invest more than 5% of its total assets in the securities of
any one issuer (excluding cash and cash-equivalents, U.S.
government securities and the securities of other investment
companies) or own more than 10% of the voting securities of
any issuer.
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Other Investment Policies
The Trustees of the Trust have voluntarily adopted certain 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 requiring prior notice to or approval
of shareholders.
As a matter of nonfundamental policy, the Fund and the Portfolio may
not:
1. borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Fund's (Portfolio's) assets
(taken at cost) except that the Fund (Portfolio) may borrow for
temporary or emergency purposes up to 1/3 of its total assets;
2. pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Fund's (Portfolio's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, and reverse repurchase agreements are not considered a
pledge of assets for purposes of this restriction;
3. purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained
and except that deposits of initial deposit and variation margin
may be made in connection with the purchase, ownership, holding
or sale of futures;
4. sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions;
5. invest for the purpose of exercising control or management;
6. purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any
investment company will not be purchased for the Fund (Portfolio)
if such purchase at the time thereof would cause (a) more than
10% of the Fund's (Portfolio's) total assets (taken at the
greater of cost or market value) to be invested in the securities
of such issuers; (b) more than 5% of the Fund's (Portfolio's)
total assets (taken at the greater of cost or market value) to be
invested in any one investment company; or (c) more than 3% of
the outstanding voting securities of any such issuer to be held
for the Fund (Portfolio), unless permitted to exceed these
limitations by an exemptive order of the SEC; provided further
that, except in the case of merger or consolidation, the Fund
(Portfolio) shall not invest in any other open-end investment
company unless the Fund (Portfolio) (1) waives the investment
advisory fee with respect to assets invested in other open-end
investment companies and (2) incurs no sales charge in connection
with the investment (as an operating policy the Fund (Portfolio)
will not invest in another open-end registered investment
company);
7. invest more than 15% of the Fund's (Portfolio's) net assets
(taken at the greater of cost or market value) in securities that
are illiquid or not readily marketable, not including (a) Rule
144A securities that have been determined to be liquid by the
Board of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which: (i) is not traded flat or in
default as to interest or principal; and (ii) is rated in one of
the two highest categories by at least two nationally recognized
statistical rating organizations and the Fund's (Portfolio's)
Board of Trustees have determined the commercial paper to be
liquid; or (iii) is rated in one of the two highest categories by
one nationally recognized statistical rating agency and the
Fund's (Portfolio's) Board of Trustees have determined that the
commercial paper is equivalent quality and is liquid;
9
<PAGE>
8. with respect to 75% of the Fund's (Portfolio's) total assets,
purchase securities of any issuer if such purchase at the time
thereof would cause the Fund (Portfolio) to hold more than 10% of
any class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class,
except that futures or option contracts shall not be subject to
this restriction;
9. purchase or retain in the Fund's (Portfolio's) portfolio
securities any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer
or Trustee of the Fund (Portfolio), or is an officer or partner
of the Adviser, if after the purchase of the securities of such
issuer for the Fund (Portfolio) one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or
both, all taken at market value;
10. write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call
is within the investment policies of the Fund (Portfolio) and the
option is issued by the Options Clearing Corporation, except for
put and call options issued by non-U.S. entities or listed on
non-U.S. securities or commodities exchanges; (b) the aggregate
value of the obligations underlying the puts determined as of the
date the options are sold shall not exceed 50% of the Fund's
(Portfolio's) net assets; (c) the securities subject to the
exercise of the call written by the Fund (Portfolio) must be
owned by the Fund (Portfolio) at the time the call is sold and
must continue to be owned by the Fund (Portfolio) until the call
has been exercised, has lapsed, or the Fund (Portfolio) has
purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Fund's (Portfolio's) obligation to
deliver securities pursuant to the call it has sold; and (d) at
the time a put is written, the Fund (Portfolio) establishes a
segregated account with its custodian consisting of cash or
short-term U.S. Government securities equal in value to the
amount the Fund (Portfolio) will be obligated to pay upon
exercise of the put (this account must be maintained until the
put is exercised, has expired, or the Fund (Portfolio) has
purchased a closing put, which is a put of the same series as the
one previously written); and
11. buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options
on financial futures unless such options are written by other
persons and: (a) the options or futures are offered through the
facilities of a national securities association or are listed on
a national securities or commodities exchange, except for put and
call options issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the aggregate premiums
paid on all such options which are held at any time do not exceed
20% of the
10
<PAGE>
Fund's (Portfolio's) total net assets; and (c) the aggregate
margin deposits required on all such futures or options thereon
held at any time do not exceed 5% of the Fund's (Portfolio's)
total assets.
There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in net or
total assets, or in the change of securities rating of the investment, or any
other later change.
PURCHASES
(See "About Your Investment" in the Fund's prospectus.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Manager or
its affiliates and members of their immediate families, officers and employees
of or of any affiliated organization and their immediate families, members of
the National Association of Securities Dealers, Inc. ("NASD") and banks may, if
they prefer, subscribe initially for at least $2,500 of Fund shares through
Scudder Investor Services, Inc. (the "Distributor") by letter, fax, TWX, or
telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified Taxpayer Identification Number, clients having
a regular investment counsel account with the Manager or its affiliates and
members of their immediate families, officers and employees of the Manager or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by members of the NASD, by banks, and by established
shareholders (except by Scudder Individual Retirement Account (IRA), Scudder
Horizon Plan, Scudder Profit Sharing and Money Purchase Pension Plans, and
Scudder 401(k) and Scudder 403(b) Plan holders). Orders placed in this manner
may be directed to any office of the Distributor listed in the Fund's
prospectus. A confirmation of the purchase will be mailed out promptly following
receipt of a request to buy. Federal regulations require that payment be
received within three business days. If payment is not received within that
time, the order is subject to cancellation. In the event of such cancellation or
cancellation at the purchaser's request, the purchaser will be responsible for
any loss incurred by a Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Trust shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time. Proceeds
in the amount of your purchase will be transferred from your bank checking
11
<PAGE>
account two or three business days following your call. For requests received by
the close of regular trading on the Exchange, shares will be purchased at the
net asset value per share calculated at the close of trading on the day of your
call. QuickBuy requests received after the close of regular trading on the
Exchange will begin their processing and be purchased at the net asset value
calculated the following business day. If you purchase shares by QuickBuy and
redeem them within seven days of the purchase, the Fund may hold the redemption
proceeds for a period of up to seven business days. If you purchase shares and
there are insufficient funds in your bank account the purchase will be canceled
and you will be subject to any losses or fees incurred in the transaction.
QuickBuy transactions are not available for most retirement plan accounts.
However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine. and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted in, placing future orders in any of the
Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company of "wired funds," but the right to charge
investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.
12
<PAGE>
The offering price for shares of the Fund is equal to the current net
asset value ("NAV") per share. The NAV per share of the Fund is calculated by
adding the value of the Fund's assets (i.e., the value of its investments in the
Portfolio and other assets), deducting liabilities, and dividing by the number
of shares outstanding.
The Portfolio values its equity and debt securities (other than
short-term debt obligations maturing in 60 days or less), including listed
securities and securities for which price quotations are available, on the basis
of market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market value. Other assets are valued at fair value
using methods determined in good faith by the Portfolio's Board of Trustees.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day that the Exchange is open for
business and New York charter banks are not closed owing to customary or local
holidays. As of the close of the Exchange, currently 4:00 p.m. (New York time or
earlier if the Exchange closes earlier) on each such day, the value of each
investor's interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage representing that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions or
reductions which are to be effected on that day will then be effected.
Share Certificates
Due to the desire of the Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
If purchases or redemptions of Fund shares are arranged and settlement
is made at the investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees of the Trust and the Distributor of the Fund each
has the right to limit the amount of purchases by and to refuse to sell to any
person, and each may suspend or terminate the offering of shares of the Fund at
any time.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g. from exempt organizations, certification of exempt status) will be
returned to the investor.
The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
13
<PAGE>
EXCHANGES AND REDEMPTIONS
(See "About Your Investment" in the Fund's prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in the other fund. When an exchange involves a new account, the
new account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information--Exchanging and redeeming
shares--Signature guarantees" in the Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund, at current net asset value, through
The Manager's Automatic Exchange Program. Exchanges must be for a minimum of
$50. Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
(See "Special Redemption and Exchange Information." An exchange into another
Scudder fund is a redemption of shares, and therefore may result in tax
consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Fund and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder Funds or classes thereof. For more information
please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders
14
<PAGE>
must have completed and returned to the Transfer Agent the application,
including the designation of a bank account to which the redemption proceeds are
to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption payments
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be made by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickSell program may sell shares of the Fund by telephone. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account in two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests after 4 p.m. eastern time will begin their processing
the following business day. QuickSell transactions are not available for Scudder
IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing an QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
15
<PAGE>
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary, agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days for shares tendered for repurchase or redemption
may result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information please call 1-800-225-5163.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. A wire
charge may be applicable for redemption proceeds wired to an investor's bank
account. Redemptions of shares, including an exchange into another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and the
proceeds of such redemptions may be subject to backup withholding. (see
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) a
governmental body having jurisdiction over the Fund may by order permit such a
suspension for the protection of the Trust's shareholders; provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
Shareholders should maintain a share balance worth at least $2,500,
which amount may be changed by the Board of Trustees. Scudder retirement plans
have similar or lower minimum share balance requirements. A shareholder may open
an account with at least $1,000, if an automatic investment plan of $100/month
is established. Shareholders who maintain a non-fiduciary account balance of
less than $2,500 in the Fund, without establishing an automatic investment plan,
will be assessed an annual $10.00 per account charge with the fee to be paid to
the Fund. The $10.00 charge will not apply to shareholders with a combined
household account balance in any of the Scudder Funds of $25,000 or more. The
Fund reserves the right, following 60 days' written notice to shareholders, to
redeem all shares in accounts below $250, including accounts of new investors,
where a reduction in value has occurred due to a redemption or exchange out of
the account. The Fund will mail the proceeds of the redeemed account to the
shareholder. Reductions in value that result solely from market activity will
not trigger an involuntary redemption. Retirement accounts and certain other
accounts will not be assessed the $10.00 charge or be subject to automatic
liquidation.
16
<PAGE>
FEATURES AND SERVICES OFFERED BY THE FUND
(See "About Your Investment" in the Fund's
prospectus.)
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act").
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
The Manager pioneered the no-load concept when it created the nation's
first no-load fund in 1928, and later developed the nation's first family of
no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder no-load fund over investing the same amount in a
load fund that collects an 8.50% front-end load, a load fund that collects only
a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25% 12b-1
and/or service fee. The hypothetical figures in the chart show the value of an
account assuming a constant 10% rate of return over the time periods indicated
and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Scudder No-Load Fund with
YEARS No-Load Fund 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1
12b-1 Fee Fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- ------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- ------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
17
<PAGE>
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both The Manager and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
The Manager has communicated with shareholders and other interested
parties on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- The Manager is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
The Manager's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on the Manager's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividends and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders may change their dividend option either by
calling 1-800-225-5163 or by sending written instructions to the Transfer Agent.
Please include your account number with your written request. See "How to
contact Scudder" in the Prospectus for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through the Manager's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the
18
<PAGE>
Automated Clearing House Network (ACH) can have income and capital gain
distributions automatically deposited to their personal bank account usually
within three business days after the Fund pays its distribution. A
DistributionsDirect request form can be obtained by calling 1-800-225-5163.
Confirmation statements will be mailed to shareholders as notification that
distributions have been deposited.
Investors choosing to participate in the Manager's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Diversification
Your investment represents an interest in a large, diversified
portfolio of securities. Diversification may protect you against the possible
risks of concentrating in fewer securities or in a specific market sector.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by the
Distributor. The Centers are designed to provide individuals with services
during any business day. Investors may pick up literature or obtain assistance
with opening an account, adding monies or special options to existing accounts,
making exchanges within the Scudder Family of Funds, redeeming shares or opening
retirement plans. Checks should not be mailed to the Centers but to "The Scudder
Funds" at the address listed under "How to contact Scudder" in the Prospectus.
Reports to Shareholders
The Fund issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the
Funds' prospectuses.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital and, consistent therewith, to maintain the liquidity of
capital and to provide current income. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
19
<PAGE>
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
TAX FREE
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
- ----------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
20
<PAGE>
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As
a secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
- ----------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
21
<PAGE>
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund** seeks long-term growth of capital through
investment in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund** seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
- ---------------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
22
<PAGE>
SCUDDER CHOICE SERIES
Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.
Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.
Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.
GLOBAL GROWTH
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity
securities.
Scudder Global Discovery Fund** seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts)
of Japanese companies.
- ---------------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
23
<PAGE>
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; no-load funds with no commissions to purchase or redeem
shares or Rule 12b-1 distribution fees; individual attention from a service
representative of Scudder Investor Relations; and easy telephone exchanges into
other Scudder funds. Certain Scudder funds or classes thereof may not be
available for purchase or exchange. For more information, please call
1-800-225-5163.
SPECIAL PLAN ACCOUNTS
(See "About Your Investment - Purchases"
and "About Your Investment - Exchanges and redemptions" in
the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
24
<PAGE>
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting
Age Annual Rate of Return
of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting
Age Annual Rate of Return
of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full
25
<PAGE>
$4,000 per year ($2,000 per IRA). The maximum contribution amount for married
couples filing jointly phases out from $150,000 to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all shares of the Fund under the Plan have been liquidated or upon receipt
by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
26
<PAGE>
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "About the Fund - Distributions" in the
Fund's prospectus.)
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 follow 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.")
The Fund intends to distribute investment company taxable income,
exclusive of net short-term capital gains in excess of net long-term capital
losses in March, June, September and December each year. Distributions of net
capital gains realized during each fiscal year will be made annually before the
end of the Fund's fiscal year on December 31. Additional distributions,
including distributions of net short-term capital gains in excess of net
long-term capital losses, may be made, if necessary.
Both types of distributions will be made in shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent.
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<PAGE>
PERFORMANCE INFORMATION
(See "About the Fund - Past Performance" in the
Fund's prospectus.)
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year and the life of the Fund, 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 finding 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:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
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.
Total Return for the periods ended December 31, 1998
Scudder S&P 500 Index Fund
One Year _____%
Life of the Fund ^(1) _____%
(1) For the period from August 29, 1997, commencement of operations to December
31, 1998.
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 finding 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.
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<PAGE>
Cumulative Total Return for the periods ended December 31, 1998
Scudder S&P 500 Index Fund
One Year ______%
Life of the Fund ^(1) ______%
(1) For the period from August 29, 1997, commencement of operations to December
31, 1998.
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.
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. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
Index, and statistics published by the Small Business Administration.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees 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 Adviser 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 the Manager's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
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<PAGE>
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 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.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
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<PAGE>
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
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<PAGE>
SmartMoney, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
FUND ORGANIZATION
(See "About the Fund - Investment Manager and
Administrator" and "About the Fund - Investment Adviser and
Administrator" in the Fund's prospectus.)
The Fund is a diversified series of Scudder Investment Trust, a
Massachusetts business trust established under a Declaration of Trust dated
September 20, 1984, as amended. The name of the Trust was changed effective May
15, 1991, from Scudder Growth and Income Fund. The Trust's authorized capital
consists of an unlimited number of shares of beneficial interest, par value
$0.01 per share. The Trust's shares are currently divided into five series,
Scudder Growth and Income Fund, Scudder Large Company Growth Fund, Scudder
Classic Growth Fund, Scudder S&P 500 Index Fund and Scudder Real Estate
Investment Fund.
The Trustees have the authority to issue additional series of shares
and to designate the relative rights and preferences as between the different
series. Each share of the Fund has equal rights with each other share of the
Fund 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 prospectus.
The assets of the 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 the 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 the
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
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<PAGE>
event of the dissolution or liquidation of the Trust or any series, 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.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
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.
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.
The Declaration of Trust 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 Trustd will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, 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. 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.
INVESTMENT MANAGER AND ADMINISTRATOR OF THE FUND
(See "About the Fund - Investment Manager and
administrator" and "About the Fund - Investment adviser an
administrator" in the Fund's prospectus.)
Scudder Kemper Investments, Inc. (the "Manager"), an investment counsel
firm, acts as investment manager to the Fund to monitor the Fund's investments
in the Portfolio subject to the authority of and supervision by the Trust's
Board of Trustees. This organization, the predecessor of which is Scudder,
Stevens & Clark, Inc., is one of the most experienced investment counsel firms
in the U.S. It was established as a partnership in 1919 and pioneered the
practice of providing investment counsel to individual clients on a fee basis.
In 1928 it introduced the first no-load mutual fund to the public. In 1953 the
Manager 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, Stevens & Clark,
Inc. ("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. The
Manager's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Manager's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Scudder Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds,
Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder
Pathway Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder
Tax Free Money Fund,
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<PAGE>
Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life
Investment Fund, The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea
Fund, Inc., The Japan Fund, Inc. and Scudder Spain and Portugal Fund, Inc. Some
of the foregoing companies or trusts have two or more series.
The Manager also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between Scudder Kemper Investments, Inc. and
AMA Solutions, Inc., a subsidiary of the American Medical Association (the
"AMA"), dated May 9, 1997, the Manager 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 Manager with respect to assets invested by
AMA members in Scudder funds in connection with the AMA InvestmentLink(SM)
Program. The Manager will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal securities laws. Any person
who participates in the AMA InvestmentLink(SM) Program will be a customer of the
Manager (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
The Manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. In this work, the Manager
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and other clients of the Manager, but conclusions are based primarily on
investigations and critical analyses by the Manager's own research specialists.
As described above, the Fund retains the Manager as investment manager
to the Fund, pursuant to an investment management agreement dated August 29,
1997, to monitor the Fund's investments in the Portfolio, subject to the
authority of and supervision by the Trust's Board of Trustees. The Agreement was
approved by the Board of Trustees on August 12, 1997 and by the initial
shareholder on August 27, 1997. The transaction between Scudder and Zurich
resulted in the assignment of the Fund's investment management agreement with
Scudder, that agreement automatically terminated at the consummation of the
transaction. The new investment management agreement (the "Agreement") with
Scudder Kemper Investments, Inc., became effective as of December 31, 1997. The
Agreement is in all material respects on the same terms as the previous
investment management agreement which it supersedes. The Agreement will remain
in force and effect until September 30, 1998, and continue in force from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to the Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Trustees of the Trust, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
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.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Manager was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with the Manager, which is substantially identical
to the current investment management agreement, except for the date of execution
and termination. The Agreement became effective September 7, 1998, upon the
termination of the then current investment management agreement and was approved
at a shareholder meeting held in December 1998.
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<PAGE>
The Agreement dated September 7, 1998 was approved by the Trustees on
August 11, 1998. The Agreement will continue in effect until September 30, 1999
and from year to year thereafter only if their continuance is approved annually
by the vote of a majority of those Trustees who are not parties to such
Agreement or interested persons of the Manager or the Corporation, cast in
person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Trust's Trustees or of a majority of the outstanding
voting securities of the 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 their assignment.
The Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
The Manager receives no fee for providing these monitoring services. In
the event the Board of Trustees determines it is in the best interests of the
Fund's shareholders to withdraw its investment in the Portfolio, the Manager
would become responsible for directly managing the assets of the Fund. In such
event, the Fund would pay the Manager an annual fee of 0.15% of the Fund's
average daily net assets, accrued daily and paid monthly.
Under an Administrative Services Agreement dated December 31, 1997, the
Manager provides shareholder and administration services to the Fund. The
Manager receives a fee of 0.10% of the Fund's average daily net assets, accrued
daily and paid monthly. Until _________, the Manager has agreed to maintain
expenses of the Fund to ____% of its annual average daily net assets (including
the Fund's pro rata share of the expenses of the Portfolio).
For the period August 29, 1997 (commencement of operations) to
December 31, 1997, the Manager did not impose any of its fee, which amounted to
$1,934. Further, due to the limitations of such Agreement, the Manager's
reimbursement to the Fund for the period ended December 31, 1997, amounted to
$85,349. For the fiscal year ended December 31, 1998, the Manager received an
investment management fee of $________ pursuant to its then effective investment
management agreement
The Agreement identifies the Manager 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.
The Manager may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
Personal Investments by Employees of Scudder
Employees of the Manager, are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Manager's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, 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 monthly 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 Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISER AND ADMINISTRATOR OF THE PORTFOLIO
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<PAGE>
(See "Fund and Portfolio organization" in the
Fund's prospectus.)
Under the terms of the Portfolio's investment advisory agreement with
the Adviser (the "Advisory Agreement"), the Adviser manages the Portfolio
subject to the supervision and direction of the Board of Trustees of the
Portfolio. The Adviser will: (i) act in strict conformity with the Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as
the same may from time to time be amended; (ii) manage the Portfolio in
accordance with the Portfolio's investment objective, restrictions and policies;
(iii) make investment decisions for the Portfolio; and (iv) place purchase and
sale orders for securities and other financial instruments on behalf of the
Portfolio.
The Adviser is a wholly-owned subsidiary of Bankers Trust Corporation.
The Adviser bears all expenses in connection with the performance of
services under the Advisory Agreement. The Portfolio bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Portfolio who are not officers,
directors or employees of the Adviser, ICC Distributors, Inc. or any of their
affiliates; SEC fees; charges of custodians and transfer and dividend disbursing
agents; certain insurance premiums; outside auditing and legal expenses; costs
of maintenance of corporate existence; costs attributable to investor services,
including, without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of shareholders, officers and Trustees the
Portfolio; and any extraordinary expenses.
The Adviser may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. The Adviser
has informed the Portfolio that, in making its investment decisions, it does not
obtain or use material inside information in its possession or in the possession
of any of its affiliates. In making investment recommendations for the
Portfolio, the Adviser will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by the Portfolio is a
customer of the Adviser, its parent or its subsidiaries or affiliates and, in
dealing with its customers, the Adviser, its parent, subsidiaries and affiliates
will not inquire or take into consideration whether securities of such customers
are held by any fund managed by the Adviser or any such affiliate.
Under its Investment Advisory Agreement, Bankers Trust receives a fee
from the Portfolio, computed daily and paid monthly, at the annual rate of
0.075% of the average daily net assets of the Portfolio. The Adviser has agreed
to waive and reimburse expenses of the Portfolio to the extent necessary to
limit all expenses to ____% of the average daily net assets of the Portfolio.
For the fiscal years ended December 31, 1998, 1997 and 1996, the
Adviser accrued $_______, $2,430,147 and $1,505,963 respectively, in
compensation for investment advisory services provided to the Portfolio. During
the same period, Bankers Trust reimbursed $________, $1,739,490 and $870,024
respectively, to the Portfolio to cover expenses.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that Bankers Trust
currently may perform the services for the Trust and the Portfolio contemplated
by the investment advisory agreement and other activities for the Fund and the
Portfolio described in the Prospectus and this Statement of Additional
Information without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. However, counsel has pointed out that future
changes in either Federal or state statutes and regulations concerning the
permissible activities of banks or trust companies, as well as future judicial
or administrative decisions or interpretations of present and future statutes
and regulations, might prevent Bankers Trust from continuing to perform those
services for the Trust and the Portfolio. State laws on this issue may differ
from the interpretations of relevant Federal law and banks and financial
institutions may be required to register as dealers pursuant to state securities
law. If the circumstances described above should change, the Boards of Trustees
of the Trust and the Portfolio would review the relationships with Bankers Trust
and consider taking all actions necessary in the circumstances.
36
<PAGE>
Administrator
Under administration and services agreements, the Adviser is obligated
on a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the proper
administration of the Trust or the Portfolio. The Adviser will generally assist
in all aspects of the Fund's and Portfolio's operations; supply and maintain
office facilities (which may be in the Adviser's own offices), statistical and
research data, data processing services, clerical, accounting, bookkeeping and
recordkeeping services (including without limitation the maintenance of such
books and records as are required under the 1940 Act and the rules thereunder,
except as maintained by other agents), internal auditing, executive and
administrative services, and stationery and office supplies; prepare reports to
shareholders or investors; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the SEC; supply
supporting documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with Declarations of
Trust, by-laws, investment objectives and policies and with Federal and state
securities laws; arrange for appropriate insurance coverage; calculate NAVs of
the Portfolio, net income and realized capital gains or losses; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others to supply services.
For the years ended December 31, 1998, 1997 and 1996, the Adviser
accrued $________, $1,215,073 and $752,981 respectively, in compensation for
administrative and other services provided to the Portfolio.
Personal Investments by Employees of Bankers Trust
Both the Portfolio and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Portfolio and its
portfolio securities. These codes recognize that such persons owe a fiduciary
duty to the Portfolio's shareholders and must place the interests of
shareholders ahead of the employees' own interests. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased or
sold, or being considered for purchase or sale, by the Portfolio; and prohibit
purchasing securities in initial public offerings. Violations of the codes are
subject to review by the Trustees of the Portfolio and could result in severe
penalties.
TRUSTEES AND OFFICERS OF THE FUND
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- ---------------------- -----------------------
<S> <C> <C> <C>
Daniel Pierce (64)+*= President and Trustee Managing Director of Scudder Director, Vice President
Kemper Investments, Inc. and Assistant Treasurer
Henry P. Becton, Jr. (55) Trustee President and General Manager, --
125 Western Avenue WGBH Educational Foundation
Allston, MA 02134
37
<PAGE>
Position with
Underwriter,Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- ---------------------- -----------------------
Dawn-Marie Driscoll (52) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates
Peter B. Freeman (66) Trustee Director, The A.H. Belo --
100 Alumni Avenue Company; Trustee, Eastern
Providence, RI 02906 Utilities Associates (public
utility holding company);
Director, AMICA Insurance Co.
George M. Lovejoy, Jr. (68)= Trustee President and Director, Fifty --
50 Congress Street Associates (real estate
Suite 543 investment trust)
Boston, MA 02109
Wesley W. Marple, Jr. (66)= Trustee Professor of Business --
413 Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
Kathryn L. Quirk (46)++*= Trustee, Vice President Managing Director of Scudder Director, Assistant
and Assistant Secretary Kemper Investments, Inc. Treasurer and Senior Vice
President
Jean C. Tempel (55) Trustee Managing Partner,Technology --
Ten Post Office Square Equity Partners
Suite 1325
Boston, MA 02109
Bruce F. Beaty (40)++ Vice President Senior Vice President of --
Scudder Kemper Investments, Inc.
Philip S. Fortuna (41)++ Vice President Managing Director of Scudder Vice President
Kemper Investments, Inc.
William F. Gadsden (43)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John R. Hebble (40)+ Assistant Treasurer Senior Vice President of --
Scudder Kemper Investments, Inc.
Robert T. Hoffman (40)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
38
<PAGE>
Position with
Underwriter,Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- ---------------------- -----------------------
Thomas W. Joseph (59)+ Vice President Senior Vice President of Director, Vice President,
Scudder Kemper Investments, Inc. Treasurer and Assistant
Clerk
Valerie F. Malter (40)++ Vice President Senior Vice President of --
Scudder Kemper Investments, Inc.
Ann McCreary Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Thomas F. McDonough (51)+ Treasurer, Vice Senior Vice President of Clerk
President and Secretary Scudder Kemper Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Senior Vice President, Scudder --
Kemper Investments, Inc.;
Associate, Dechert Price &
Rhoads (law firm) 1989 to 1997
</TABLE>
* Mr. Pierce and Ms. Quirk are considered by the Fund and counsel to be
persons who are "interested persons" of the Manager or of the Trust,
within the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all the Trustees and officers of the Trust
have been associated with their respective companies for more than five
years, but not necessarily in the same capacity.
= Messrs. Lovejoy, Pierce, Marple and Ms. Quirk are members of the
Executive Committee for the Trust, which has the power to declare
dividends from ordinary income and distributions of realized capital
gains to the same extent as the Board is so empowered.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
As of March 31, 1999, all Trustees and officers of the Trust as a group
owned beneficially (as that term is defined in Section 13(d) of the Securities
Exchange Act of 1934) less than 1% of the Fund.
To the best of the Fund's knowledge, as of March 31, 1999 no person
owned beneficially more than 5% of the Fund's outstanding shares.
The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder funds.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that each Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among
39
<PAGE>
other things, each Funds' investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by each Fund's independent
public accountants and by independent legal counsel selected by the Independent
Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. 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 Trust
The Independent Trustees receive the following compensation from the
Funds of Scudder Investment Trust: an annual trustee's fee of $2,400 for a Fund
in which assets do not exceed $100 million, $4,800 for a Fund in which total net
assets exceed $100 million, but do not exceed $1 billion, and $7,200 for a Fund
in which total net assets exceed $1 billion; a fee of $150 for attendance at
each board meeting, audit committee meeting, or other meeting held for the
purposes of considering arrangements between the Trust on behalf of the the Fund
and the Manager or any affiliate of the Manager; $75 for attendance at any other
committee meeting (although in some cases the Independent Trustees have waived
committee meeting fees); and reimbursement of expenses incurred for travel to
and from Board Meetings. The Independent Trustee who serves as lead or liaison
trustee receives an additional annual retainer fee of $500 from each Fund. 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, service on special trustee task forces or subcommittees or service
as lead or liaison trustee. Independent Trustees do not receive any employee
benefits such as pension, retirement 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 Manager. These funds differ broadly in type an complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1998 from the Trust and from all of Scudder funds as a group.
<TABLE>
<CAPTION>
Investment Trust(1) All Scudder Funds
------------------- -----------------
Paid by Paid by the Paid by Paid by
Name the Trust Manager(2) the Funds the Manager(2)
- ---- --------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Henry P. Becton $0 $0 $135,000 $0
Trustee (28 funds)
Dawn-Marie Driscoll $0 $0 $145,000 $0
Trustee (28 funds)
Peter B. Freeman $0 $0 $172,425 $0
Trustee (46 funds)
George M. Lovejoy, Jr. $0 $0 $148,600 $0
Trustee (29 funds)
Wesley W. Marple, Jr. $0 $0 $135,000 $0
Trustee (28 funds)
Jean C. Tempel $0 $0 $135,000 $0
Trustee (29 funds)
</TABLE>
40
<PAGE>
(1) Investment Trust consists of eight funds: Scudder Growth and
Income Fund, Scudder Large Company Growth Fund, Classic Growth
Fund, Scudder S&P 500 Index, Scudder Real Estate Investment
Fund, Scudder Dividend & Growth Fund, Scudder Tax Managed
Growth Fund and Scudder Tax Managed Small Company Fund.
Scudder Real Estate Investment Fund commenced operations on
March 2, 1998. Scudder Dividend & Growth Fund commenced
operations on June 1, 1998. Scudder Tax Managed Growth Fund
and Scudder Tax Managed Small Company Growth Fund each
commenced operations on July 31, 1998.
(2) Meetings associated with the Adviser's alliance with Zurich
Insurance Company. See "Investment Adviser" for additional
information.
TRUSTEES AND OFFICERS OF THE PORTFOLIO
Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Funds or
Portfolios they represent. In addition, the Trustees review contractual
arrangements with companies that provide services to the Funds/Portfolios and
review the Funds' performance.
The Trustees and officers of the Portfolio, their ages and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period.
<TABLE>
<CAPTION>
Position with
Position with Underwriter
the ICC
Name, Age and Address Portfolio Principal Occupation Distributors, Inc.
- --------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
Charles P. Biggar (68) Trustee Retired; formerly Vice --
12 Hitching Post Lane President of International
Chappaqua, NY 10514 Business Machines ("IBM")
and President of the
National Services and the
Field Engineering
Divisions of IBM
41
<PAGE>
Position with
Position with Underwriter
the ICC
Name, Age and Address Portfolio Principal Occupation Distributors, Inc.
- --------------------- ------------- -------------------- ------------------
S. Leland Dill (69) Trustee Retired; Director, Coutts --
5070 North Ocean Drive Group; Coutts (U.S.A.)
Singer Island, FL 33404 International; Coutts
Trust Holdings, Ltd;
Director, Zweig
Series Trust;
formerly Partner of
KPMG Peat Marwick;
Director, Vinters
International
Company Inc.;
General Partner of
Pemco (an investment
company registered
under the 1940 Act)
Philip Saunders, Jr. (632) Trustee Principal, Philip Saunders --
445 Glen Road Associates (Consulting);
Weston, MA 02193 former Director of
Financial Industry
Consulting, Wolf &
Company; President,
John Hancock Home
Mortgage
Corporation; and
Senior Vice
President of
Treasury and
Financial Services,
John Hancock Mutual
Life Insurance
Company, Inc.
42
<PAGE>
Position with
Position with Underwriter
the ICC
Name, Age and Address Portfolio Principal Occupation Distributors, Inc.
- --------------------- ------------- -------------------- ------------------
John Y. Keffer (56) President and Chief President Forum Financial --
2 Portland Square Executive Officer Group
Portland, Maine 04101
Joseph A. Finelli (42) Treasurer Vice President, BT Alex. --
One South Street Brown Incorporated and
Baltimore, Maryland 21202 Vice President, Investment
Company Capital Corp.
(registered investment
adviser), September 1995
to present; formerly, Vice
President and Treasurer,
The Delaware Group of
Funds (registered
investment companies) and
Vice President, Delaware
Management Company Inc.
(investments), 1980 to
August 1995.
Daniel O. Hirsch (45) Secretary Principal, BT Alex. Brown --
2901 Dorset Avenue since July 1998; Assistant
Chevy Chase, Maryland 20815. General Counsel in the
Office of the General
Counsel at the United
States Securities and
Exchange Commission from
1993 to 1998
</TABLE>
43
<PAGE>
Messrs. Keffer, Finelli and Hirsch also hold similar positions for other
investment companies for which ICC Distributors, Inc. or an affiliate serves as
the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust or the Portfolio. No director, officer or employee of ICC
Distributors, Inc. or any of its affiliates will receive any compensation from
the Trust or the Portfolio for serving as an officer or Trustee of the Trust or
the Portfolio.
REMUNERATION
Control Persons and Principal Holders of Securities
Each Bankers Trust Fund has informed the Portfolio that whenever it is
requested to vote on matters pertaining to the fundamental policies of the
Portfolio, the Bankers Trust Fund will hold a meeting of shareholders and will
cast its votes as instructed by the Bankers Trust Fund's shareholders. It is
anticipated that other registered investment companies investing in the
Portfolio will follow the same or a similar practice.
Compensation of Officers and Trustees of the Portfolio
The following table reflects fees paid to the Trustees of the Portfolio for the
year ended December 31, 1998:
TRUSTEE COMPENSATION TABLE
Equity 500 Index Total Compensation
NAME Portfolio** from Fund Complex***
---- ----------- --------------------
Charles P. Biggar, $641 $35,000
Trustee of Portfolio
S. Leland Dill, $641 $35,000
Trustee of Portfolio
Philip Saunders, Jr., $641 $35,000
Trustee of Portfolio
** The aggregate compensation is provided for the Equity 500 Index Portfolio for
the Portfolio's fiscal year ended December 31, 1998.
*** Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios, Cash
Management Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax
Free Money Portfolio, International Equity Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio, and Capital
Appreciation Portfolio. The compensation is provided for the calendar year ended
December 31, 1998.
Bankers Trust reimbursed the Portfolio for a portion of their Trustee fees for
the period above.
44
<PAGE>
DISTRIBUTOR
The Trust on behalf of the Fund has an underwriting agreement with
Scudder Investor Services, Inc., a Massachusetts corporation, which is a
subsidiary of the Manager, a Delaware corporation. The Trust's underwriting
agreement dated September 7, 1998 will remain in effect until September 30, 1999
and from year to year thereafter only if its continuance is approved annually by
a majority of the members of the Board of Trustees who are not parties to such
agreement or interested persons of any such party and either by a vote of a
majority of the Board of Trustees or a majority of the outstanding voting
securities of the Fund. The underwriting agreement was last approved by the
Trustees on August 11, 1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a 12b-1 Plan is in effect which
provides that the Fund shall bear some or all of such expenses.
NOTE: Although the Fund does not currently have a 12b-1 Plan, the Fund would
also pay those fees and expenses permitted to be paid or assumed by the
Fund pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
(See "Distribution and performance information--Dividends and
capital gain distributions" and "Transaction
information-- Tax information, Tax identification
number" in the Fund's prospectus.)
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 percent 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.
45
<PAGE>
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, taxable to individual shareholders at a maximum 20% or 28% capital gains
rate (depending on the Fund's holding period for the assets giving rise to the
gain), 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 a pro rata share of such gains owned and the
individual tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
To the extent that dividends from domestic corporations 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 individual
shareholders at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the 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.
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 ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). 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
46
<PAGE>
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.
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the
Portfolio will be subject to tax under Section 1234 of the Code. In general, no
loss is recognized by the Portfolio 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 Portfolio's holding period for the option,
and in the case of an exercise of a put option, on the Portfolio'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
Portfolio's portfolio. If the Portfolio 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 Portfolio is not a taxable
transaction for the Portfolio.
Many futures and forward contracts entered into by the Portfolio and
all listed non-equity options written or purchased by the Portfolio (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 Portfolio'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 capital
gain 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 Portfolio's portfolio.
Positions of the Portfolio which consist of at least one stock and at
least one other position with respect to a related security which substantially
diminishes the Portfolio'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 Portfolio.
Positions of the Portfolio which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
nonequity option governed by Section 1256 which substantially diminishes the
Portfolio'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 Portfolio 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 Portfolio to recognize gain (but not loss) from a constructive sale
of certain "appreciated financial positions" if the Portfolio 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
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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 Portfolio's
taxable year, if certain conditions are met.
Similarly, if the Portfolio enters into a short sale of property that
becomes substantially worthless, the Portfolio 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.
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.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
Tax Status. The Portfolio is organized as a trust under New York law. Under the
anticipated method of operation of the Portfolio, the Portfolio will not be
subject to any income tax. However each investor in the Portfolio, including the
Fund, will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's income, gain, loss,
deductions, credits and tax preference items, without regard to whether the
investor has received any distributions from the Portfolio. The determination of
such share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
Distributions received by the Fund from the Portfolio generally will
not result in the Fund recognizing any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent that any cash
distributed exceeds the Fund's basis in its interest in the Portfolio prior to
the distribution, (2) income or gain may be realized if the distribution is made
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss may be recognized if the distribution is made in liquidation of the
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. The Fund's basis in its interest in the Portfolio
generally will equal the amount of cash and the basis of any property which the
Fund invests in the Portfolio, increased by the Fund's share of income from the
Portfolio, and decreased by the amount of any cash distributions and the basis
of any property distributed from the Portfolio.
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The Portfolio's taxable year end is December 31. Although, as described
above, the Portfolio will not be subject to Federal income tax, it will file
appropriate income tax returns.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
PORTFOLIO TRANSACTIONS
Brokerage Allocation And Other Practices
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Portfolio,
the selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of the Portfolio are frequently placed by Bankers Trust with the
issuer or a primary or secondary market-maker for these securities on a net
basis, without any brokerage commission being paid by the Portfolio. Trading
does, however, involve transaction costs. Transactions with dealers serving as
market-makers reflect the spread between the bid and asked prices. Transaction
costs may also include fees paid to third parties for information as to
potential purchasers or sellers of securities. Purchases of underwritten issues
may be made which will include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and skill
required of the executing broker-dealer through familiarity with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Conduct Rules of the
National Association of Securities Dealers, Inc. and such other policies as the
Portfolio's Trustees may determine, the Adviser may consider sales of securities
of shares of the Portfolio's investors as a factor in the selection of
broker-dealers to execute portfolio transactions. The Adviser will make such
allocations if commissions are comparable to those charged by nonaffiliated,
qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. The Adviser may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. 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 otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Portfolio and to the Adviser, it is the
opinion of the management of the Portfolio that such information is only
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supplementary to Bankers Trust's own research effort, since the information must
still be analyzed, weighed and reviewed by the Adviser's staff. Such information
may be useful to the Adviser in providing services to clients other than the
Portfolio, and not all such information is used by the Adviser in connection
with the Portfolio. Conversely, such information provided to Bankers Trust by
brokers and dealers through whom other clients of the Adviser effect securities
transactions may be useful to Bankers Trust in providing services to the
Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio in concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
For the fiscal years ended December 31, 1998, 1997 and 1996, the
Portfolio paid brokerage commissions in the amount of $_________, $341,058,
$289,791 respectively.
Portfolio Turnover
The frequency of portfolio transactions, the Portfolio's turnover rate,
will vary from year to year depending on market conditions and the Portfolio's
cash flows. The Portfolio's annual turnover rate is not expected to exceed 100%.
The Portfolio's turnover rates for the years ended December 31, 1998 and 1997
were ___% and 19, respectively.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the New York Stock Exchange on each day the Exchange is
open for trading. The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Net asset
value per share is determined by dividing the value of the total assets of the
Fund, (i.e., the value of investments in the Portfolio and other assets) less
all liabilities, by the total number of shares outstanding.
The Portfolio values its equity and debt securities (other than
short-term debt obligations maturing in 60 days or less), including listed
securities and securities for which price quotations are available, on the basis
of market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market value. Other assets are valued at fair value
using methods determined in good faith by the Portfolio's Board of Trustees.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day that the Exchange is open for
business and New York charter banks are not closed owing to customary or local
holidays. As of the close of the Exchange, currently 4:00 p.m. (New York time or
earlier if the Exchange closes earlier) on each such day, the value of each
investor's interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage representing that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions or
reductions which are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (1) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of the Exchange on such day plus or minus, as the case may be,
the amount of net additions to or reductions in the investor's investment in the
Portfolio effected on such day and (2) the denominator of which is the aggregate
net asset value of the Portfolio as of 4:00 p.m. or the close of the Exchange on
such day plus or minus, as the case may be, the amount of net additions to or
reductions in the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage
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so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of 4:00 p.m. or the close of the Exchange on the
following day the Exchange is open for trading.
An exchange-traded equity security is valued by the Portfolio at its
most recent sale price. 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"). Lacking a Calculated Mean, the security is
valued at the most recent bid quotation. An equity security which is traded on
The Nasdaq Stock Market ("Nasdaq") system is valued at its most recent sale
price. Lacking any sales, the security is valued at the most recent bid
quotation. 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.
Lacking any sales, the security is valued at the Calculated Mean. Lacking a
Calculated Mean, the security is valued at the most recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Portfolio's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Short-term
securities purchased 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 Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Portfolio'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 Portfolio 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.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Portfolio incorporated by reference in
this Statement of Asdditional Iformation have been so included or incorporated
by reference in reliance on the report of PricewaterhouseCoopers LLP, One Post
Office Square, Boston, Massachusetts 02109, independent accountants, and given
on the authority of that firm as experts in accounting and auditing. Effective
July 1, 1998, Coopers & Lybrand L.L.P. and Price Waterhouse LLP merged to become
PricewaterhouseCoopers LLP. PricewaterhouseCoopers, LLP is responsible for
performing annual audits of the financial statements and financial highlights of
the Fund in accordance with generally accepted auditing standards, and the
preparation of federal tax returns.
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Shareholder Indemnification
The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Fund's property of any shareholder held
personally liable for the claims and liabilities which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Other Information
The name "Scudder Investment Trust" is a designation of the Trustees
for the time being under a Declaration of Trust dated September 20, 1984, as
amended from time to time, 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 or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. No series
of the Trust shall be liable for the obligations of any other series. 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.
Estimated costs of $13,000 incurred by the Fund in conjunction with its
organization are amortized over a five year period beginning at the commencement
of operations of the Fund.
The Fund has a fiscal year end of December 31.
The CUSIP number of the Fund is 811167402.
PricewaterhouseCoopers LLP, One Post Office Square, Boston,
Massachusetts 02109,, has been selected as the Independent Accountants for the
Fund and the Portfolio.
State Street Bank and Trust Company serves as custodian to the Fund and
Bankers Trust serves as Custodian for the Portfolio.
The firm of Dechert Price & Rhoads is counsel to the Fund. The firm of
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022-4669, is counsel to the Portfolio.
Bankers Trust (or its agent) computes net asset value for the Fund. The
Fund pays Bankers Trust an annual fee of $10,000.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Manager, is the transfer and
dividend paying agent for the Fund. The Fund pays SSC an annual fee for each
account maintained for a participant. For the year ended December 31, 1997, SSC
did not impose any of its fee, which amounted to $28,721.
The Fund, or the Manager (including any affiliate of the Manager), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
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Scudder Trust Company ("STC"), a subsidiary of the Manager, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement 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. This 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
Portfolio, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements in the Annual Report of the
Portfolio and the Fund dated December 31, 1998 are incorporated by reference in
its entirety and are hereby deemed to be a part of this Statement of Additional
Information.
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APPENDIX A
Set forth below are descriptions of the ratings of Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Corporation Ratings Group ("S&P"), which
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality.
S&P's COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
<PAGE>
INVESTMENT TRUST
PART C.
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OTHER INFORMATION
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<TABLE>
<CAPTION>
Item 23. Exhibits:
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<S> <C> <C>
(a) (a)(1) Amendment to Amended and Restated Declaration of Trust dated
November 14, 1990, is incorporated by reference to Post-Effective
Amendment No. 78 to the Registration Statement.
(a)(2) Certificate of Amendment of Declaration of Trust dated February 12,
1991, is incorporated by reference to Post-Effective Amendment No.
78 to the Registration Statement.
(a)(3) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Growth and
Income Fund and Scudder Quality Growth Fund, is incorporated by
reference to Post-Effective Amendment No. 78 to the Registration
Statement.
(a)(4) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Classic Growth
Fund, is incorporated by reference to Post-Effective Amendment No.
76 to the Registration Statement.
(a)(5) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Growth and
Income Fund, Scudder Large Company Growth Fund and Scudder Classic
Growth Fund, is incorporated by reference to Post-Effective
Amendment No. 81 to the Registration Statement.
(a)(6) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, - Kemper A, B & C Shares, and Scudder S
Shares is incorporated by reference to Post-Effective Amendment No.
94 to the Registration Statement.
(a)(7) Redesignation of Series, Scudder Classic Growth Fund to Classic
Growth Fund, is incorporated by reference to Post-Effective
Amendment No. 94 to the Registration Statement.
(b) (b)(1) Amendment to By-Laws of the Registrant dated August 13, 1991, is
incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.
(b)(2) Amendment to By-Laws of the Registrant dated November 12, 1991, is
incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.
(b)(3) Inapplicable.
Part C - Page 1
<PAGE>
(c) Investment Management Agreement between the Registrant (on behalf
of Scudder Growth and Income Fund) and Scudder dated September 7,
1998 is incorporated by reference to Post-Effective Amendment No.
100 to the Registration Statement.
(d) (d)(1) Investment Management Agreement between the Registrant (on behalf
of Scudder Large Company Growth Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(d)(2) Investment Management Agreement between the Registrant (on behalf
of Classic Growth Fund) and Scudder Kemper Investments, Inc. dated
September 7, 1998, is incorporated by reference to Post-Effective
Amendment No. 100 to the Registration Statement.
(d)(3) Investment Management Agreement between the Registrant (on behalf
of Scudder Real Estate Investment Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(d)(4) Investment Management Agreement between the Registrant (on behalf
of Scudder S&P 500 Index Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 100 to the Registration Statement.
(d)(5) Investment Management Agreement between the Registrant (on behalf
of Scudder Dividend & Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 100 to the Registration Statement.
(d)(6) Investment Management Agreement between the Registrant (on behalf
of Scudder Tax Managed Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 100 to the Registration Statement.
(d)(7) Investment Management Agreement between the Registrant (on behalf
of Scudder Tax Managed Small Company Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(e) (e)(1) Underwriting Agreement and Distribution Services Agreement between
the Registrant on behalf of Classic Growth Fund and Kemper
Distributors, Inc. dated August 10,1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
Part C - Page 2
<PAGE>
(e)(2) Underwriting Agreement and Distribution Services Agreement between
the Registrant on behalf of Classic Growth Fund and Kemper
Distributors, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(e)(3) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.
(f) Inapplicable.
(g) (g)(1) Custodian Agreement between the Registrant (on behalf of Scudder
Growth and Income Fund) and State Street Bank and Trust Company
("State Street Bank") dated December 31, 1984, is incorporated by
reference to Post-Effective Amendment No. 78 to the Registration
Statement.
(g)(2) Amendment dated April 1, 1985 to the Custodian Agreement between
the Registrant and State Street Bank, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(3) Amendment dated August 8, 1987 to the Custodian Agreement between
the Registrant and State Street Bank, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(4) Amendment dated August 9, 1988 to the Custodian Agreement between
the Registrant and State Street Bank is Incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(5) Amendment dated July 29, 1991 to the Custodian Agreement between
the Registrant and State Street Bank, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(g)(6) Custodian fee schedule for Scudder S&P 500 Index Fund, is
incorporated by reference to Post-Effective Amendment No. 84 to the
Registration Statement.
(g)(7) Subcustodian Agreement with fee schedule between State Street Bank
and The Bank of New York, London office, dated December 31, 1978,
is incorporated by reference to Post-Effective Amendment No. 78 to
the Registration Statement.
(g)(8) Subcustodian Agreement between State Street Bank and The Chase
Manhattan Bank, N.A. dated September 1, 1986, is incorporated by
reference to Post-Effective Amendment No. 78 to the Registration
Statement.
Part C - Page 3
<PAGE>
(g)(9) Custodian fee schedule for Scudder Quality Growth Fund and Scudder
Growth and Income Fund, is incorporated by reference to
Post-Effective Amendment No. 72 to the Registration Statement.
(g)(10) Form of Custodian fee schedule for Scudder Classic Growth Fund, is
incorporated by reference to Post-Effective Amendment No. 77 to the
Registration Statement
(h) (h)(1) Transfer Agency and Service Agreement with fee schedule between the
Registrant and Scudder Service Corporation dated October 2, 1989,
is incorporated by reference to Post-Effective Amendment No. 78 to
the Registration Statement.
(h)(1)(a) Revised fee schedule dated October 6, 1995 for Exhibit h(1) is
incorporated by reference to Post-Effective Amendment No. 76 to the
Registration Statement.
(h)(1)(b) Form of revised fee schedule for Exhibit 9(a)(1) dated October 1,
1996, is incorporated by reference to Post-Effective Amendment No.
78 to the Registration Statement.
(h)(1)(c) Agency Agreement between the Registrant on behalf of Classic Growth
Fund and Kemper Service Company dated April 1998, is incorporated
by reference to Post-Effective Amendment No. 100 to the
Registration Statement.
(h)(2)(a) COMPASS Service Agreement and fee schedule with Scudder Trust
Company dated January 1, 1990, is incorporated by reference to
Post-Effective Amendment No. 78 to the Registration Statement.
(h)(2)(b) COMPASS and TRAK 2000 Service Agreement between Scudder Trust
Company and the Registrant dated October 1, 1995, is incorporated
by reference to Post-Effective Amendment No. 74 to the Registration
Statement.
(h)(2)(c) Form of revised fee schedule for Exhibit h(2)(a) dated October 1,
1996, is incorporated by reference to Post-Effective Amendment No.
78 to the Registration Statement.
(h)(3)(a) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Quality Growth Fund and Scudder Fund Accounting
Corporation dated November 1, 1994 is incorporated by reference to
Post-Effective Amendment No. 72 to the Registration Statement.
(h)(3)(b) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Growth and Income Fund and Scudder Fund
Accounting Corporation dated October 17, 1994, is incorporated by
reference to Post-Effective Amendment No. 73
(h)(3)(c) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Classic Growth Fund, and Scudder Fund Accounting
Corporation dated September 9, 1996, is incorporated by reference
to Post-Effective Amendment No. 99 to the Registration Statement.
Part C - Page 4
<PAGE>
(h)(3)(d) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Tax Managed Small Company and Scudder Fund
Accounting Corporation dated July 30, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
(h)(3)(e) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Tax Managed Growth Fund and Scudder Fund
Accounting Corporation dated July 30, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
(h)(3)(f) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Dividend & Growth Fund and Scudder Fund
Accounting Corporation dated June 1, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
(h)(3)(g) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Real Estate Investment Fund and Scudder Fund
Accounting Corporation dated March 2, 1998, is incorporated by
reference to Post-Effective Amendment No. 99 to the Registration
Statement.
(h)(3)(h) Investment Accounting Agreement between the Registrant, on behalf
of Scudder S&P 500 Index Fund and Scudder Fund Accounting
Corporation dated August 28, 1997, is incorporated by reference to
Post-Effective Amendment No. 99 to the Registration Statement.
(h)(4)(a) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990, is incorporated by reference
to Post-Effective Amendment No. 78 to the Registration Statement.
(h)(4)(b) Service Agreement between Copeland Associates, Inc. and Scudder
Service Corporation (on behalf of Scudder Quality Growth Fund and
Scudder Growth and Income Fund) dated June 8, 1995, is incorporated
by reference to Post-Effective Amendment No. 74 to the Registration
Statement.
(h)(4)(b) Administrative Services Agreement between the Registrant on behalf
of Classic Growth Fund, and Kemper Distributors, Inc., dated April
1998, is incorporated by reference to Post-Effective Amendment No.
100 to the Registration Statement.
(i) Inapplicable.
(j) Consent of Independent Accountants, to be filed by amendment.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
Part C - Page 5
<PAGE>
(n) Financial Data Schedules, to be filed by amendment.
(o) Mutual Funds Multi-Distribution System Plan - Rule 18f-3 Plan, is
incorporated by reference to Post-Effective Amendment No. 94 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 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
Part C - Page 6
<PAGE>
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 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.
Part C - Page 7
<PAGE>
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 and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, 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**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company 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 o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & 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, 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. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Part C - Page 8
<PAGE>
Director and Secretary, SFA, Inc.*
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 and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
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 oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 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
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o 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
</TABLE>
Item 27. Principal Underwriters.
- -------- -----------------------
I.
(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.
Part C - Page 9
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
William S. Baughman Vice President None
Two International Place
Boston, MA 02110
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President Vice President
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
Thomas F. McDonough Clerk Vice President & Secretary
Two International Place
Boston, MA 02110
Part C - Page 10
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Daniel Pierce Director, Vice President President & Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Trustee, Vice President &
345 Park Avenue Legal Officer and Assistant Clerk Assistant Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage
Underwriter Commissions and Repurchases Commissions Other Compensation
----------- ----------- --------------- ----------- ------------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
II.
Part C - Page 11
<PAGE>
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Funds.
(b) 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)
Position and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer None
Kathryn L. Quirk Director, Secretary, Chief Legal Trustee, Vice President
Officer & Vice President and Assistant Secretary
James J. McGovern Chief Financial Officer & Vice None
President
Linda J. Wondrack Vice President & Chief Compliance None
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Elizabeth C. Werth Vice President None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary None
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Daniel Pierce Director, Chairman Trustee and President
Mark S. Casady Director, Vice Chairman None
Stephen R. Beckwith Director None
(c) Not applicable
</TABLE>
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
Part C - Page 12
<PAGE>
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 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 26th day of February, 1999.
INVESTMENT TRUST
By /s/Thomas F. McDonough
----------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce February 26, 1999
- --------------------------------------
Daniel Pierce* President (Principal Executive Officer)
and Trustee
/s/Henry P. Becton, Jr. February 26, 1999
- --------------------------------------
Henry P. Becton, Jr.* Trustee
/s/Dawn-Marie Driscoll February 26, 1999
- --------------------------------------
Dawn-Marie Driscoll* Trustee
/s/Peter B. Freeman February 26, 1999
- --------------------------------------
Peter B. Freeman* Trustee
/s/George M. Lovejoy, Jr. February 26, 1999
- --------------------------------------
George M. Lovejoy, Jr.* Trustee
/s/Wesley W. Marple, Jr. February 26, 1999
- --------------------------------------
Wesley W. Marple, Jr.* Trustee
/s/Kathryn L. Quirk February 26, 1999
- --------------------------------------
Kathryn L. Quirk* Trustee, Vice President
and Assistant Secretary
/s/Jean C. Tempel February 26, 1999
- --------------------------------------
Jean C. Tempel* Trustee
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John R. Hebble February 26, 1999
- --------------------------------------
John R. Hebble Treasurer
</TABLE>
*By: /s/Thomas F. McDonough
-----------------------------------
Thomas F. McDonough**
** Attorney-in-fact, pursuant to a
power of attorney contained in the
signature page of Post-Effective
Amendment No. 61 to the
Registration Statement, filed April
22, 1991, and pursuant to a power
of attorney contained in the
signature page of Post-Effective
Amendment No. 72 to the
Registration Statement, filed April
28, 1995, and pursuant to a power
of attorney contained in the
signature page of Post-Effective
Amendment No. 79 to the
Registration Statement, filed
February 26, 1997, and pursuant to
a power of attorney contained in
the signature page of
Post-Effective Amendment No. 85
filed October 31, 1997.
2
<PAGE>
SIGNATURES
----------
Equity 500 Index Portfolio has duly caused this Post-Effective Amendment
No. 103 to the Registration Statement on Form N-1A of Investment Trust to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Baltimore and State of Maryland on the 26th day of February, 1999.
EQUITY 500 INDEX PORTFOLIO
By: John Y. Keffer*
President
This Post Effective Amendment No. 103 to the Registration Statement on
Form N-1A of Investment Trust has been signed below by the following persons in
the capacities indicated with respect to Equity 500 Index Portfolio on February
26, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
Charles P. Biggar* Trustee
Philip Saunders, Jr.* Trustee
S. Leland Dill* Trustee
John Y. Keffer* President and Chief Executive
Officer
Joseph A. Finelli* Treasurer and Principal Financial
and Accounting Officer
</TABLE>
*By
-----------------------------------
Daniel O. Hirsch, Secretary of Equity 500 Index Portfolio,
As Attorney-in-Fact pursuant to a Power of Attorney.
<PAGE>
File No. 2-13628
File No. 811-43
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 103
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 55
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
INVESTMENT TRUST
<PAGE>
INVESTMENT TRUST
EXHIBIT INDEX
2
