Filed with the Securities and Exchange Commission on
April 12, 2000.
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. 114
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 66
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INVESTMENT TRUST
-----------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
-------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (6l7) 295-1000
--------------
John Millette
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):
/___/ Immediately upon filing pursuant to paragraph (b)
/___/ 60 days after filing pursuant to paragraph (a) (1)
/___/ 75 days after filing pursuant to paragraph (a) (2)
/_X_/ On April 12, pursuant to paragraph (b)
/___/ On _____________ pursuant to paragraph (a) (1)
/___/ On ______________ pursuant to paragraph (a) (3) of Rule 485.
If Appropriate, check the following box:
/___/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
INVESTMENT TRUST
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
<PAGE>
Scudder Investments (SM)
[LOGO]
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EQUITY/GROWTH & INCOME
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Scudder Balanced Fund
Fund #062
Scudder Dividend & Growth Fund Fund #303
Prospectus
April 12, 2000
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
How the funds work
2 Scudder Balanced Fund
6 Scudder Dividend & Growth Fund
10 Other Policies and Risks
11 Who Manages and Oversees the Funds
14 Financial Highlights
How to invest in the funds
17 How to Buy Shares
18 How to Exchange or Sell Shares
19 Policies You Should Know About
24 Understanding Distributions and Taxes
<PAGE>
How the funds work
These funds seek a combination of capital growth and income.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
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ticker symbol | SCBAX fund number | 062
Scudder Balanced Fund
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Investment Approach
The fund seeks a balance of growth and income from a diversified portfolio of
equity and fixed-income securities.
In deciding which types of securities to buy and sell, the fund managers first
analyze the overall financial climate, including interest rates, capital flows
and inflation, among other factors. They then weigh the relative attractiveness
of stocks compared to bonds and decide on allocations for each. The fund
normally invests 50% to 75% of net assets in common stocks and other equities
and 25% to 50% of net assets in investment grade bonds and other fixed- income
securities. At all times the fund invests at least 25% of net assets in
fixed-income senior securities.
In choosing stocks, the managers invest primarily in U.S. companies that they
believe offer the potential for sustainable above-average earnings growth and
whose market values appear reasonable in light of their business prospects. The
managers follow a disciplined buy and sell strategy in which proprietary
research gathered from meetings with senior management teams, government experts
and industry leaders plays an important role.
In deciding which bonds to buy and sell, the managers review each bond's
fundamentals, comparing yields, credit quality and maturities. The fund can buy
many types of bonds of any maturity, including mortgage- and asset-backed
securities and government securities, but invests mainly in corporate bonds.
The managers may favor different types of securities at different times, while
still maintaining variety in terms of the types of securities and issuers
represented.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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OTHER INVESTMENTS
The fund's bond investments are normally in the top four grades of credit
quality. The fund could put up to 10% of total assets -- though no more than 20%
of its bond assets -- in junk bonds (i.e., grade BB/Ba and below). Compared to
investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and risk of default.
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies or securities), the
managers don't intend to use them as principal investments, and might not use
them at all.
2 | Scudder Balanced Fund
<PAGE>
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[ICON] This fund may make sense for investors who are looking for stock and bond
investments in a single fund.
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Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform. When stock prices fall, you should expect the value of your
investment to fall as well. Because a stock represents ownership in its issuer,
stock prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies.
With the bond portion of the fund, the most important factor is market interest
rates. A rise in interest rates generally means a fall in bond prices and, in
turn, a fall in the value of your investment. To the extent that the fund
invests in bonds from any given industry, it could be hurt if that industry does
not do well. An increase in the fund's dollar-weighted average maturity could
make it more sensitive to this risk.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
industries, companies, the relative attractiveness of stocks and bonds or
other matters
o a bond could decline in credit quality or go into default; this risk is
greater with lower-rated bonds
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
Scudder Balanced Fund | 3
<PAGE>
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[ICON] While a fund's past performance isn't necessarily a sign of how it will
do in the future, it can be valuable for an investor to know. This page
looks at fund performance two different ways: year by year and over time.
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The Fund's Track Record
The bar chart shows how the fund's returns have varied from year to year,
which may give some idea of risk. The table shows average annual total
returns for the fund and two broad-based market indices (which, unlike
the fund, do not have any fees or expenses). The performance of both the
fund and the indices varies over time. All figures on this page assume
reinvestment of dividends and distributions.
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Annual Total Returns (%) as of 12/31 each year
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
'94 -2.39
'95 26.48
'96 11.54
'97 22.78
'98 21.10
'99 13.46
2000 Total Return as of March 31: 1.61%
Best Quarter: 14.71%, Q4 1998 Worst Quarter: -6.32%, Q3 1998
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Average Annual Total Returns (%) as of 12/31/1999
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1 Year 5 Years Since Inception*
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Fund 13.46 18.94 13.47
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Index 1 21.04 28.56 21.53
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Index 2 -0.82 7.73 6.42
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Index 1: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), an
unmanaged, capitalization-weighted index that includes 500 large-cap stocks.
Index 2: Lehman Brothers Aggregate Bond Index, an unmanaged, value-weighted
measure of treasury, agency and mortgage securities and corporate bonds.
In both the chart and the table, total returns for 1995 through 1998 would have
been lower if operating expenses hadn't been reduced.
* Inception: 1/4/1993. Index comparisons begin 1/1/1993.
4 | Scudder Balanced Fund
<PAGE>
How Much Investors Pay
This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
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Fee Table
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Shareholder Fees (paid directly from your investment) None
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Annual Operating Expenses (deducted from fund assets)
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Management Fee 0.70%
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Distribution (12b-1) Fee None
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Other Expenses* 0.59%
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Total Annual Operating Expenses 1.29%
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* Includes costs of shareholder servicing, custody, accounting services,and
similar expenses, which may vary with fund size and other factors.
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Expense Example
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Based on the costs above, this example is designed to help you compare this
fund's expenses to those of other funds. The example assumes operating expenses
remain the same and that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; your actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
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$131 $409 $708 $1,556
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Scudder Balanced Fund | 5
<PAGE>
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ticker symbol | SDGFX fund number | 303
Scudder Dividend & Growth Fund
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Investment Approach
The fund seeks high current income and long-term growth of capital by investing
primarily in common stocks, convertible securities and real estate investment
trusts. The fund may invest up to 80% of net assets in common stocks, up to 30%
of net assets in convertible securities and up to 25% of net assets in
securities of real estate investment trusts (REITs).
In choosing securities, the portfolio managers begin by determining the relative
attractiveness of each type of allowable security, based on their analysis of
outlooks for interest rates and the economy.
In choosing stocks, the managers seek medium- and large-sized companies whose
dividend and earning prospects are attractive relative to the S&P 500 Index. The
fund may invest in dividend paying and non-dividend paying stocks.
In choosing convertible securities (which are often below investment-grade debt
securities), the managers favor those issued by undervalued companies, examining
securities with many different types of structures. In choosing REITs, the
managers seek those issued by companies with strengths in acquisition,
development and property management.
The fund will typically sell a security when it reaches a target price or when
the managers believe other investments offer better opportunities.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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OTHER INVESTMENTS
While most of the fund's investments are equities, the fund may also invest up
to 20% of net assets in bonds, including those rated below investment-grade
(i.e., grade BB and below).
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies, or securities), the
managers don't intend to use them as principal investments, and may not use them
at all.
6 | Scudder Dividend & Growth Fund
<PAGE>
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[ICON] This fund is designed for long-term investors who want to participate in
the stock market while keeping a focus on income.
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Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform. When stock prices fall, you should expect the value of your
investment to fall as well. Because a stock represents ownership in its issuer,
stock prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies. The value of any convertible securities the fund owns may be affected
by the issuer's stock price. To the extent that the fund focuses on income, it
may end up missing opportunities in faster-growing industries or companies.
REITs carry additional risks and may be more volatile than other types of
income-paying equity securities. Rising interest rates, for example, tend to
lower the yields of existing REITs and may discourage real estate companies from
developing new projects.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
industries, companies, types of securities or other matters
o prices of bonds or convertible securities could be hurt by rising interest
rates or declines in credit quality
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
Scudder Dividend & Growth Fund | 7
<PAGE>
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[ICON] While a fund's past performance isn't necessarily a sign of how it will
do in the future, it can be valuable for an investor to know.
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The Fund's Track Record
The bar chart shows the fund's return for its first complete calendar year. The
table shows average annual total returns for the fund and a broad-based market
index (which, unlike the fund, does not have any fees or expenses). The
performance of both the fund and the index varies over time. All figures on this
page assume reinvestment of dividends and distributions.
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Annual Total Returns
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
'99 16.20
2000 Total Return as of March 31: 2.74%
Best Quarter: 10.57%, Q4 1999 Worst Quarter: -7.60%, Q3 1999
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Average Annual Total Returns (%) as of 12/31/1999
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1 Year Since Inception*
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Fund 16.20 7.79
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Index 21.04 20.98
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Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index),
an unmanaged capitalization-weighted index that includes 500 large-cap
U.S. stocks.
In the chart, the total return for 1999 would have been lower if operating
expenses hadn't been reduced. In the table, total returns from inception through
1999 would have been lower if operating expenses hadn't been reduced.
* Since 07/17/1998. Index comparison begins 7/31/1998.
8 | Scudder Dividend & Growth Fund
<PAGE>
How Much Investors Pay
This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
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Fee Table
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Shareholder Fees (paid directly from your
investment) None
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Annual Operating Expenses (deducted from fund assets)
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Management Fee 0.75%
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Distribution (12b-1) Fee None
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Other Expenses* 1.32%
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Total Annual Operating Expenses 2.07%
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Expense Reimbursement 1.02%
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Net Expenses** 1.05%
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* Includes costs of shareholder servicing, custody, accounting services, and
similar expenses, which may vary with fund size and other factors.
** By contract, expenses are capped at 0.75% through April 30, 2000. Effective
May 1, 2000, expenses are capped, by contract, at 1.05% through April 30,
2001. Additionally, the adviser will voluntarily cap expenses at 0.75%
through September 30, 2000.
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Expense Example
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Based on the costs above (including one year of expenses contractually capped at
1.05%), this example is designed to help you compare this fund's expenses to
those of other funds. The example assumes operating expenses remain the same and
that you invested $10,000, earned 5% annual returns, reinvested all dividends
and distributions and sold your shares at the end of each period. This is only
an example; your actual expenses will be different.
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1 Year 3 Years 5 Years 10 Years
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$107 $550 $1,020 $2,319
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Scudder Dividend & Growth Fund | 9
<PAGE>
Other Policies and Risks
While the fund-by-fund sections on the previous pages describe the main points
of each fund's strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund's Board could change
the fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, the fund could shift up to 100% of its
assets into investments such as money market securities. This could prevent
losses, but would mean that the fund was not pursuing its goal.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
funds.
If you want more information on the funds' allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (the back cover tells you how
to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
10 | Other Policies and Risks
<PAGE>
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[ICON] Scudder Kemper, the company with overall responsibility for managing the
fund, takes a team approach to asset management.
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Who Manages and Oversees the Fund
The investment adviser
The funds' investment adviser is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds, and currently has more than $290 billion in assets under
management.
Each fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from each fund. Below are the actual rates paid by each fund for
the 12 months through the most recent fiscal year end, as a percentage of
average daily net assets.
Fund Fee Paid
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Scudder Balanced Fund 0.70%
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Scudder Dividend & Growth Fund 0.00%*
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* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
Who Manages and Oversees the Fund | 11
<PAGE>
The portfolio managers
The following people handle the day-to-day management of each fund in this
prospectus.
Scudder Balanced Fund Scudder Dividend & Growth Fund
Gary A. Langbaum Kathleen T. Millard
Lead Portfolio Manager Lead Portfolio Manager
o Began investment career in 1970 o Began investment career in 1983
o Joined the adviser in 1988 o Joined the adviser in 1991
o Joined the fund team in 1999 o Joined the fund team in 1999
Tracy McCormick Gregory S. Adams
o Began investment career in 1980 o Began investment career in 1987
o Joined the adviser in 1994 o Joined the adviser in 1999
o Joined the fund team in 1999 o Joined the fund team in 1999
Robert S. Cessine Nicholas Anisimov
o Began investment career in 1982 o Began investment career in 1987
o Joined the adviser in 1993 o Joined the adviser in 1987
o Joined the fund team in 1999 o Joined the fund team in 1998
David I. Hoffman
o Began investment career in 1994
o Joined the adviser in 1999
o Joined the fund team in 2000
12 | Who Manages and Oversees the Fund
<PAGE>
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. The majority of the Board is not affiliated with Scudder Kemper. The
independent members have primary responsibility for assuring that each fund is
managed in the best interests of its shareholders. The following people comprise
each fund's Board.
<TABLE>
<S> <C>
Linda C. Coughlin Wesley W. Marple, Jr.
o Managing Director, Scudder o Professor of Business Administration,
Kemper Investments, Inc. Northeastern University, College of
Business Administration
o President of each fund
Kathryn L. Quirk
Henry P. Becton, Jr. o Managing Director, Scudder Kemper
o President and General Manager, Investments, Inc.
WGBH Educational Foundation
o Vice President and Assistant Secretary
Dawn-Marie Driscoll of each fund
o Executive Fellow, Center for
Business Ethics, Bentley College Jean C. Tempel
o Venture Partner, Internet Capital Group
o President, Driscoll Associates (internet holding company)
(consulting firm)
Peter B. Freeman
o Corporate director and trustee
George M. Lovejoy, Jr.
o President and Director, Fifty
Associates (real estate corporation)
</TABLE>
Who Manages and Oversees the Fund | 13
<PAGE>
Financial Highlights
This table is designed to help you understand each fund's financial performance
in recent years. The figures in the first part of each table are for a single
share. The total return figures represent the percentage that an investor in a
particular fund would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each fund's financial
statements, is included in that fund's annual report (see "Shareholder reports"
on the back cover).
<TABLE>
<CAPTION>
Scudder Balanced Fund
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Years Ended December 31, 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 18.96 $ 16.85 $ 14.60 $ 14.12 $ 11.63
---------------------------------------------------
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Income (loss) from investment operations:
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Net investment income (loss) (a) .33 .36 .38 .36 .32
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Net realized and unrealized gain
(loss) on investment transactions 2.20 3.14 2.91 1.25 2.74
---------------------------------------------------
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Total from investment operations 2.53 3.50 3.29 1.61 3.06
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Less distributions from:
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Net investment income (.32) (.37) (.36) (.34) (.32)
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Net realized gains on investment
transactions (.02) (1.02) (.68) (.79) (.25)
---------------------------------------------------
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Total distributions (.34) (1.39) (1.04) (1.13) (.57)
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Net asset value, end of period $ 21.15 $ 18.96 $ 16.85 $ 14.60 $ 14.12
---------------------------------------------------
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Total Return (%) 13.46 21.10(b) 22.78(b) 11.54(b) 26.48(b)
Ratios to Average Net Assets and Supplemental Data
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Net assets, end of period ($
millions) 572 264 159 110 90
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Ratio of expenses before expense
reductions (%) 1.29 1.34 1.37 1.37 1.40
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Ratio of expenses after expense
reductions (%) 1.29 1.29 1.02 1.00 1.00
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Ratio of net investment income
(loss) (%) 1.69 1.99 2.32 2.42 2.51
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Portfolio turnover rate (%) 102 75 43 70 103
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</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
14 | Financial Highlights
<PAGE>
Scudder Dividend & Growth Fund
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Years Ended December 31, 1999 1998(b)
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Net asset value, beginning of period $ 11.35 $ 12.00
-------------------
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Income (loss) from investment operations:
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Net investment income (loss) (a) .29 .17
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Net realized and unrealized gain (loss) on t
investmen transactions 1.52 (.65)
-------------------
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Total from investment operations 1.81 (.48)
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Less distributions from:
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Net investment income (.40) (.17)
-------------------
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Total distributions (.40) (.17)
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Net asset value, end of period $ 12.76 $ 11.35
-------------------
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Total Return (%) (c) 16.20 (4.00)**
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Ratios to Average Net Assets and Supplemental Data
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Net assets, end of period ($ millions) 25 25
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Ratio of expenses before expense reductions (%) 2.07 2.56*
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Ratio of expenses after expense reductions (%) .75 .75*
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Ratio of net investment income (loss) (%) 2.44 3.36*
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Portfolio turnover rate (%) 93 41*
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(a) Based on monthly average shares outstanding during the period.
(b) For the period July 17, 1998 (commencement of operations) to December
31,1998.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
Financial Highlights | 15
<PAGE>
How to invest in the funds
The following pages tell you how to invest in these funds and what to expect as
a shareholder. If you're investing directly with Scudder, all of this
information applies to you.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make out your
check to "The Scudder Funds."
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First investment Additional investments
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$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an
Automatic Investment Plan
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By mail or o Fill out and sign an o Send a check and a Scudder
express application investment slip to us at
(see below) the appropriate address
o Send it to us at the below
appropriate address, along
with an investment check o If you don't have an
investment slip, simply
include a letter with your
name, account number, the
full name of the fund and
your investment
instructions
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By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
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By phone -- o Call 1-800-SCUDDER for
instructions
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With an automatic -- o To set up regular
investment plan investments from a bank
checking account, call
1-800-SCUDDER
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Using QuickBuy -- o Call 1-800-SCUDDER
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On the Internet o Go to the "funds and prices" o Call 1-800-SCUDDER to
section at www.scudder.com ensure you have enabled
electronic services
o Access and print out an
on-line prospectus and a new o Go to www.scudder.com and
account application register
o Complete and return the o Follow the instructions for
application with your check buying shares with money
from your bank account
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[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
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How to Buy Shares | 17
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell shares in an account opened directly
with Scudder.
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Exchanging into another fund Selling shares
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$2,500 or more to open a new Some transactions, including
account ($1,000 for IRAs) most for over $100,000, can
only be ordered in writing;
$100 or more for exchanges if you're in doubt, see page
between existing accounts 21
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By phone or wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
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Using SAIL(TM) o Call 1-800- 343-2890 and o Call 1-800- 343-2890 and
follow the instructions follow the instructions
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By mail, Write a letter that includes: Write a letter that includes:
express or fax
(see previous o the fund, class and account o the fund, class and account
page) number you're exchanging number from which you want to
out of sell shares
o the dollar amount or number
of shares you want to exchange o the dollar amount or number
of shares you want to sell
o the name and class of the
fund you want to exchange into o your name(s), signature(s)
and address, as they appear
o your name(s), signature(s) on your account
and address, as they appear
on your account o a daytime telephone number
o a daytime telephone number
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By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
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With an automatic -- o To set up regular cash
withdrawal plan payments from a Scudder
account, call 1-800-SCUDDER
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Using QuickSell -- o Call 1-800-SCUDDER
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On the Internet o Go to www.scudder.com and --
register
o Follow the instructions for
making on-line exchanges
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18 | How to Exchange or Sell Shares
<PAGE>
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[ICON] Questions? You can speak to a Scudder representative between 8 a.m. and 8
p.m. Eastern time on any fund business day by calling 1-800-SCUDDER.
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Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 4 p.m. Eastern time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
Policies You Should Know About | 19
<PAGE>
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[ICON] The Scudder Web site can be a valuable resource for shareholders with
Internet access. Go to www.scudder.com to get up-to-date information,
review balances or even place orders for exchanges.
- --------------------------------------------------------------------------------
SAIL(TM), the Scudder Automated Information Line, is available 24 hours a day by
calling 1-800-343-2890. You can use SAIL to get information on Scudder funds
generally and on accounts held directly at Scudder. You can also use it to make
exchanges and to sell shares.
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The fund
can only accept wires of $100 or more.
Exchanges among Scudder funds are an option for shareholders who bought their
fund shares directly from Scudder and many other investors as well. Exchanges
are a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject purchase orders, for these or
other reasons.
20 | Policies You Should Know About
<PAGE>
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.
Policies You Should Know About | 21
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you can
always send us your order in writing.
- --------------------------------------------------------------------------------
How the funds calculate share price
Each fund's share price is its net asset value per share, or NAV. To calculate
NAV, the funds use the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, a fund's value for a security is likely to be different from quoted market
prices.
22 | Policies You Should Know About
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o charge you $10 a year if your account balance falls below $2,500, and close
your account and send you the proceeds if your balance falls below $1,000; in
either case, we will give you 60 days' notice so you can either increase your
balance or close your account (these policies don't apply to retirement
accounts, to investors with $100,000 or more in Scudder fund shares or in any
case where a fall in share price created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash; generally, the fund won't make a redemption
in kind unless your requests over a 90-day period total more than $250,000 or
1% of the fund's net asset value, whichever is less
o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)
Policies You Should Know About | 23
<PAGE>
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[ICON] Because each shareholder's tax situation is unique, it's always a good
idea to ask your tax professional about the tax consequences of your
investments, including any state and local tax consequences.
- --------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The funds intend to pay income dividends to their shareholders quarterly, in
March, June, September and December. Capital gains will be paid to shareholders
in November or December. Additional distributions may be made if necessary.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
24 | Understanding Distributions and Taxes
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- --------------------------------------------------------------------------------
o short-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o taxable income dividends you receive from the fund
- --------------------------------------------------------------------------------
o short-term capital gains distributions you receive from the fund
Generally taxed at capital gains rates
- --------------------------------------------------------------------------------
o long-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o long-term capital gains distributions you receive from the fund
- --------------------------------------------------------------------------------
Each fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before a fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.
Understanding Distributions and Taxes | 25
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effect of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we may mail one copy per
household. For more copies, call 1-800-SCUDDER.
Statement of Additional Information (SAI) -- This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Scudder or the SEC (see below). Materials you
get from Scudder are free; those from the SEC involve a copying fee. If you
like, you can look over these materials in person at the SEC's Public Reference
Room in Washington, DC or request them electronically at [email protected].
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-SCUDDER 1-202-942-8090
www.scudder.com www.sec.gov
Fund Name SEC File #
- --------------------------------------------------------------------------------
Scudder Balanced Fund 811-42
- --------------------------------------------------------------------------------
Scudder Dividend & Growth Fund 811-43
- --------------------------------------------------------------------------------
<PAGE>
SCUDDER DIVIDEND & GROWTH FUND
A series of Investment Trust
A Mutual Fund Seeking
High Current Income and Long-Term Growth of Capital
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 12, 2000
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Dividend & Growth Fund
dated April 12, 2000, 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 Dividend & Growth Fund
dated December 31, 1999 is incorporated by reference and is hereby deemed to be
part of this Statement of Additional Information. The Annual Report may be
obtained without charge by calling 1-800-SCUDDER.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES........................................................................1
General Investment Objective and Policies..................................................................1
Primary investments........................................................................................1
Investment Restrictions...................................................................................15
PURCHASES..........................................................................................................16
Additional Information About Opening An Account...........................................................16
Minimum Balances..........................................................................................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
No-Load Concept...........................................................................................22
Internet Access...........................................................................................22
Dividend and Capital Gain Distribution Options............................................................23
Diversification...........................................................................................23
Reports to Shareholders...................................................................................23
Transaction Summaries.....................................................................................23
THE SCUDDER FAMILY OF FUNDS........................................................................................23
SPECIAL PLAN ACCOUNTS..............................................................................................25
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations
and Self-Employed Individuals............................................................................26
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals......26
Scudder IRA: Individual Retirement Account...............................................................26
Scudder Roth IRA: Individual Retirement Account..........................................................27
Scudder 403(b) Plan.......................................................................................27
Automatic Withdrawal Plan.................................................................................27
Group or Salary Deduction Plan............................................................................28
Automatic Investment Plan.................................................................................28
Uniform Transfers/Gifts to Minors Act.....................................................................28
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS...........................................................................28
PERFORMANCE INFORMATION............................................................................................29
Average Annual Total Return...............................................................................29
Cumulative Total Return...................................................................................29
Total Return..............................................................................................30
Comparison of Fund Performance............................................................................30
ORGANIZATION OF THE FUND...........................................................................................31
INVESTMENT ADVISER.................................................................................................32
AMA InvestmentLink(SM)Program.............................................................................34
Personal Investments by Employees of the Adviser..........................................................35
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
TRUSTEES AND OFFICERS..............................................................................................35
REMUNERATION.......................................................................................................37
Responsibilities of the Board -- Board and Committee Meetings.............................................37
Compensation of Officers and Trustees of the Fund.........................................................37
DISTRIBUTOR........................................................................................................38
TAXES..............................................................................................................39
PORTFOLIO TRANSACTIONS.............................................................................................43
Brokerage Commissions.....................................................................................43
Portfolio Turnover........................................................................................44
NET ASSET VALUE....................................................................................................44
ADDITIONAL INFORMATION.............................................................................................45
Experts...................................................................................................45
Shareholder Indemnification...............................................................................45
Other Information.........................................................................................45
FINANCIAL STATEMENTS...............................................................................................46
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder Dividend & Growth Fund (the "Fund"), is a series of 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
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Fund may engage (such
as hedging, etc.) or a financial instrument which the Fund may purchase (such as
options, forward foreign currency contracts, etc.) are meant to describe the
spectrum of investments that Scudder Kemper Investments, Inc. (the "Adviser"),
in its discretion, might, but is not required to, use in managing the Fund's
portfolio assets. The Adviser may, in its discretion, at any time, employ such
practice, technique or instrument for one or more funds but not for all funds
advised by it. Furthermore, it is possible that certain types of financial
instruments or investment techniques described herein may not be available,
permissible, economically feasible or effective for their intended purposes in
all markets. Certain practices, techniques, or instruments may not be principal
activities of the Fund, but, to the extent employed, could, from time to time,
have a material impact on the Fund's performance.
The Fund's investment objective is to seek high current income and
long-term growth of capital through investment in income paying equity
securities. The Fund's Adviser expects that the average gross income yield of
the Fund will be higher than the yield of the Standard & Poor's Composite Stock
Price Index (the "S&P 500 Index"), a commonly accepted benchmark for U.S. stock
market performance.
The Fund invests primarily in dividend paying common stocks, preferred
stocks, securities convertible into common stock, and real estate investment
trusts ("REITs").
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 at least 80% of
net assets in income-paying equity securities, which the Adviser, believes offer
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.
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,
<PAGE>
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, 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 up to, but not including, 25% 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, and
vice versa. 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."
2
<PAGE>
The Fund may also invest in Standard & Poor's Depositary Receipts
("SPDRs"). SPDRs typically trade like a share of common stock and provide
investment results that generally correspond to the price and yield performance
of the component common stocks of the S&P 500 Index. There can be no assurance
that this can be accomplished, as it may not be possible for the trust to
replicate and maintain exactly the composition and relative weightings of the
component securities of the S&P 500 Index. SPDRs are subject to the risks of an
investment in a broadly based portfolio of common stocks, including the risk
that the general level of stock prices may decline, thereby adversely affecting
the value of such investment. SPDRs are also subject to risks other than those
associated with an investment in a broadly based portfolio of common stocks, in
that the selection of the stocks included in the trust may affect trading in
SPDRs, as compared with trading in a broadly based portfolio of common stocks.
Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC which permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Adviser. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.
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 fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
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.
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
3
<PAGE>
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.
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 to be speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by the Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
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
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from the underlying principal (the "corpus") of the U.S. Treasury security. A
number of securities firms and banks have stripped the interest coupons and
receipts and then resold them in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" (TIGRS(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 to be 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.
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, Inc. (the "Exchange") and securities of some foreign companies
are less liquid and more volatile than securities of domestic companies.
Similarly, volume and liquidity in most foreign bond markets 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
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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.)
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. A Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. This investment
practice, therefore, could have the effect of increasing the level of
illiquidity of a Fund. It is a Fund's policy that illiquid securities (including
repurchase agreements of more than seven days duration, certain restricted
securities, and other securities which are not readily marketable) may not
constitute, at the time of purchase, more than 15% of the value of the Fund's
net assets. The Trust's Board of Trustees has approved guidelines for use by the
Adviser in determining whether a security is illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which the
Fund is permitted or able to sell such security, the Fund might obtain a price
less favorable than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted securities, a
Fund may be required to bear all or part of the registration expenses. A 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 is materially inaccurate or misleading.
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Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Adviser will monitor such restricted securities subject to the supervision of
the Board of Trustees. Among the factors the Adviser may consider in reaching
liquidity decisions relating to Rule 144A securities are: (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 other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
the transfer).
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 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.
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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.
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, the Fund may invest in a variety of investment companies which seek
to track the composition andperformance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs). Index-based
investments may not replicate exactly the performance of their specified index
because of transaction costs and because of the temporary unavailability of
certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
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specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio, or to
enhance 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. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
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 financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
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 temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the 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 involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in 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.
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
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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 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. 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
Standard & Poor's ("S&P") or P-1 from Moody's Investors Service ("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
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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 10% 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 financial 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, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial 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 only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
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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 in order to hedge 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 a 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 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
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the 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.
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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 and index 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 intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, 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
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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 liquid high
grade 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 high grade 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 liquid
high-grade 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
liquid high grade 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 liquid, high grade 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 liquid high grade 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 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 cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid 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
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purchase a put option if the strike price of that option is the same or higher
than the strike price of a put option sold by the Fund. Moreover, instead of
segregating assets if the Fund held a futures or forward contract, it could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. Other Strategic
Transactions may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction no segregation is
required, but if it terminates prior to such time, assets equal to any remaining
obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. (See "TAXES.")
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, 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 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 and as interpreted or
modified by regulatory authority having jurisdiction, from
time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans except as permitted under the Investment Company
Act of 1940, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
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;
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<PAGE>
(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
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. (the "Distributor") by letter,
fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified 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 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.
Minimum Balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gifts to Minors Act, and Uniform Transfers to Minors Act accounts),
which amount may be changed by the Board of Trustees. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for
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fiduciary/custodial accounts) is established. Scudder group retirement plans and
certain other accounts have similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid
to the Fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder at the
address of record.
Reductions in value that result solely from market activity will not
trigger an annual fee or involuntary redemption. Shareholders with a combined
household account balance in any of the Scudder Funds of $100,000 or more, as
well as group retirement and certain other accounts will not be subject to a fee
or automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Contact the Distributor at 1-800-SCUDDER for additional
information. A confirmation of the purchase will be mailed out promptly
following receipt of a request to buy. Federal regulations require that payment
be received within three business days. If payment is not received within that
time, the order is subject to cancellation. In the event of such cancellation or
cancellation at the purchaser's request, 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 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, Inc. (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 days. If you purchase shares
and there are insufficient funds in your bank account the purchase will be
canceled and you may be subject to any losses or fees incurred in the
transaction. QuickBuy transactions are not available for most retirement plan
accounts. However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
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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 Trust reserves the right to cancel the purchase immediately
and the purchaser may 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 (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after the receipt of a purchase request 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.
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.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for its 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
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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 Fund shares at any time for any reason.
The Board of Trustees and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of Fund shares at any
time for any reasons.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations, certification of exempt status)
will be returned to the investor. The Fund reserves the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number. A shareholder may avoid
involuntary redemption by providing the Fund with a tax identification number
during the 30-day notice period.
The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and
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 to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above
(except for exchanges from funds which impose a redemption fee on shares held
less than a year). An exchange into another Scudder fund is a redemption of
shares, and therefore may result in tax consequences (gain or loss) to the
shareholder and the proceeds of such exchange may be subject to backup
withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be
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liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine. The Fund and the Transfer Agent each reserves the right
to suspend or terminate the privilege of exchanging by telephone or fax at any
time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from 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-SCUDDER.
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 up to $100,000 to their address of record. Shareholders
may also request to have the proceeds mailed or wired to their pre-designated
bank account. In order to request redemptions by telephone, shareholders must
have completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
pre-designated 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) Plan holders) who wish to establish telephone
redemption to a pre-designated 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) appear on the account. An
original signature and an original signature guarantee are
required for each person in whose name the account is
registered.
Telephone redemption is not available with respect to shares held in
retirement accounts.
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 $5.00
charge for all wire redemptions.
Note: Investors designating that a savings bank 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 banks 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 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.
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
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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 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 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 business 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 of
regular accounts. For more information call 1-800-SCUDDER.
Redemption-In-Kind
The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
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. The
Trust, on behalf of the Fund, has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem shares,
with respect to any one shareholder during any 90-day period, solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
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. The
Fund does not impose a redemption or repurchase charge although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "Taxes".)
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
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The determination of net asset value 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) the SEC has
by order permitted 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) or (c) exist.
FEATURES AND SERVICES OFFERED BY THE FUND
No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
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.
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.
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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 received by the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
either by calling 1-800-SCUDDER or by sending written instructions to the
Transfer Agent. Please include your account number with your request. See "How
to contact Scudder" in the Prospectus for the address. Shareholders who have
authorized telephone transactions may change their dividend option by calling
1-800-SCUDDER.
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 to 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-SCUDDER. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Investment
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
An investment in the Fund represents an interest in a large,
diversified portfolio of carefully selected securities. Diversification may
protect the shareholder against the possible risks associated with concentrating
in fewer securities or in a specific market sector.
Reports to Shareholders
The Fund issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants. These
include a list of investments held and statements of assets and liabilities,
operations, changes in net assets and financial highlights for the Fund.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-SCUDDER.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds; a list of Scudder's
funds follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
Scudder Government Money Market Series+
- --------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
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TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series+
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*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 500 Index Fund
Scudder Real Estate Investment Fund
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Value Fund
Scudder Micro Cap Fund
- --------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
** Only the Scudder Shares are part of the Scudder Family of Funds.
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<PAGE>
Growth
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International 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
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
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.
Certain Scudder funds or classes thereof may not be available for
purchase or exchange. For more information, please call 1-800-SCUDDER.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-SCUDDER. The discussion
of the plans below describe only certain aspects of the federal income tax
treatment of the plans. The state tax treatment may be different and may vary
from state to state. It is advisable for an
- --------
*** Only the International Shares are part of the Scudder Family of Funds.
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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 IRA's 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, such as a pension or profit sharing plan, a
governmental plan, a simplified employee pension plan, a simple retirement
account, or a tax-deferred annuity plan or account (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. If an individual is an active participant,
the deductibility of his or her IRA contributions in 2000 is phased out if the
individual has gross income between $32,000 and $42,000 and is single, if the
individual has gross income between $52,000 and $62,000 and is married filing
jointly, or if the individual has gross income between $0 and $10,000 and is
married filing separately; the phase-out ranges for individuals who are single
or married filing jointly are subject to annual adjustment through 2005 and
2007, respectively. If an individual is married filing jointly and the
individual's spouse is an active participant but the individual is not, the
deductibility of his or her IRA contributions is phased out if their combined
gross income is between $150,000 and $160,000. Whenever the adjusted gross
income limitation prohibits an individual from contributing what would otherwise
be the maximum tax-deductible contribution he or she could make, the individual
will be eligible to contribute the difference to an IRA in the form of
nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
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<PAGE>
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund(s) may be purchased as the underlying investment for
a Roth Individual Retirement Account ("Roth IRA") which meets the requirements
of Section 408A of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, certain medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the 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-SCUDDER.
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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 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
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.
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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.
PERFORMANCE INFORMATION
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.
Average Annual Total Return for the periods ended December 31, 1999
One Year Life of Fund*
16.20% 7.79%
* For the period July 17, 1998 (commencement of operations) to
December 31, 1999.
Note: If the Adviser had not maintained expenses, the total returns
would have been lower.
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, 1999
One Year Life of Fund*
16.20% 11.55%
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* For the period July 17, 1998 (commencement of operations) to December 31,
1999.
Note: If the Adviser had not maintained expenses, the total returns
would have been lower.
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. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.
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.
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. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.
There may be quarterly periods following the periods reflected in the
performance bar chart in the fund's prospectus which may be higher or lower than
those included in the bar chart.
Comparison of Fund Performance
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.
From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, 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.
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 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
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investment objective, the types of equity securities held and the financial
position of the issuers of the securities. The risks/returns associated with an
investment in international bond or equity funds also will depend upon currency
exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund.
ORGANIZATION OF THE FUND
The Fund is a diversified 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 March 6, 1991,
from Scudder Growth and Income Fund, and on June 10, 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 eight 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, Scudder Dividend & Growth Fund, Scudder Tax
Managed Growth Fund and Scudder Tax Managed Small Company 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.
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.
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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
Scudder Kemper Investments, Inc., an investment counsel firm, acts as
investment adviser to the Fund. This organization, the predecessor of which is
Scudder, Stevens & Clark, Inc., is one of the most experienced investment
counsel firms in the U. S. It was established as a partnership in 1919 and
pioneered the practice of providing investment counsel to individual clients on
a fee basis. In 1928 it introduced the first no-load mutual fund to the public.
In 1953 the Adviser introduced Scudder International Fund, Inc., the first
mutual fund available in the U.S. investing internationally in securities of
issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On December 31, 1997, Zurich
Insurance Company ("Zurich") acquired a majority interest in the Adviser, and
Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of the
Adviser. The Adviser's name changed to Scudder Kemper Investments, Inc. On
September 7, 1998, the businesses of Zurich (including Zurich's 70% interest in
Scudder Kemper) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services Group. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services Group, with the balance initially owned by former
B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over 280 open and
closed-end investment companies.
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. The Adviser'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 that fund.
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In certain cases, the investments for the Fund are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser,
that have similar names, objectives and investment styles. You should be aware
that the Fund is likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Fund can be expected to vary from those of these other mutual funds.
The present investment management (the "Agreement") was approved by the
Trustees on August 10, 1998, became effective September 7, 1998, and was
approved at a shareholder meeting held on December 15, 1998. The Agreement will
continue in effect until September 30, 2000 and from year to year thereafter
only if its continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreement or interested persons of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval, and either by a vote of the Trust's Trustees or of a
majority of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically terminate in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines which securities
shall be purchased for the portfolio of the Fund, which portfolio securities
shall be held or sold by the Fund, and what portion of the Fund's assets will be
held uninvested, subject always to the provisions of the Trust's Declaration of
Trust and By-Laws, the 1940 Act and the Internal Revenue Code of 1986 and to the
Fund's investment objectives, policies and restrictions, and subject, further,
to such policies and instructions as the Trustees may from time to time
establish. The Adviser also advises and assists the officers of the Fund 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.
The Adviser also 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, 2000, 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 any of its management fee, which
amounted to $79,570. For the fiscal year ended December 31, 1999, the Adviser
did not impose any of its management fee, which amounted to $181,066. In
addition, during the year ended December 31, 1999, the Adviser reimbursed the
Fund $120,981 for losses incurred in connection with equity securities trading.
Under the Agreement, the Fund is responsible for all of its other
expenses including organizational costs; fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; payment for portfolio pricing services to a pricing agent, if any;
legal, auditing and accounting expenses; the calculation
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of Net Asset Value, taxes and governmental fees; the fees and expenses of the
transfer agent; the cost of preparing stock certificates and any other expenses
including clerical expenses of issuance, 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 Trust who are not
affiliated with the Adviser; the cost of printing and distributing reports and
notices to shareholders; and the fees and disbursements of custodians. The Trust
may arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees with respect thereto.
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, Trustees who are not "interested persons" of
the Trust have been represented by independent counsel Ropes & Gray 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.
Any person, even though also employed by Adviser, who may be or become
an employee of and paid by the Fund shall be deemed, when acting within the
scope of his or her employment by the Fund, to be acting in such employment
solely for the Fund and not as an agent of Adviser.
Officers and employees of the Adviser from time to time may engage in
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.
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 or holders of shares of the Fund.
The Agreement will continue in effect from year to year provided such
continuance is approved annually (i) by the holders of a majority of the
respective Fund's outstanding voting securities or by the Trust's Board of
Trustees and (ii)by a majority of the Trustees of the Trust who are not parties
to the Agreement or "interested persons" (as defined in the 1940 Act) of any
such party. The Agreement may be terminated on 60 days' written notice by either
party and will terminate automatically if assigned.
The term Scudder Investments is the designation given to the services
provided by Scudder Kemper Investments, Inc. and its affiliates to the Scudder
Family of Funds.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
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Personal Investments by Employees of the Adviser
The Fund, the Adviser and principal underwriter have each adopted codes
of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Fund and employees of the Adviser and principal underwriter are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Fund, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The Adviser's Code
of Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Fund. Among other things, the Adviser's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the
Adviser's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
<S> <C> <C> <C>
Linda C. Coughlin (48)+*= President and Trustee Managing Director of Scudder Senior Vice President
Kemper Investments, Inc.
Henry P. Becton, Jr. (56) Trustee President and General Manager, --
125 Western Avenue WGBH Educational Foundation
Allston, MA 02134
Dawn-Marie Driscoll (53) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates (consulting firm)
Peter B. Freeman (67) Trustee Director, The A.H. Belo --
100 Alumni Avenue Providence, Company; Trustee, Eastern
RI 02906 Utilities Associates (public
utility holding company);
Director, AMICA Life Insurance
Co.; Director, AMICA Insurance
Co.
George M. Lovejoy, Jr. (70)= 50 Trustee President and Director, Fifty --
Congress Street Associates (real estate
Suite 543 investment trust)
Boston, MA 02109
Wesley W. Marple, Jr. (68)= 413 Trustee Professor of Business --
Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
35
<PAGE>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
Kathryn L. Quirk (47)++*= Trustee, Vice President Managing Director of Scudder Senior Vice President,
and Assistant Secretary Kemper Investments, Inc. Chief Legal Officer and
Assistant Clerk
Jean C. Tempel (57) Trustee Venture Partner. Internet --
Ten Post Office Square Capitol Group
Suite 1325
Boston, MA 02109
Bruce F. Beaty (41)++ Vice President Managing Director, Scudder --
Kemper Investments, Inc.
Jennifer P. Carter (37)& Vice President Vice President, Scudder Kemper
Investments, Inc.
James M. Eysenbach (38)& Vice President Managing Director, Scudder --
Kemper Investments, Inc.
William F. Gadsden (45)++ Vice President Managing Director, Scudder --
Kemper Investments, Inc.
Valerie F. Malter (41)++ Vice President Managing Director, Scudder --
Kemper Investments, Inc.
Ann M. McCreary (43)++ Vice President Managing Director, Scudder --
Kemper Investments, Inc.
Kathleen Millard (39)++ Vice President Managing Director, Scudder --
Kemper Investment s, Inc.
Robert Tymoczko (30)& Vice President SeniorVice President, Scudder --
Kemper Investments, Inc. since
August 1997; previously
employed by The Law & Economics
Consulting Group, Inc. as an
economic consultant
John Millette (37)+ Vice President & Vice President, Scudder Kemper --
Secretary Investments, Inc.
Caroline Pearson(38)+ Assistant Secretary Vice President, Scudder Kemper Clerk
Investments, Inc.; Associate ,
Dechert Price & Rhoads (law
firm) 1989 to 1997
John R. Hebble (41)+ Treasurer Senior Vice President, Scudder Assistant Treasurer
Kemper Investments, Inc.
</TABLE>
* Ms. Coughlin and Ms. Quirk are considered by the Fund and its
counsel to be persons who are "interested persons" of the Adviser
or of the Trust, within the meaning of the 1940 Act.
36
<PAGE>
** Unless otherwise stated, all of the Trustees and officers have
been associated with their respective companies for more than
five years, but not necessarily in the same capacity.
= Messrs. Lovejoy and Marple and Ms. Coughlin 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
& Address: 101 California Street, Suite 4100, San Francisco, CA
To the knowledge of the Trust, as of March 13, 2000, all Trustees and
officers of the Trust as a group owned beneficially (as the term is defined in
Section 13(d) under the Securities Exchange Act of 1934) 22,886 shares in the
aggregate, or 1.22% of Fund shares.
To the knowledge of the Trust, as of March 13, 2000, no person owned of
record or beneficially more than 5% of the Fund's outstanding shares.
The Trustees and officers of the Fund also serve in similar capacities
with respect to other Scudder Kemper funds.
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 the Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
quality and efficiency of the various other services provided, costs incurred by
the Adviser and its affiliates, and comparative information regarding fees and
expenses of competitive funds. They are assisted in this process by the 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.
37
<PAGE>
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 of the Fund also serve as Independent Trustees of
certain other Scudder Funds, which enable them to address investment and
operational issues that are common to many of the Funds in a cost efficient and
effective manner. During 1999, the Independent Trustees participated in 25
meetings of the Fund's board or board committees, which were held on 21
different days during the year.
The Independent Trustees also serve in the same capacity for other funds managed
by the Adviser. These funds differ broadly in type and complexity and in some
cases have substantially different Trustee fee schedules. The following table
shows the aggregate compensation received by each Independent Trustee during
1999 from the Trust and from all of Scudder funds as a group.
Paid by Paid by
Name the Trust(1) the Funds
---- ------------ ---------
Henry P. Becton $31,155 $140,000 (28 funds)
Trustee
Dawn-Marie Driscoll $33,218 $150,000 (28 funds)
Trustee
Peter B. Freeman $31,025 $179,783 (50 funds)
Trustee
George M. Lovejoy, Jr. $31,025 $153,200 (29 funds)
Trustee
Wesley W. Marple, Jr. $31,025 $140,000 (28 funds)
Trustee
Jean C. Tempel $31,025 $140,000 (28 funds)
Trustee
(1) As of February 1, 2000, Investment Trust consisted of eight funds:
Classic Growth Fund, Scudder Dividend & Growth Fund, Scudder Growth and
Income Fund, Scudder Large Company Growth Fund, Scudder Real Estate
Investment Fund, Scudder S&P 500 Index 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, and Scudder Tax
Managed Growth Fund and Scudder Tax Managed Small Company Growth Fund
each commenced operations on July 31, 1998.
Members of the Board of Trustees who are employees of the Adviser or
its affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by the Fund.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor") Two International Place, Boston, MA 02110-4103, 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, 2000 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
38
<PAGE>
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 9, 1999.
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.
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
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.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions would be taxable to shareholders to the extent of the
Fund's earnings and profits, and would be eligible for the dividends received
deduction, in the case of corporate shareholders.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
39
<PAGE>
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.
At December 31, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $407,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until December 31, 2006, the expiration date.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, 'will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between 'such reported gains and the
shareholder's tax credit. 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 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 shareholders as
long-term capital gains, '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 ($52,000 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $52,000 and
$62,000; $32,000 for a single individual, with a phase-out for adjusted gross
income between $32,000 and $42,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA ($2,500 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
40
<PAGE>
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 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.
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.
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
41
<PAGE>
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.
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.
42
<PAGE>
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 routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the 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 brokerage and research services to the Adviser or the
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of research services. The Adviser has negotiated arrangements,
which are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or the Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser will not place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting transactions
in over-the-counter securities, orders are placed with the principal market
makers for the security being traded unless, after exercising care, it appears
that more favorable results are available elsewhere.
For the period July 17, 1998 (commencement of operations) to December
31, 1998 and the fiscal year ended December 31, 1999, the Fund paid brokerage
commissions of $31,190 and $46,583. For the fiscal period ended December 31,
1998, $24,763 (79% of the total brokerage commissions paid) resulted from orders
placed, consistent with the policy of obtaining the most favorable net results,
with brokers and dealers who provided supplementary research services to the
Fund or the Adviser. For the fiscal year ended December 31, 1999, $38,471
(82.59% of the total brokerage commissions paid) resulted from orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research services to the Fund or
the Adviser. For the fiscal period ended December 31, 1998, the total amount of
brokerage commissions aggregated $29,559,053, of which
43
<PAGE>
$14,989,086 (51% of all brokerage transactions) were transactions which included
research commissions. For the fiscal period ended December 31, 1999, the total
amount of brokerage commissions aggregated $44,625,449, of which $31,177,723
(69.87% 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. The Fund's
portfolio rate for the period July 17, 1998 (commencement of operations) to
December 31, 1998 was 41%. The Fund's portfolio rate for the fiscal year ended
December 31, 1999 was 93%. 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.
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 "Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
and on the preceding Friday or subsequent Monday when one of these holidays
falls on Saturday or Sunday, respectively. 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 on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the Nasdaq Stock Market, Inc. ("Nasdaq") system will
be valued at its most recent sale price on such system as of the Value Time.
Lacking any sales, the security will be valued at the most recent bid quotation
as of the Value Time. The value of an equity security not quoted on the Nasdaq
system, but traded in another over-the-counter market, is its most recent sale
price if there are any sales of such security on such market as of the Value
Time. Lacking any sales, the security is valued at the Calculated Mean quotation
for such security as of the Value Time. Lacking a Calculated Mean quotation the
security is valued at the most recent bid quotation as of the Value Time.
Debt securities, other than money-market instruments, are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money-market
instruments with an original maturity of sixty days or less maturing at par
shall be valued at amortized cost, which the Board believes approximates market
value. If it is not possible to value a particular debt security pursuant to
these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
44
<PAGE>
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 in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 160 Federal Street,
Boston, Massachusetts 02110, independent accountants, and given on the authority
of that firm as experts in accounting and auditing. PricewaterhouseCoopers LLP
audits the financial statements of the Fund and provides other audit, tax and
related services.
Shareholder Indemnification
The Fund 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 Fund. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund property or the
acts, obligations or affairs of the Fund. The Declaration of Trust also provides
for indemnification out of the Fund property of any shareholder held personally
liable for the claims and liabilities to 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
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 the Fund is: 460965 502.
The Fund has a fiscal year end of December 31.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
45
<PAGE>
The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as Custodian.
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. Pursuant to a services
agreement with SSC, Kemper Service Company, an affiliate of Scudder Kemper, may
perform, from time to time, certain transaction and shareholder servicing
functions. For the period July 17, 1998 (commencement of operations) to December
31, 1998, SSC did not impose any of its fee, which amounted to $89,138. For the
fiscal year ended December 31, 1999, SSC did not impose a portion of its fee
aggregating $96,432, and the amount imposed aggregated $6,188.
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 generally
held in an omnibus account.
Scudder Trust Company ("STC"), Two International Place, Boston,
Massachusetts 02110-4103, an affiliate of the Adviser, provides recordkeeping
and other services in connection with certain retirement and employee benefit
plans invested in the Fund. For the period July 17, 1998 (commencement of
operations) to December 31, 1998 and the fiscal year ended December 31, 1999,
STC did not incur any such fees.
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 0.025% 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 July 17, 1998
(commencement of operations) to December 31, 1998 and the fiscal year ended
December 31, 1999, SFAC did not impose any of its fees, which amounted to
$17,881 and $37,826, respectively.
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
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, 1999, are incorporated herein by reference, and are
hereby deemed to be a part of this Statement of Additional Information.
46
Scudder Investments (SM)
[LOGO]
Scudder Growth and Income Fund
Supplement to Prospectus Dated April 12, 2000
Scudder Growth and Income Fund (the "fund") currently offers two classes of
shares to provide investors with different purchase options. The two options
are: Scudder Shares and Class R Shares. The Class R Shares are described in this
supplement to the prospectus.
Class R Shares are available for purchase by participants of certain
employer-sponsored retirement plans. Class R Shares currently are available for
purchase through certain financial intermediaries as well as third-party
providers and other entities. Share certificates are not available for Class R
Shares.
The following information supplements the following indicated sections of the
prospectus:
Past performance
As Class R Shares are a new class of shares of the fund, no past performance
data is available. However, the chart and table on page 4 of the prospectus show
how the total returns for the fund's Scudder Shares have varied from year to
year, which may give some idea of risk. Scudder Shares are not offered in this
supplement to the prospectus but have substantially similar returns because the
shares are invested in the same portfolio of securities and the annual returns
would differ only to the extent that the classes have different expenses.
<PAGE>
Scudder Investments (SM)
[LOGO]
Scudder Growth and Income Fund
Supplement to Prospectus Dated April 12, 2000
Scudder Growth and Income Fund (the "fund") currently offers two classes of
shares to provide investors with different purchase options. The two options
are: Scudder Shares and Class R Shares. The Class R Shares are described in this
supplement to the prospectus.
Class R Shares are available for purchase by participants of certain
employer-sponsored retirement plans. Class R Shares currently are available for
purchase through certain financial intermediaries as well as third-party
providers and other entities. Share certificates are not available for Class R
Shares.
The following information supplements the following indicated sections of the
prospectus:
Past performance
As Class R Shares are a new class of shares of the fund, no past performance
data is available. However, the chart and table on page 4 of the prospectus show
how the total returns for the fund's Scudder Shares have varied from year to
year, which may give some idea of risk. Scudder Shares are not offered in this
supplement to the prospectus but have substantially similar returns because the
shares are invested in the same portfolio of securities and the annual returns
would differ only to the extent that the classes have different expenses.
<PAGE>
How Much Investors Pay
The Class R Shares of this fund have no sales charges or other shareholder fees.
The fund does have annual operating expenses, and as a shareholder you pay them
indirectly. This table shows fees for the fund's Class R Shares.
- --------------------------------------------------------------------------------
Fee Table
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your None
investment)
- --------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- --------------------------------------------------------------------------------
Management Fee 0.45%
- --------------------------------------------------------------------------------
Service (12b-1) Fee* 0.25%
- --------------------------------------------------------------------------------
Other Expenses** 0.64%
---------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.34%
- --------------------------------------------------------------------------------
* Payment for administrative services.
** Includes class specific expenses, such as transfer agent and certain
registration fees, that may vary with class size and other factors. The
inception date for the fund's Class R Shares is August 2, 1999.
Accordingly, the expense ratio above is estimated based upon the amounts
incurred by Scudder Shares.
- --------------------------------------------------------------------------------
Expense Example
- --------------------------------------------------------------------------------
Based on the estimated costs above, this example is designed to help you compare
the expenses of the fund's Class R Shares to those of other funds. The example
assumes the expenses above remain the same and that you invested $10,000, earned
5% annual returns, reinvested all dividends and distributions and sold your
shares at the end of each period. This is only an example; your actual expenses
will be different.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$136 $425 $734 $1,613
- --------------------------------------------------------------------------------
2
<PAGE>
Financial highlights
Scudder Growth and Income Fund -- Class R Shares
- --------------------------------------------------------------------------------
1999(b)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $28.16
-----------
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------
Net investment income (loss) (a) .09
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.76)
-----------
- --------------------------------------------------------------------------------
Total from investment operations (.67)
- --------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------
Net investment income (.22)
- --------------------------------------------------------------------------------
Net realized gains on investment transactions (.62)
-----------
- --------------------------------------------------------------------------------
Total distributions (.84)
- --------------------------------------------------------------------------------
Net asset value, end of period $26.65
-----------
- --------------------------------------------------------------------------------
Total Return (%) (2.31)**
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 6
- --------------------------------------------------------------------------------
Ratio of expenses (%) 1.34*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .98*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 70
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) For the period August 2, 1999 (commencement of Class R Shares) to December
31, 1999.
* Annualized
** Not annualized
3
<PAGE>
Distributions
Dividends and other distributions in the aggregate amount of $10 or less
are automatically reinvested in shares of the fund unless you request that
such policy not be applied to your account.
Purchases
To open an account
Class R Shares are available only through employer-sponsored retirement
plans. Please consult your plan administrator or plan representative for
more information on how to purchase shares.
To buy additional shares
Please consult your plan administrator or plan representative for more
information on how to purchase shares.
Exchanges and redemptions
To exchange shares
Shareholders of Class R Shares may exchange their Class R Shares only for
shares of funds authorized for exchange by the applicable plan. Please
consult your plan administrator or plan representative for more information
concerning exchanges of shares.
To sell shares
Please consult your plan administrator or plan representative for more
information on how to sell your shares.
April 12, 2000
<PAGE>
Scudder Investments (SM)
[LOGO]
- --------------------------------------------------------------------------------
EQUITY/GROWTH & INCOME
- --------------------------------------------------------------------------------
Scudder Growth and
Income Fund
Fund #064
Prospectus
April 12, 2000
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
Scudder Growth and Income Fund
How the fund works
2 Investment Approach
3 Main Risks To Investors
4 The Fund's Track Record
5 How Much Investors Pay
6 Other Policies and Risks
7 Who Manages and Oversees the Fund
9 Financial Highlights
How to invest in the fund
11 How to Buy Shares
12 How to Exchange or Sell Shares
13 Policies You Should Know About
18 Understanding Distributions and Taxes
<PAGE>
How the fund works
On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.
Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol | SCDGX fund number | 064
Scudder Growth and Income Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital, current income and growth of income
by investing at least 65% of total assets in equities, mainly common stocks.
Although the fund can invest in companies of any size and from any country, it
invests primarily in large U.S. companies.
In choosing stocks for the fund, the portfolio managers consider both yield and
other valuation and growth factors, meaning that they focus the fund's
investments on securities of U.S. companies whose dividend and earnings
prospects are believed to be attractive relative to the fund's benchmark index,
the S&P 500. The fund may invest in dividend paying and non-dividend paying
stocks.
The managers use bottom-up analysis, looking for companies with strong prospects
for continued growth of capital and earnings.
The managers may favor securities from different industries and companies at
different times, while still maintaining variety in terms of the industries and
companies represented in the fund's portfolio.
The fund normally will, but is not obligated to, sell a stock if its yield or
growth prospects are expected to be below the benchmark average. It may also
sell a stock when it reaches a target price or when the managers believe other
investments offer better opportunities.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's investments are common stocks, some may be other types
of equities, such as convertible securities and preferred stocks.
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, commodities, currencies, or
securities), the managers don't intend to use them as principal investments, and
might not use them at all.
2
<PAGE>
- --------------------------------------------------------------------------------
[ICON] This fund may make sense for investors who are looking for a relatively
conservative fund to provide growth and some current income.
- --------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform. When stock prices fall, you should expect the value of your
investment to fall as well. Because a stock represents ownership in its issuer,
stock prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies.
To the extent that the fund invests in a given industry or a particular size of
company, factors affecting that industry or size of company could affect
portfolio securities. For example, a rise in unemployment could hurt
manufacturers of consumer goods, and large company stocks at times may not
perform as well as stocks of smaller companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
industries, companies or other matters
o to the extent that the fund invests for income, it may miss opportunities
in faster-growing stocks
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
3
<PAGE>
- --------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how it will
do in the future, it can be valuable for an investor to know. This page
looks at fund performance two different ways: year by year and over time.
- --------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the total returns for the fund's Scudder Shares have
varied from year to year, which may give some idea of risk. The table shows
average annual total returns for the fund's Scudder Shares and a broad based
market index (which, unlike the fund, does not have any fees or expenses). The
performance of both the fund's Scudder Shares and the index vary over time. All
figures on this page assume reinvestment of dividends and distributions.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
- ---------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
- ---------------------------------------------------------------
'90 -2.33
'91 28.16
'92 9.57
'93 15.59
'94 2.60
'95 31.18
'96 22.18
'97 30.31
'98 6.07
'99 6.15
2000 Total Return as of March 31: 1.19%
Best Quarter: 15.26%, Q2 1997 Worst Quarter: -13.39%, Q3 1998
- ---------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- ---------------------------------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------------------------------
Fund -- Scudder Shares 6.15 18.65 14.36
- ---------------------------------------------------------------
Index 21.04 28.54 18.20
- ---------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P
500 Index), an unmanaged capitalization-weighted index that
includes 500 large-cap U.S. stocks.
Total returns for 1992 would have been lower if operating expenses hadn't been
reduced.
4
<PAGE>
How Much Investors Pay
The Scudder Shares of this fund have no sales charge or other shareholder fees.
The fund does have annual operating expenses and as a shareholder you pay them
indirectly. This table shows fees for the fund's Scudder Shares.
- --------------------------------------------------------------------------------
Fee Table
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
- --------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- --------------------------------------------------------------------------------
Management Fee 0.45%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None
- --------------------------------------------------------------------------------
Other Expenses* 0.35%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.80%
- --------------------------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services, and
similar expenses, which may vary with fund size and other factors.
- --------------------------------------------------------------------------------
Expense Example
- --------------------------------------------------------------------------------
Based on the costs above, this example is designed to help you compare the
expenses of the fund's Scudder Shares to those of other funds. The example
assumes the expenses above remain the same and that you invested $10,000, earned
5% annual returns, reinvested all dividends and distributions and sold your
shares at the end of each period. This is only an example; your actual expenses
will be different.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$82 $255 $444 $990
- --------------------------------------------------------------------------------
5
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:
o Although major changes tend to be rare, the fund's Board could change the
fund's goal without seeking shareholder approval.
o As a temporary defensive measure, the fund could shift up to 100% of its
assets into investments such as money market securities. This could prevent
losses, but would mean that the fund was not pursuing its goal.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
If you want more information of the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (the back cover has
information on how to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
6
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for managing the
fund, takes a team approach to asset management.
- --------------------------------------------------------------------------------
Who Manages and Oversees the Fund
The investment adviser
The fund's investment adviser is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds, and currently has more than $290 billion in assets under
management.
The fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders, and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.45% of average daily net assets.
The portfolio managers
The following people handle the day-to-day management of the fund.
Kathleen T. Millard Gregory S. Adams
Lead Portfolio Manager Portfolio Manager
o Began investment career o Began investment career
in 1983 in 1987
o Joined the adviser in 1991o o Joined the adviser in 1999
o Joined the fund team o Joined the fund team in
in 1991 1999
7
<PAGE>
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. The majority of the Board is not affiliated with Scudder Kemper. These
independent members have primary responsibility for assuring that the fund is
managed in the best interests of its shareholders. The following people comprise
the fund's board.
Linda C. Coughlin George M. Lovejoy, Jr.
o Managing Director, Scudder Kemper o President and Director, Fifty
Investments, Inc. Associates (real estate corporation)
o President of the fund
Wesley W. Marple, Jr.
Henry P. Becton, Jr. o Professor of Business Administration,
o President and General Manager, Northeastern University, College
WGBH Educational Foundation of Business Administration
Dawn-Marie Driscoll Kathryn L. Quirk
o Executive Fellow, Center for o Managing Director of Scudder
Business Ethics, Bentley College Investments, Inc.
o President, Driscoll Associates o Vice President and Assistant Secretary
(consulting firm) of the fund
Peter B. Freeman Jean C. Tempel
o Corporate director and trustee o Venture Partner, Internet Capital Corp.
(internet holding company)
8
<PAGE>
Financial Highlights
This table is designed to help you understand the financial performance of the
fund's Scudder Shares in recent years. The figures in the first part of the
table are for a single share. The total return figures represent the percentage
that an investor in the fund would have earned (or lost), assuming all dividends
and distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, is included in the annual report (see "Shareholder reports" on the
back cover).
<TABLE>
<CAPTION>
Scudder Growth and Income Fund -- Scudder Shares
- -------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $26.31 $27.33 $23.23 $20.23 $16.26
- -------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .48(a) .62(a) .62(a) .60(a) .55
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions 1.11 1.06 6.26 3.84 4.46
- -------------------------------------------------------------------------------------
Total from investment operations 1.59 1.68 6.88 4.44 5.01
- -------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.51) (.61) (.58) (.57) (.56)
- -------------------------------------------------------------------------------------
Net realized gains on investment
transactions (.70) (2.09) (2.20) (.87) (.48)
- -------------------------------------------------------------------------------------
Total distributions (1.21) (2.70) (2.78) (1.44) (1.04)
- -------------------------------------------------------------------------------------
Net asset value, end of period $26.69 $26.31 $27.33 $23.23 $20.23
- -------------------------------------------------------------------------------------
Total Return (%) 6.15 6.07 30.31 22.18 31.18
- -------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 6,765 7,582 6,834 4,186 3,061
- -------------------------------------------------------------------------------------
Ratio of expenses (%) .80 .74 .76 .78 .80
- -------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.76 2.20 2.31 2.77 3.10
- -------------------------------------------------------------------------------------
Portfolio turnover rate (%) 70 41 22 27 27
- -------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
9
<PAGE>
How to invest in the fund
The following pages tell you how to invest in the fund and what to expect as a
shareholder. If you're investing directly with Scudder, all of this information
applies to you.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.
10
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make
out your check to "The Scudder Funds."
- --------------------------------------------------------------------------------
First investment Additional investments
- --------------------------------------------------------------------------------
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an
Automatic Investment Plan
- --------------------------------------------------------------------------------
By mail or o Fill out and sign an o Send a check and a Scudder
express application investment slip to us at
(see below) the appropriate address
o Send it to us at the below
appropriate address, along
with an investment check o If you don't have an
investment slip, simply
include a letter with your
name, account number, the
full name of the fund, and
your investment
instructions
- --------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
- --------------------------------------------------------------------------------
By phone -- o Call 1-800-SCUDDER for
instructions
- --------------------------------------------------------------------------------
With an automatic -- o To set up regular
investment plan investments from a bank
checking account, call
1-800-SCUDDER
- --------------------------------------------------------------------------------
Using -- o Call 1-800-SCUDDER
QuickBuy
- --------------------------------------------------------------------------------
On the Internet o Go to the "funds and prices" o Call 1-800-SCUDDER to
section at www.scudder.com ensure you have enabled
electronic services
o Access and print out an
on-line prospectus and a new o Go to www.scudder.com
account application and register
o Complete and return the o Follow the instructions
application with your check for buying shares with
money from your bank
account
- --------------------------------------------------------------------------------
[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
- --------------------------------------------------------------------------------
11
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell shares in an account opened directly
with Scudder.
- --------------------------------------------------------------------------------
Exchanging into another fund Selling shares
- --------------------------------------------------------------------------------
$2,500 or more to open a new Some transactions, including
account ($1,000 for IRAs) most for over $100,000, can
only be ordered in writing;
$100 or more for exchanges if you're in doubt, see page
between existing accounts 15
- --------------------------------------------------------------------------------
By phone o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
or wire instructions instructions
- --------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800- 343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
- --------------------------------------------------------------------------------
By mail, Write a letter that includes: Write a letter that includes:
express o the fund, class, and account o the fund, class, and
or fax number you're exchanging account number from which
(see previous out of you want to sell shares
page)
o the dollar amount or number o the dollar amount or number
of shares you want to exchange of shares you want to sell
o the name and class of the o your name(s), signature(s),
fund you want to exchange and address, as they appear
into on your account
o your name(s), signature(s), o a daytime telephone number
and address, as they appear
on your account
o a daytime telephone number
- --------------------------------------------------------------------------------
With an -- o To set up regular cash
automatic payments from a Scudder
withdrawal plan account, call 1-800-SCUDDER
- --------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
- --------------------------------------------------------------------------------
On the Internet o Go to www.scudder.com and --
register
o Follow the instructions for
making on-line exchanges
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder representative between 8 a.m. and 8
p.m. Eastern time on any fund business day by calling 1-800-SCUDDER.
- --------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
Keep in mind that this fund does have another class, which is described in a
supplement to this prospectus and which has different fees, requirements and
services.
Policies about transactions
The fund is open for business each day the New York Stock Exchange is open. The
fund calculates its share price every business day, as of the close of regular
trading on the Exchange (typically 4 p.m. Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
13
<PAGE>
- --------------------------------------------------------------------------------
[ICON] The Scudder Web site can be a valuable resource for shareholders with
Internet access. Go to www.scudder.com to get up-to-date information,
review balances or even place orders for exchanges.
- --------------------------------------------------------------------------------
SAIL(TM), the Scudder Automated Information Line, is available 24 hours a day by
calling 1-800-343-2890. You can use SAIL to get information on Scudder funds
generally and on accounts held directly at Scudder. You can also use it to make
exchanges and sell shares.
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The funds
can only accept wires of $100 or more.
14
<PAGE>
Exchanges among Scudder funds are an option for shareholders who bought their
fund shares directly from Scudder and many other investors as well. Exchanges
are a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject purchase orders, for these or
other reasons.
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers and
most banks, savings institutions, and credit unions. Note that you can't get a
signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.
15
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you can
always send us your order in writing.
- --------------------------------------------------------------------------------
How the fund calculates share price
The fund's share price is its net asset value per share, or NAV. To calculate
NAV, each share class of the fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
----------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by the fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.
16
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o charge you $10 a year if your account balance falls below $2,500, and close
your account and send you the proceeds if your balance falls below $1,000;
in either case, we will give you 60 days' notice so you can either increase
your balance or close your account (these policies don't apply to
retirement accounts, to investors with $100,000 or more in Scudder fund
shares or in any case where a fall in share price created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash; the fund generally won't make a redemption
in kind unless your requests over a 90-day period total more than $250,000
or 1% of the value of the fund's net assets
o change, add or withdraw various services, fees, and account policies (for
example, we may change or terminate the exchange privilege at any time)
17
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is unique, it's always a good
idea to ask your tax professional about the tax consequences of your
investments, including any state and local tax consequences.
- --------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund has a regular schedule for paying out any earnings to shareholders:
o Income: declared and paid quarterly in March, June, September and December
o Long-term and short-term capital gains: December, or otherwise as needed
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
18
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- --------------------------------------------------------------------------------
o short-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o taxable income dividends you receive from the fund
- --------------------------------------------------------------------------------
o short-term capital gains distributions you receive from the fund
Generally taxed at capital gains rates
- --------------------------------------------------------------------------------
o long-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o long-term capital gains distributions you receive from the fund
- --------------------------------------------------------------------------------
The fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.
19
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effect of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get these
reports automatically. To reduce costs, we mail one copy per household. For more
copies, call 1-800-SCUDDER.
Statement of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Scudder or the SEC (see below). Materials you
get from Scudder are free; those from the SEC involve a copying fee. If you
like, you can look over these materials in person at the SEC's Public Reference
Room in Washington, DC or request them electronically at [email protected].
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-0102
1-800-SCUDDER 1-202-942-8090
www.scudder.com www.sec.gov
SEC File Number 811-43
<PAGE>
SCUDDER GROWTH AND INCOME FUND
Scudder Shares and Class R Shares
A series of Investment Trust
A No-Load (No Sales Charges) Diversified
Mutual Fund Seeking Long-Term Growth of
Capital, Current Income and
Growth of Income
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 12, 2000
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Scudder Growth and Income Fund dated April
12, 2000, as amended from time to time, a copy of which may be obtained without
charge by writing to Scudder Investor Services, Inc., Two International Place,
Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder Growth and Income Fund dated
December 31, 1999, 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....................................................................................1
Investment Restrictions...................................................................................13
PURCHASES..........................................................................................................15
Additional Information About Opening An Account...........................................................15
Minimum Balances..........................................................................................15
Additional Information About Making Subsequent Investments................................................16
Additional Information About Making Subsequent Investments by QuickBuy....................................16
Checks....................................................................................................16
Wire Transfer of Federal Funds............................................................................17
Share Price...............................................................................................17
Share Certificates........................................................................................17
Other Information.........................................................................................17
EXCHANGES AND REDEMPTIONS..........................................................................................18
Exchanges.................................................................................................18
Redemption by Telephone...................................................................................19
Redemption by QuickSell...................................................................................19
Redemption by Mail or Fax.................................................................................20
Redemption-In-Kind........................................................................................20
Other Information.........................................................................................20
FEATURES AND SERVICES OFFERED BY THE FUND..........................................................................21
The No-Load Concept.......................................................................................21
Internet access...........................................................................................22
Dividend and Capital Gain Distribution Options............................................................22
Diversification...........................................................................................23
Reports to Shareholders...................................................................................23
Transaction Summaries.....................................................................................23
THE SCUDDER FAMILY OF FUNDS........................................................................................23
SPECIAL PLAN ACCOUNTS..............................................................................................26
Scudder Retirement Plans : Profit-Sharing and Money Purchase Pension Plans for Corporations and Self-
Employed Individuals.................................................................................26
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..........................................................27
Scudder 403(b) Plan.......................................................................................28
Automatic Withdrawal Plan.................................................................................28
Group or Salary Deduction Plan............................................................................28
Automatic Investment Plan.................................................................................29
Uniform Transfers/Gifts to Minors Act.....................................................................29
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS...........................................................................29
PERFORMANCE INFORMATION............................................................................................29
Average Annual Total Return...............................................................................30
Cumulative Total Return...................................................................................30
Comparison of Fund Performance............................................................................31
FUND ORGANIZATION.................................................................................................32
<PAGE>
TABLE OF CONTENTS (continued)
Page
INVESTMENT ADVISER................................................................................................33
AMA InvestmentLink(SM) Program............................................................................36
Personal Investments by Employees of the Adviser..........................................................36
TRUSTEES AND OFFICERS..............................................................................................36
REMUNERATION.......................................................................................................39
Responsibilities of the Board -- Board and Committee Meetings.............................................39
Compensation of Officers and Trustees.....................................................................39
DISTRIBUTOR........................................................................................................40
TAXES..............................................................................................................41
PORTFOLIO TRANSACTIONS.............................................................................................45
Brokerage Commissions.....................................................................................45
Portfolio Turnover........................................................................................46
NET ASSET VALUE....................................................................................................46
ADDITIONAL INFORMATION.............................................................................................47
Experts...................................................................................................47
Shareholder Indemnification...............................................................................47
Other Information.........................................................................................47
FINANCIAL STATEMENTS...............................................................................................48
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
General Investment Objective and Policies
Scudder Growth and Income Fund (the "Fund") is a diversified series of
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.
The Fund seeks long-term growth of capital, current income and growth
of income.
Scudder Growth and Income Fund offers two classes of shares: Scudder
Shares and Class R Shares.
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which a Fund may engage (such as
hedging, etc.) or a financial instrument which a Fund may purchase (such as
options, forward foreign currency contracts, etc.) are meant to describe the
spectrum of investments that Scudder Kemper Investments (the "Adviser"), in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. The Adviser may, in its discretion, at any time employ such practice,
technique or instrument for one or more Funds, but not for all Funds advised by
it. Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund, but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
The Fund invests primarily in equities, mainly common stocks. The Fund
allocates its investments among different industries and companies, and adjusts
its portfolio securities for investment considerations and not for trading
purposes.
The Fund attempts to achieve its investment objective by investing in
dividend-paying common stocks, preferred stocks and securities convertible into
common stocks. The Fund may also purchase such securities which do not pay
current dividends but which, the fund's management believes, offer prospects for
growth of capital and future income. Convertible securities (which may be
current coupon or zero coupon securities) are bonds, notes, debentures,
preferred stocks and other securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The Fund may also invest in nonconvertible preferred stocks consistent with the
Fund's objective. From time to time, for temporary defensive purposes, when the
Fund's investment adviser feels such a position is advisable in light of
economic or market conditions, the Fund may invest, without limit, in cash and
cash equivalents. It is impossible to predict how long such alternative
strategies will be utilized. The Fund may invest in foreign securities, real
estate investment trusts, Standard and Poor's Depository Receipts, illiquid
securities, repurchase agreements and reverse repurchase agreements. It may also
loan securities and may engage in strategic transactions. More information about
investment techniques is provided under "Additional information about policies
and investments."
The Fund's share price fluctuates with changes in interest rates and
market conditions. These fluctuations may cause the value of shares to be higher
or lower than when purchased.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
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 fund 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
<PAGE>
"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.
Illiquid Securities. The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. This investment
practice, therefore, could have the effect of increasing the level of
illiquidity of a Fund. It is the
2
<PAGE>
Fund's policy that illiquid securities (including repurchase agreements of more
than seven days duration, certain restricted securities, and other securities
which are not readily marketable) may not constitute, at the time of purchase,
more than 15% of the value of the Fund's net assets. The Trust's Board of
Trustees has approved guidelines for use by the Adviser in determining whether a
security is illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which the
Fund is permitted or able to sell such security, the Fund might obtain a price
less favorable than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted securities, a
Fund may be required to bear all or part of the registration expenses. A 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 is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Adviser will monitor such restricted securities subject to the supervision of
the Board of Trustees. Among the factors the Adviser may consider in reaching
liquidity decisions relating to Rule 144A securities are: (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 other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
the transfer).
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies. For example, the Fund may invest in a variety of
investment companies which seek to track the composition and performance of
specific indexes or a specific portion of an index. These index-based
investments hold substantially all of their assets in securities representing
their specific index. Accordingly, the main risk of investing in index-based
investments is the same as investing in a portfolio of equity securities
comprising the index. The market prices of index-based investments will
fluctuate in accordance with both changes in the market value of their
underlying portfolio securities and due to supply and demand for the instruments
on the exchanges on which they are traded (which may result in their trading at
a discount or premium to their NAVs). Index-based investments may not replicate
exactly the performance of their specified index because of transaction costs
and because of the temporary unavailability of certain component securities of
the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
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DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
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").
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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.
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, Inc. (the "Exchange") and securities of some foreign companies
are less liquid and more volatile than securities of domestic companies.
Similarly, volume and liquidity in most foreign bond markets 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.)
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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.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be of good standing.
The value of the securities loaned will not exceed 30% of the value of the
Fund's total assets at the time any loan is made.
Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC which permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Adviser. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.
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
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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 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.
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.
Real Estate Investment Trusts ("REITs"). The Fund may invest in REITs. REITs are
sometimes informally characterized as equity REITs, mortgage REITs and hybrid
REITs. Investment in REITs may subject the Fund to risks associated with the
direct ownership of real estate, such as decreases in real estate values,
overbuilding, increased competition and other risks related to local or general
economic conditions, increases in operating costs and property taxes, changes in
zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent and fluctuations in rental income.
Equity REITs generally experience these risks directly through fee or leasehold
interests, whereas mortgage REITs generally experience these risks indirectly
through mortgage interests, unless the mortgage REIT forecloses on the
underlying real estate. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Changes in interest rates may also
affect the value of the Fund's investment in REITs. For instance, during periods
of declining interest rates, certain mortgage REITs may hold mortgages that the
mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may
tend to increase the volatility of the market price of their securities.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free pass-through of income under the Internal Revenue Code
of 1986, as amended (the "Code"), and to maintain exemption from the
registration requirements of the 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 fixed-income securities in the Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio
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resulting from securities markets or currency exchange rate fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of fixed-income securities in the Fund's
portfolio, or to establish a position in the derivatives markets as a substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of the Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination, and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
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 fundamental investment purposes and
characteristics of the Fund, and the Fund will segregate assets (or as provided
by applicable regulations, enter into certain offsetting positions) to cover its
obligations under options, futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the 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.
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.
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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 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. 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 net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. All calls sold by the Fund
must be "covered" (i.e., the Fund must own the securities or futures contract
subject to the call) or must meet the asset
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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, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
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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 a NRSRO or (except
for OTC currency options) 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 except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of the Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
The Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the 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.
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Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the 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
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.
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Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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 involved which, under the 1940 Act and the rules
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thereunder and as used in this Statement of Additional Information, means the
lesser of (1) 67% or more of the voting securities present at a 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.
As a matter of fundamental policy, the Fund may not:
(a) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having
jurisdiction from time to time;
(b) issue senior securities, except as permitted under the 1940
Act and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
(c) purchase physical commodities or contracts relating to
physical commodities;
(d) 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;
(e) 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;
(f) make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
or.
(g) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, and as interpreted or modified
by regulatory authority having jurisdiction, from time to
time.
The Fund may not, as a nonfundamental policy:
(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;
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<PAGE>
(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 30% of its
total assets.
PURCHASES
The following information applies only to the Scudder Shares of the
Fund. For more information on how to purchase Class R Shares of the Fund,
contact your plan administrator/plan representative.
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. (the "Distributor") by letter,
fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified 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 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.
Minimum Balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gifts to Minors Act, and Uniform Transfers to Minors Act accounts),
which amount may be changed by the Board of Trustees. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for fiduciary/custodial
accounts) is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid
to the Fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder at the
address of record.
Reductions in value that result solely from market activity will not
trigger an annual fee or involuntary redemption. Shareholders with a combined
household account balance in any of the Scudder Funds of $100,000 or more, as
well as group retirement and certain other accounts will not be subject to a fee
or automatic redemption.
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Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Contact the Distributor at 1-800-SCUDDER for additional
information. A confirmation of the purchase will be mailed out promptly
following receipt of a request to buy. Federal regulations require that payment
be received within three business days. If payment is not received within that
time, the order is subject to cancellation. In the event of such cancellation or
cancellation at the purchaser's request, 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 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, Inc. (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 days. If you purchase shares
and there are insufficient funds in your bank account the purchase will be
canceled and you may be subject to any losses or fees incurred in the
transaction. QuickBuy transactions are not available for most retirement plan
accounts. However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
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 may 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.
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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 (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Fund.
The following information applies to both Scudder Shares and Class R Shares of
the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after the receipt of a purchase request 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.
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.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for its 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 Fund shares at any time for any reason.
The Board of Trustees and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of Fund shares at any
time for any reasons.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations, certification of exempt status)
will be returned to the investor. The Fund reserves the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number. A shareholder may avoid
involuntary redemption by providing the Fund with a tax identification number
during the 30-day notice period.
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The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
The following information applies only to Scudder Shares of the Fund.
For more information on how to exchange or redeem Class R Shares of the Fund,
contact your plan administrator/plan sponsor.
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and
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 to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above
(except for exchanges from funds which impose a redemption fee on shares held
less than a year. An exchange into another Scudder fund is a redemption of
shares, and therefore may result in tax consequences (gain or loss) to the
shareholder and the proceeds of such exchange may be subject to backup
withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Fund
and the Transfer Agent each reserves the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from 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.
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<PAGE>
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 to their address of record.
Shareholders may also request by telephone to have the proceeds mailed or wired
to their pre-designated bank account. In order to request wire 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) plan holders) 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.
Telephone redemption is not available with respect to shares
represented by share certificates or shares held in retirement accounts.
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 $5.00
charge for all wire redemptions.
Note: Investors designating that a savings bank 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 banks 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 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.
Redemption requests by telephone (technically a repurchase by agreement
between the Trust 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 4:00 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.
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<PAGE>
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 a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow 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
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed as explained in the
Fund's prospectus.
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 share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
redemptions to ensure that all necessary documents accompany the request. When
shares are held in the name of a corporation, trust, fiduciary agent, attorney
or partnership, the Transfer Agent requires, in addition to the stock power,
certified evidence of authority to sign. These procedures are for the protection
of shareholders and should be followed to ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within five business days after receipt by the
Transfer Agent of a request for redemption that complies with the above
requirements. Delays 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.
The following information applies to both Scudder Shares and Class R Shares of
the Fund.
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 Trust 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. The
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Other Information
For Scudder Shares only: 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 Trust through the Distributor at Two International
Place, Boston, Massachusetts 02110-4103 by letter, fax or telephone. A two-part
confirmation will be mailed out promptly after receipt of the redemption
request. A written request in good order as described above and any certificates
with a proper signature guarantee(s), as described in the Fund's prospectus
under "Transaction information -- Redeeming shares -- Signature guarantee",
should be sent with a copy of the invoice to Scudder Service Corporation,
Confirmed Processing Department, Two International Place, Boston, Massachusetts
02110-4103. Failure to deliver shares or required documents (see above) by the
settlement date may result in cancellation of the trade and the shareholder will
be responsible for any loss incurred by the Fund or the
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<PAGE>
principal underwriter by reason of such cancellation. 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. 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 will receive in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Trust does not impose a redemption or repurchase charge although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value 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 a 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) the SEC 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) will govern as to whether the conditions prescribed in
(b) or (c) exist.
FEATURES AND SERVICES OFFERED BY THE FUND
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
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.
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<PAGE>
Investors are encouraged to review the fee tables of the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.
The following information applies only to the Scudder Shares of the Fund.
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.
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.
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 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 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 to 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.
Investors choosing to participate in Scudder's Automatic Investment
Withdrawal Plan must reinvest any dividends or capital gains. For most
retirement plan accounts, the reinvestment of dividends and capital gains is
also required.
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<PAGE>
Diversification
Your investment represents an interest in a large, diversified
portfolio of carefully selected securities. Diversification may protect you
against the possible risks associated with concentrating in fewer securities or
in a specific market sector.
Reports to Shareholders
The Fund issues to its shareholders unaudited semiannual financial
statements and annual financial statements audited by independent accountants.
These include a list of investments held and statements of assets and
liabilities, operations, changes in net assets and financial highlights for the
Fund.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800- SCUDDER.
The following information applies only to the Scudder Shares of the Fund
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds; a list of Scudder's
funds follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
Scudder Government Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series+
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
- --------------------------------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 500 Index Fund
Scudder Real Estate Investment Fund
- ------------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International 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.
- -----------------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
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<PAGE>
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
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.
Certain Scudder funds or classes thereof may not be available for
purchase or exchange. For more information, please call 1-800-225-5163.
The following information applies only to the Scudder Shares of the Fund
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the 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.
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<PAGE>
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, such as a pension or profit sharing plan, a
governmental plan, a simplified employee pension plan, a simple retirement
account, or a tax-deferred annuity program (a "qualified plan"), and a married
individual who is not an active participant in a qualified plan and whose spouse
is also not an active participant in a qualified plan, are eligible to make tax
deductible contributions of up to $2,000 to an IRA prior to the year such
individual attains age 70 1/2. In addition, certain individuals who are active
participants in qualified plans (or who have spouses who are active
participants) are also eligible to make tax-deductible contributions to an IRA;
the annual amount, if any, of the contribution which such an individual will be
eligible to deduct will be determined by the amount of his, her, or their
adjusted gross income for the year. If an individual is an active participant,
the deductibility of his or her IRA contributions in 2000 is phased out if the
individual has gross income between $32,000 and $42,000 and is single, if the
individual has gross income between $52,000 and $62,000 and is married filing
jointly, or if the individual has gross income between $0 and $10,000 and is
married filing separately; the phase-out ranges for individuals who are single
or married filing jointly are subject to annual adjustment through 2005 and
2007, respectively. If an individual is married filing jointly and the
individual's spouse is an active participant but the individual is not, the
deductibility of his or her IRA contributions is phased out if their combined
gross income is between $150,000 and $160,000. Whenever the adjusted gross
income limitation prohibits an individual from contributing what would otherwise
be the maximum tax-deductible contribution he or she could make, the individual
will be eligible to contribute the difference to an IRA in the form of
nondeductible contributions. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the 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
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can be taken tax-free after reaching age 59 1/2, for a first-time home purchase
($10,000 maximum, one-time use) or upon death or disability. All other
distributions of earnings from a Roth IRA are taxable and subject to a 10% tax
penalty unless an exception applies. Exceptions to the 10% penalty include:
disability, certain medical expenses, the purchase of health insurance for an
unemployed individual and qualified higher education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the 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 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 10 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.
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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
For Class R Shares only: Any dividends from net investment income or
distributions from realized capital gains are automatically reinvested in
additional Class R Shares of the Fund. Reinvestment is usually made at the
closing net asset value determined on the business day following the record
date.
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, for Scudder Shares
shareholders only, a shareholder has elected to receive cash, in which case a
check will be sent.
PERFORMANCE INFORMATION
From time to time, quotations of the Fund's Scudder Shares and Class R
Shares performance may be included in advertisements, sales literature or
reports to shareholders or prospective investors. These performance figures are
calculated in the following manners:
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Average Annual Total Return
Average annual total return is the average annual compound rate of
return for periods of one year, five years and ten years (or such shorter
periods as may be applicable dating from the commencement of the Fund's
operations under its current investment objective), all ended on the last day of
a recent calendar quarter. Average annual total return quotations reflect
changes in the price of Scudder Shares of the Fund and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
the Fund's Scudder 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 investment of $1,000.
N = number of years.
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
Average Annual Total Return for periods ended December 31, 1999*
One Year Five Years Ten Years
6.15% 18.65% 14.36%
* On May 3, 1999, the Trust adopted a plan to permit the Trust to
establish a multiple class distribution system for the Fund. Prior to
that date, the Fund comprised a single class of shares. Shares
outstanding on May 3, 1999 were redesignated as Scudder Shares of the
Fund. Performance information provided is for the Fund's Scudder Shares
class, and as Class R Shares are a new class for the Fund, they have no
past performance data available.
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of the Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a 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 a return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
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C = (ERV/P)-1
Where:
C = Cumulative Total Return.
P = a hypothetical initial investment of $1,000.
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 investment
made at the beginning of the applicable period.
Cumulative Total Return for periods ended December 31, 1999*
One Year Five Years Ten Years
6.15% 135.16% 282.49%
* On May 3, 1999, the Trust adopted a plan to permit the Trust to
establish a multiple class distribution system for the Fund. Prior to
that date, the Fund comprised a single class of shares. Shares
outstanding on May 3, 1999 were redesignated as Scudder Shares of the
Fund. Performance information provided is for the Fund's Scudder Shares
class, and as Class R Shares are a new class for the Fund, they have no
past performance data available.
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
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
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.
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.
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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Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund.
FUND ORGANIZATION
The Fund is a diversified 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 15, 1991,
from Scudder Growth and Income Fund, and again on June 10, 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 eight 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, Scudder Dividend & Growth Fund, Scudder Tax
Managed Growth Fund and Scudder Tax Managed Small Company Fund. The Fund's
shares are currently divided into two classes: the Scudder Shares and the Class
R Shares.
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 an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to
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be determined separately by each series. Approval by the shareholders of one
series is effective as to that series whether or not enough votes are received
from the shareholders of the other series to approve such agreement as to other
series.
The Fund's activities are supervised by the Trust's Board of Trustees.
The Trust has adopted a plan on May 3, 1999 pursuant to Rule 18f-3 (the "Plan")
under the 1940 Act to permit the Trust to establish a multiple class
distribution system.
Under the Plan, shares of each class represent an equal pro rata
interest in the Fund and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (1) each class shall have
a different designation; (2) each class of shares shall bear its own "class
expenses;" (3) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates to its administrative services,
shareholder services or distribution arrangements; (4) each class shall have
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class; (5) each
class may have separate and distinct exchange privileges; (6) each class may
have different conversion features, and (7) each class may have separate account
size requirements. Expenses currently designated as "Class Expenses" by the
Trust's Board of Trustees under the Plan include, for example, transfer agency
fees attributable to a specific class, and certain securities registration fees.
Each share of each class of the Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters that such shares
(or class of shares) shall be entitled to vote. Shareholders of the Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Trustees has determined that the matter affects only
the interest of shareholders of one or more classes of the Fund, in which case
only the shareholders of such class or classes of the Fund shall be entitled to
vote thereon. Any matter shall be deemed to have been effectively acted upon
with respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940
Act, or any successor rule, and in the Fund's Declaration of Trust. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Trust and all additional
portfolios (e.g., election of directors), means the vote of the lesser of (i)
67% of the Trust's shares represented at a meeting if the holders of more than
50% of the outstanding shares are present in person or by proxy, or (ii) more
than 50% of the Fund's outstanding shares. The term "majority", when referring
to the approvals to be obtained from shareholders in connection with matters
affecting a single Fund or any other single portfolio (e.g., annual approval of
investment management contracts), means the vote of the lesser of (i) 67% of the
shares of the portfolio represented at a meeting if the holders of more than 50%
of the outstanding shares of the portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the portfolio. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
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
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On December 31, 1997, Zurich
Insurance Company ("Zurich") acquired a majority interest in the Adviser, and
Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of the
Adviser. The Adviser's name changed to Scudder Kemper Investments, Inc. On
September 7, 1998, the businesses of Zurich
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(including Zurich's 70% interest in Scudder Kemper) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") were combined to form a new
global insurance and financial services company known as Zurich Financial
Services Group. By way of a dual holding company structure, former Zurich
shareholders initially owned approximately 57% of Zurich Financial Services
Group, with the balance initially owned by former B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over 280 open and
closed-end mutual funds.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. The Adviser'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 Funds 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 a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for a fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to that fund.
In certain cases, the investments for the fund are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser,
that have similar names, objectives and investment styles. You should be aware
that the Fund is likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Fund can be expected to vary from those of these other mutual funds.
The present investment management agreement (the "Agreement") was
approved by the Trustees on August 10, 1998, became effective September 7, 1998,
and was approved at a shareholder meeting held on December 15, 1998. The
Agreement will continue in effect until September 30, 1999 and from year to year
thereafter only if its continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreement or interested
persons of the Adviser or the Trust, cast in person at a meeting called for the
purpose of voting on such approval, and either by a vote of the Trust's Trustees
or of a majority of the outstanding voting securities of the Fund. The Agreement
may be terminated at any time without payment of penalty by either party on
sixty days' written notice and automatically terminate in the event of its
assignment.
The Adviser also 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;
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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 (except those for
attending Board and Committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Trust
affiliated with the Adviser and makes available, without expense to the Trust,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers or Trustees of the Trust, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Trust's
office space and facilities.
For the Adviser's services from August 13, 1996 to May 1, 1997, the
Fund paid the Adviser an annual fee of 0.60% of the first $500 million of
average daily net assets, 0.55% of such assets in excess of $500 million, 0.50%
of such assets in excess of $1 billion, 0.475% of such assets in excess of $1.5
billion, 0.45% of such assets in excess of $2 billion, 0.425% of such assets in
excess of $3 billion.
For the Adviser's services after May 1, 1997 to September 7, 1998, the
Fund paid the Adviser an annual fee of 0.60% of the first $500 million of
average daily net asset, 0.55% of such assets in excess of $500 million, 0.50%
of such assets in excess of $1 billion, 0.475% of such assets in excess of $1.5
billion, 0.45% of such assets in excess of $2 billion, 0.425% of such assets in
excess of $3 billion and 0.405% of such assets in excess of $4.5 billion.
For the Adviser's services after September 7, 1998, the Fund paid the
Adviser an annual fee of 0.60% of the first $500 million of average daily net
asset, 0.55% of such assets in excess of $500 million, 0.50% of such assets in
excess of $1 billion, 0.475% of such assets in excess of $1.5 billion, 0.45% of
such assets in excess of $2 billion, 0.425% of such assets in excess of $3
billion, 0.405% of such assets in excess of $4.5 billion, 0.3875% of such assets
in excess of $6 billion, and 0.37% of such assets in excess of $10 billion. The
fee is graduated so that increases in the Fund's net assets may result in a
lower annual fee rate and decreases in the Fund's net assets may result in a
higher annual fee rate. The fee is payable monthly, provided that 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.
For the years ended December 31, 1999, 1998, and 1997, the Fund was
charged by the Adviser aggregate fees pursuant to its then effective investment
advisory agreement of $32,454,854, $34,062,247, and $26,072,293, respectively.
Under the Agreement the Fund is responsible for all of its other
expenses including organizational costs, fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; the calculation of Net
Asset Value; taxes and governmental fees; the fees and expenses of the transfer
agent; the cost of preparing stock certificates and any other expenses including
clerical expenses of issue, 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 Trust who are not affiliated
with the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. The 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 incurred in connection with litigation, proceedings and claims and the
legal obligation it may have to indemnify its officers and Trustees with respect
thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
35
<PAGE>
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 Trust have been 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 or holders of shares of the Trust.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
Personal Investments by Employees of the Adviser
The Fund, the Adviser and principal underwriter have each adopted codes
of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Fund and employees of the Adviser and principal underwriter are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Fund, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The Adviser's Code
of Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Fund. Among other things, the Adviser's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the
Adviser's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
<S> <C> <C> <C>
Linda C. Coughlin (48 )++*= President and Trustee Managing Director of Scudder Senior Vice President
Kemper Investments, Inc.
36
<PAGE>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
Henry P. Becton, Jr. (56) Trustee President and General Manager, --
WGBH WGBH Educational Foundation
125 Western Avenue
Allston, MA 02134
Dawn-Marie Driscoll (53) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates
Peter B. Freeman (67) Trustee Corporate Director and --
100 Alumni Avenue Trustee, Providence Journal
Providence, RI 02906 Co., Trustee, Eastern Utilities
Associates (public utility
holding company); Director,
AMICA Life Insurance Co.;
Director, AMICA Mutual
Insurance Co.
George M. Lovejoy, Jr. (70)= Trustee President and Director, Fifty --
50 Congress Street Associates (real estate
Suite 543 investment trust)
Boston, MA 02109
Wesley W. Marple, Jr. (68)= Trustee Professor of Business --
413 Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
Kathryn L. Quirk (47)++*= Trustee, Vice President Managing Director of Scudder Director, Assistant
and Assistant Secretary Kemper Investments, Inc. Treasurer and Senior Vice
President
Jean C. Tempel (57) Trustee Managing Partner, Technology --
Ten Post Office Square Equity Partners
Suite 1325
Boston, MA 02109
Bruce F. Beaty (41)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
William F. Gadsden (45)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of --
Scudder Kemper Investments, Inc.
Ann M. McCreary (43) ++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Valerie F. Malter (41)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
37
<PAGE>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- -------------------- -----------------------
Caroline Pearson (38)+ Assistant Secretary Senior Vice President, Scudder --
Kemper Investments, Inc.;
Associate, Dechert Price &
Rhoads (law firm) 1989 to 1997
Jennifer P. Carter (37)# Vice President Vice President, Scudder Kemper __
Investments, Inc.
James M. Eysenbach (38)# Vice President Vice President, Scudder Kemper __
Investments, Inc.
Kathleen Millard (39)+ Vice President Managing Director, Scudder __
Kemper Investment s, Inc.
Robert Tymoczko (30)# Vice President Senior Vice President, Scudder __
Kemper Investments, Inc
John Millette (37)+ Vice President & Vice President, Scudder Kemper __
Secretary Investments, Inc.
</TABLE>
* Ms. Coughlin and Ms. Quirk are considered by the Fund and its
counsel to be persons who are "interested persons" of the
Adviser or of the Trust, within the meaning of the 1940 Act.
** Unless otherwise stated, all of the Trustees and officers have
been associated with their respective companies for more than
five years, but not necessarily in the same capacity.
= Messrs. Lovejoy, Marple, Ms. Coughlin 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
#Address: 101 California Street Suite 4100 San Francisco, California
As of March 13 , 2000, all Trustees and officers of the Fund 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's Class R Shares.
As of March 13, 2000, all Trustees and officers of the Fund 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's Scudder Shares.
To the best of the Fund's knowledge, as of March 13, 2000, no person
owned beneficially more than 5% of the Fund's Scudder Shares.
To the best of the Fund's knowledge, as of March 13, 2000, no person
owned beneficially more than 5% of the Fund's Class R Shares.
The Trustees and officers of the Fund also serve in similar capacities
with other respect to Scudder funds.
38
<PAGE>
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 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
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 assets which exceed $100 million,
but not exceeding $1 billion, and $7,200 if 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 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 benefits or health insurance. The
Independent Trustees have in the past, and may in the future, waive a portion of
their compensation. During 1999, the Independent Trustees participated in 25
meetings of the Fund's board or board committees, which were held on 21
different days during the year.
The Independent Trustees also serve in the same capacity for other
funds managed by Scudder. These funds differ broadly in type and complexity and
in some cases have substantially different Trustee fee schedules. The following
table shows the aggregate compensation received by each Independent Trustee
during 1999 from the Trust and from all of Scudder funds as a group.
<TABLE>
<CAPTION>
Name Investment Trust* All Scudder Funds
---- ----------------- -----------------
<S> <C> <C> <C>
Henry P. Becton, Jr. Trustee $31,110 $140,000 (30 funds)
Dawn-Marie Driscoll Trustee $33,218 $150,000 (30 funds)
Peter B. Freeman Trustee $34,133 $179,782 (57 funds)
George M. Lovejoy, Jr. Trustee $31,025 $153,200 (31 funds)
Wesley M. Marple, Jr. Trustee $31,025 $140,000 (30 funds)
Jean C. Temple Trustee $31,025 $140,000 (30 funds)
</TABLE>
*In 1999, 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 and Growth
Fund, Scudder Tax Managed Growth Fund and Scudder Tax Managed Small Company
Fund.
39
<PAGE>
Members of the Board of Trustees who are employees of the Adviser or
its affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
The Trust, on behalf of the Fund, has an underwriting agreement Scudder
Investor Services, Inc., Two International Place, Boston, MA 02110 (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 Commission 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/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 customer 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
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 each Fund shall bear some or all of such expenses.
To provide compensation to financial services firms for performing
administrative support services to its customers who are shareholders of Class R
Shares of the Fund, the Trust, on behalf of Class R Shares of the Fund, has
approved an Administrative Services Agreement. These services include, but are
not limited to: providing information on shareholder accounts and transactions,
answering inquiries regarding the Fund, resolving account problems, and
explaining mutual fund performance and rankings. For services provided under the
Administrative Services Agreement, the Fund, on behalf of Class R Shares, would
pay the Distributor an administrative service fee of up to 0.25% of the average
daily net assets of that class of the Fund. The Distributor would then
distribute this fee to financial representatives that provide services for their
clients who are investors through applicable group retirement plans. The
administrative service fee is calculated monthly.
The Distributor may in its discretion compensate investment dealers or
other financial services firms indirectly through Kemper Distributors, Inc. in
connection with the sale of Class R Shares of the Fund at net asset value to:
(i) any purchaser, provided that the amount invested by the purchaser in certain
"qualifying funds" totals in the aggregate at least $1,000,000 (the following
are "Qualifying Funds," although others may be included at any time: Class R
Shares of Scudder Growth and Income Fund, Class R Shares of Scudder
International Fund, Class R Shares of Scudder Large Company Growth Fund, Kemper
Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small
Capitalization Equity Fund, Kemper Income and Capital Preservation Fund, Kemper
Municipal Bond Fund, Kemper Strategic Income Fund, Kemper High Yield Series,
Kemper U.S. Government Securities Fund, Kemper International Fund, Kemper State
Tax-Free Income Series, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund, Kemper Intermediate Municipal Bond Fund, Kemper Cash
Reserves Fund, Kemper U.S. Mortgage Fund,
40
<PAGE>
Kemper Short-Intermediate Government Fund, Kemper Value Series, Inc., Kemper
Value Plus Growth Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian
Growth Fund, Kemper Aggressive Growth Fund, Kemper Global/International Series,
Inc., Kemper Equity Trust, Kemper Income Trust, Kemper Funds Trust, Kemper
Securities Trust, Zurich Money Market Fund, Zurich Government Money Fund, Stable
Value II, and Stock Index II);
(ii) any purchaser providing a Letter of Intent (the "Letter"), which
imposes no obligation to purchase or sell additional shares, provides that the
first purchase following execution of the Letter must be at least 5% of the
amount of the intended purchase, and that 5% of the amount of the intended
purchase normally will be held in escrow in the form of shares pending
completion of the intended purchase, to invest at least $1,000,000 in Qualifying
Funds over a 24-month period; or
(iii) certain employer-sponsored retirement plans with 200 or more
eligible employees. The Distributor may provide such compensation to investment
dealers or other financial services firms up to the following amounts: 1.00% of
the net asset value of shares sold on amounts of up to $5 million, 0.50% on the
next $45 million and 0.25% on amounts over $50 million. The commission schedule
will be reset on a calendar year basis for sales of shares to employer-sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, SIS will consider the
cumulative amount invested by the purchaser in Qualifying Funds.
With respect to the Class R Shares, the Fund has adopted a distribution
plan in accordance with Rule 12b-1 under the 1940 Act (the "Plan"), which allows
for the payment of distribution fees by the Fund to the Distributor. Currently,
the Plan is inactive and no payments will be made under the Plan by the Fund.
However, the Plan will be activated and payments made under the Plan in the
event that payments made under the Administrative Services Agreement to the
Distributor are deemed to be the indirect financing of the distribution of Fund
shares. The Plan may also be activated by a vote of the Fund's Board of
Directors. If the Plan were made operative, the Distributor would compensate
various financial services firms for sales of Fund shares and may pay
commissions, fees and concessions to such firms. Moreover, the distribution fee
paid under the operative Plan would be used to compensate the Distributor for
expenses incurred in connection with activities primarily intended to result in
the sale of Class R Shares, including the printing of prospectuses and reports
for persons other than existing shareholders and the preparation, printing and
distribution of sales literature and advertising materials. Under the Plan, the
Distributor may appoint Kemper Distributors, Inc., an affiliate of the Adviser,
as its agent to carry out its duties involving the Plan.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states. The Underwriting Agreement provides
that the Distributor accepts orders for shares at net asset value as no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. 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.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions would be taxable to shareholders to the extent of the
Fund's earnings and profits, and would be eligible for the dividends received
deduction, in the case of corporate shareholders.
41
<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 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, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such gains reported 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 shareholders as
long-term capital gains, 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.
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 ($52,000 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $52,000 and $62,000; $32,000 for a single individual, with a
phase-out for adjusted gross income between $32,000 and $42,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,000 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
42
<PAGE>
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 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 call 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.
Notwithstanding any of the foregoing, the Fund may 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 the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will be required to recognize gain at
that time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts,
43
<PAGE>
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. 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.
Dividend and interest income received by the Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
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.
44
<PAGE>
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 routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the 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 brokerage and research services to the Adviser or the
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of research services. The Adviser has negotiated arrangements,
which are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or the Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser will not place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting transactions
in over-the-counter securities, orders are placed with the principal market
makers for the security being traded unless, after exercising care, it appears
that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the 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.
Although certain research services 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
45
<PAGE>
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 Directors 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.
For the fiscal years ended December 31, 1999, 1998 and 1997, the Fund
paid total brokerage commissions of $9,542,259, $8,362,533 and $4,072,780,
respectively. In the fiscal year ended December 31, 1999, the Fund paid
brokerage commissions of $8,013,658 (83.98% of the total brokerage commissions),
resulting 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 Trust or Adviser. The total
amount of brokerage transactions aggregated $8,783,336,819, of which
$7,300,547,806 (83.12% of all brokerage transactions) were transactions which
included research commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rates, i.e. the ratio of
the lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended December 31, 1999, 1998 and 1997 were 70%, 41% and 22%, respectively.
Purchases and sales are made for the Fund's portfolio whenever necessary, in
management's opinion, to meet the Fund's objective.
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, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas and on the
preceding Friday or subsequent Monday when one of these holidays falls on
Saturday or Sunday, respectively. 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 on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the Nasdaq Stock Market Inc. ("Nasdaq") system will
be valued at its most recent sale price on such system as of the Value Time.
Lacking any sales, the security will be valued at the most recent bid quotation
as of the Value Time. The value of an equity security not quoted on the Nasdaq
system, but traded in another over-the-counter market, is its most recent sale
price if there are any sales of such security on such market as of the Value
Time. Lacking any sales, the security is valued at the Calculated Mean quotation
for such security as of the Value Time. Lacking a Calculated Mean quotation the
security is valued at the most recent bid quotation as of the Value Time.
Debt securities, other than money-market instruments, are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money-market
instruments with an original maturity of sixty days or less maturing at par
shall be valued at amortized cost, which the Board believes approximates market
value. If it is not possible to value a particular debt security pursuant to
these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean.
46
<PAGE>
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 Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the Fund's prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 160 Federal Street,
Boston, Massachusetts 02110, independent accountants, and given on the authority
of that firm as experts in accounting and auditing. PricewaterhouseCoopers LLP
audits the financial statements of the Fund and provides other audit, tax and
related service.
Shareholder Indemnification
The Fund 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 Fund. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund property or the
acts, obligations or affairs of the Fund. The Declaration of Trust also provides
for indemnification out of the Fund property of any shareholder held personally
liable for the claims and liabilities to 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 CUSIP number of the Scudder Shares of the Fund is 811167-10-5.
The CUSIP number of the Class R Shares of the Fund is 490965-85-8.
The Fund has a fiscal year ending December 31.
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110.
47
<PAGE>
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The name "Scudder Growth and Income Fund" is the designation of the
Trust 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, shareholders nor other series of
the Trust assume any personal liability for obligations entered into on behalf
of the Fund. No other series of the Trust assumes any liabilities for
obligations entered into on behalf of the Fund. Upon the initial purchase of
shares, the shareholder agrees to be bound by the Fund'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.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
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, 0.0045% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the years
ended December 31, 1999, 1998 and 1997, Scudder Fund Accounting Corporation's
fee amounted to $418,401, $424,247and $338,966, respectively, of which $33,686
was unpaid at December 31, 1999.
Scudder Service Corporation (the "Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Scudder Shares of the
Fund. The Scudder Shares of the Fund pays Service Corporation an annual fee of
$26.00 for each account maintained for a participant. For the year ended
December 31, 1999, the amount charged to the Fund aggregated $6,867,891of which
$1,083,377 was unpaid on December 31, 1999.
Kemper Service Corporation ("KSvC"), 811 Main Street, Kansas City,
Missouri, 64105-2005, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for Class R Shares of the Fund and
also provides subaccounting and recordkeeping services for shareholder accounts
in certain retirement and employee benefit plans. During the first year of
operations for class R Shares, shareholder services fees accrue at 0.35% of the
class R Shares net assets. For the period August 2, 1999 (commencement of
operations) through December 31, 1999, the amount charged to Class R Shares
aggregated $4,873 of which $3,922 was unpaid at December 31, 1999.
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 generally
held in an omnibus account.
Scudder Trust Company, an affiliate of the Adviser, provides
recordkeeping and other services for shareholder accounts in certain retirement
and employee benefit plans invested in the Scudder Shares of the Fund. Annual
service fees are paid by the Scudder Shares of the Fund to Scudder Trust
Company, Two International Place, Boston, Massachusetts 02110-4103, an affiliate
of the Adviser, for such accounts. The Scudder Shares of the Fund incurred fees
of $9,223,902, $7,455,505 and $4,655,851 during the years ended December 31,
1999, 1998, and 1999, respectively, of which $2,434,246 was unpaid on December
31, 1999.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities offered hereby. The Registration
Statement and its amendments, are available for inspection by the public at the
SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of Scudder
Growth and Income Fund together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements are incorporated by
reference and attached hereto in the Annual Report to the Shareholders of the
Fund dated December 31, 1999 and are hereby deemed to be a part of this
Statement of Additional Information.
48
<PAGE>
SCUDDER
INVESTMENTS(SM)
[LOGO]
- --------------------------------
EQUITY/GROWTH & INCOME
- --------------------------------
Scudder S&P 500
Index Fund Fund #301
Prospectus
April 12, 2000
As with all mutual funds, the Securities and
Exchange Commission (SEC) does not approve
or disapprove these shares or determine
whether the information in this prospectus
is truthful or complete. It is a criminal
offense for anyone to inform you otherwise.
<PAGE>
Scudder S&P 500 Index Fund
How the fund works
2 Investment Approach
4 Main Risks To Investors
5 The Fund's Track Record
6 How Much Investors Pay
7 Other Policies and Risks
8 Who Manages and Oversees the Fund
and the Portfolio
11 Financial Highlights
How to invest in the fund
13 How to Buy Shares
14 How to Exchange or Sell Shares
15 Policies You Should Know About
20 Understanding Distributions and Taxes
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard &
Poor's 500," and "500" are trademarks of The McGraw-Hill
Companies, Inc., and have been licensed for use by Scudder
Kemper Investments, Inc. The Scudder S&P 500 Index Fund is
not sponsored, endorsed, sold or promoted by Standard &
Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the fund.
Additional information may be found in the fund's
Statement of Additional Information.
<PAGE>
How the fund works
On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.
Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol | SCPIX fund number | 301
Scudder S&P 500 Index Fund
- --------------------------------------------------------------------------------
Investment Approach
The 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 (S&P 500
Index).
The fund is a feeder fund in a master/feeder fund arrangement. The fund pursues
its investment objective by investing substantially all of 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.
Equity 500 Index Portfolio. Under normal circumstances, the portfolio intends to
invest at least 80% of its assets in the common stocks of the companies that
comprise the S&P 500 Index. In addition, the Adviser may use various techniques,
such as buying and selling futures contracts, to increase or decrease the
portfolio's exposure to changing security prices or other factors that affect
security values. The portfolio's securities are weighted to make its investment
characteristics similar to those of the S&P 500 Index as a whole. The portfolio
may not always hold all of the same securities as the S&P 500 Index. The Adviser
may choose, if extraordinary circumstances warrant, to exclude an index stock
from the portfolio and substitute a similar stock if doing so will help the
portfolio achieve its objective.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
Although most of the fund's investments are common stocks, the fund may also
invest up to 20% of its assets in short-term debt securities and money market
instruments.
2
<PAGE>
The portfolio's assets may also be invested in short-term debt securities and
money market instruments. 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.
The portfolio is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial, and market analyses and investment judgment. Instead,
the portfolio, utilizing a "passive" or "indexing" investment approach, attempts
to replicate, before expenses, the performance of the S&P 500 Index.
To attempt 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.
3
<PAGE>
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[ICON] This fund is designed for long-term investors who want a fund
that is designed to avoid substantially underperforming the
overall large-cap stock market.
- --------------------------------------------------------------------------------
Main Risks to Investors
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, 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 incurrence of brokerage and other costs in buying and
selling stocks, the difficulty and expense of executing relatively small stock
transactions, 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.
4
<PAGE>
- --------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of
how it will do in the future, it can be valuable for an
investor to know. This page looks at fund performance two
different ways: year by year and over time.
- --------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the fund's returns have varied from year to year, which
may give some idea of risk. The table shows average annual total returns for the
fund and the S&P 500 Index (which, unlike the fund, does not have any fees or
expenses). The performance of both the fund and the S&P 500 Index varies over
time. All figures on this page assume reinvestment of dividends and
distributions.
- ---------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
- ---------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'98 28.29
'99 20.37
2000 Total Return as of March 31: 2.17%
Best Quarter: 21.28%, Q4 1998 Worst Quarter: -9.87%, Q3 1998
- ---------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- ---------------------------------------------------------------
1 Year Since Inception*
- ---------------------------------------------------------------
Fund 20.37 24.60
- ---------------------------------------------------------------
Index 21.04 25.17
- ---------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), an
unmanaged, capitalization-weighted index that includes 500 large-cap U.S.
stocks.
* Inception: 8/29/1997. Index comparison begins 8/31/1997.
In the chart, total returns for 1998 through 1999 would have been lower if
operating expenses hadn't been reduced.
In the table, total returns from inception through 1999 would have been lower if
operating expenses hadn't been reduced.
5
<PAGE>
How Much Investors Pay
This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
- ---------------------------------------------------------------
Fee Table
- ---------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
- ---------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- ---------------------------------------------------------------
Management Fee 0.08%
- ---------------------------------------------------------------
Distribution (12b-1) Fee None
- ---------------------------------------------------------------
Other Expenses* 0.50%
---------
- ---------------------------------------------------------------
Total Annual Operating Expenses** 0.58%
- ---------------------------------------------------------------
Expense Reimbursement 0.15%
---------
- ---------------------------------------------------------------
Net Expenses** 0.43%
- ---------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services
and similar expenses, which may vary with fund size and other factors.
** Includes expenses of the Equity 500 Index Portfolio. By contract, fund
expenses are capped by the Manager at 0.40% and portfolio expenses are
capped by the Adviser at 0.08%, through April 30, 2000. Effective May
1, 2000, by contract, fund expenses are capped at 0.43% and portfolio
expenses remain capped at 0.08%, through April 30, 2001. Additionally,
the Manager will cap voluntarily fund expenses at 0.40% through
September 11, 2000.
The information contained in the above table and the example below reflect the
aggregate expenses for both the feeder and the master fund.
- ---------------------------------------------------------------
Expense Example
- ---------------------------------------------------------------
Based on the costs above (including one year of fund expenses contractually
capped at 0.43%), this example is designed to help you compare this fund's
expenses to those of other funds. The example assumes operating expenses remain
the same and that you invested $10,000, earned 5% annual returns, reinvested all
dividends and distributions and sold your shares at the end of each period. This
is only an example; your actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------
$44 $171 $309 $711
- ---------------------------------------------------------------
6
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are other issues to know about.
Although major changes tend to be infrequent, the fund's Board could change the
fund's and the portfolio's goal without seeking shareholder approval.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (the back cover tells you how
to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
7
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for
managing the fund, takes a team approach to asset management.
- --------------------------------------------------------------------------------
Who Manages and Oversees the Fund
and the Portfolio
The investment manager for the fund
The fund's investment manager is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds, and currently has more than $290 billion in assets under
management.
The Manager monitors the fund's investments in the portfolio subject to the
policies established by the Board. 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 the fund's 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.
8
<PAGE>
The investment adviser for the portfolio
The portfolio's investment adviser is Bankers Trust Company. Bankers Trust
Company, a New York banking corporation with principal offices at 130 Liberty
Avenue, New York, NY, is a wholly owned 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 investment management, mutual funds, retail and
commercial banking, investment banking and insurance. 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 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.
As payment for serving as investment adviser, Bankers Trust Company receives a
fee from the portfolio. For the 12 months through the most recent fiscal year
end, the actual amount the portfolio paid in advisory fees was 0.08% of average
daily net assets.
9
<PAGE>
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. The majority of the Board is not affiliated with Scudder Kemper. The
independent members have primary responsibility for assuring that the fund is
managed in the best interests of its shareholders. The following people comprise
the fund's Board.
Linda C. Coughlin George M. Lovejoy, Jr.
o Managing Director, Scudder Kemper o President and Director, Fifty
Investments, Inc. Associates (real estate corporation)
o President of the fund
Wesley W. Marple, Jr.
Henry P. Becton, Jr. o Professor of Business
o President and General Manager, WGBH Administration, Northeastern
Educational Foundation University, College of Business
Administration
Dawn-Marie Driscoll
o Executive Fellow, Center for Kathryn L. Quirk
Business Ethics, Bentley College o Managing Director, Scudder Kemper
o President, Driscoll Associates Investments, Inc.
(consulting firm) o Vice President and Assistant
Secretary of the fund
Peter B. Freeman
o Corporate director and trustee Jean C. Tempel
o Venture Partner, Internet
Capital Group
10
<PAGE>
Financial Highlights
This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of each table are for a single
share. The total return figures represent the percentage that an investor in the
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
annual report (see "Shareholder reports" on the back cover).
Scudder S&P 500 Index Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997(b)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 16.44 $ 12.94 $ 12.00
-------------------------------
- -------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -------------------------------------------------------------------------------------
Net investment income (loss) (a) .19 .17 .05
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.14 3.48 .95
-------------------------------
- -------------------------------------------------------------------------------------
Total from investment operations 3.33 3.65 1.00
- -------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------
Net investment income (.17) (.15) (.06)
- -------------------------------------------------------------------------------------
Net asset value, end of period $ 19.60 $ 16.44 $ 12.94
-------------------------------
- -------------------------------------------------------------------------------------
Total Return (%) (c) 20.37 28.29 8.34**
- -------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- -------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 328 128 17
- -------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) (c)(d) .58 1.01(e) 4.42*
- -------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) (c)(d) .40 .40 .40*
- -------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.05 1.18 1.35*
- -------------------------------------------------------------------------------------
Portfolio turnover rate (f) 13 4 --
- -------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period August 29, 1997 (commencement of operations) to December
31, 1997.
(c) Total return would have been lower had certain expenses not been
reduced.
(d) Includes expenses of the Equity 500 Index Portfolio.
(e) Effective May 6, 1998, Bankers Trust contractually agreed to receive
fees from the portfolio only to the extent of the lesser of 0.005% or
the amount that brings the total annual operating expenses as a
percentage of the portfolio's average daily net assets up to 0.08%.
(f) The portfolio turnover rate is the the rate for the Equity 500 Index
Portfolio in which the fund invests its assets.
* Annualized
** Not annualized
11
<PAGE>
How to invest in the fund
The following pages tell you how to invest in the fund and what to expect as a
shareholder. If you're investing directly with Scudder, all of this information
applies to you.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
First investment Additional investments
- ---------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- ---------------------------------------------------------------------------------------
By mail or express o Fill out and sign an o Send a check and a Scudder
(see below) application investment slip to us at the
appropriate address below
o Send it to us at the
appropriate address, along o If you don't have an
with an investment check investment slip, simply include
a letter with your name,
account number, the full name
of the fund and your investment
instructions
- ---------------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
- ---------------------------------------------------------------------------------------
By phone -- o Call 1-800-SCUDDER for
instructions
- ---------------------------------------------------------------------------------------
With an automatic -- o To set up regular investments
investment plan from a bank checking account,
call 1-800-SCUDDER
- ---------------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-SCUDDER
- ---------------------------------------------------------------------------------------
On the Internet o Go to the "funds and prices" o Call 1-800-SCUDDER to ensure
section at www.scudder.com you have enabled electronic
services
o Access and print out an
on-line prospectus and a new o Go to www.scudder.com and
account application register
o Complete and return the o Follow the instructions for
application with your check buying shares with money from
your bank account
- ---------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
- --------------------------------------------------------------------------------
13
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell shares in an account opened directly
with Scudder.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Exchanging into another fund Selling shares
- ----------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more to open a new Some transactions, including
account ($1,000 for IRAs) most for over $100,000, can
only be ordered in writing; if
$100 or more for exchanges you're in doubt, see page 17
between existing accounts
- ----------------------------------------------------------------------------------------
By phone or wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
- ----------------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800- 343-2890 and o Call 1-800- 343-2890 and
follow the instructions follow the instructions
- ----------------------------------------------------------------------------------------
By mail, express Write a letter that includes: Write a letter that includes:
or fax (see
previous page) o the fund, class and account o the fund, class and account
number you're exchanging out of number from which you want to
sell shares
o the dollar amount or number
of shares you want to exchange o the dollar amount or number
of shares you want to sell
o the name and class of the
fund you want to exchange into o your name(s), signature(s)
and address, as they appear on
o your name(s), signature(s) your account
and address, as they appear on
your account o a daytime telephone number
o a daytime telephone number
- ----------------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
- ----------------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from a Scudder
account, call 1-800-SCUDDER
- ----------------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
- ----------------------------------------------------------------------------------------
On the Internet o Go to www.scudder.com and --
register
o Follow the instructions for
making on-line exchanges
- ----------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder
representative between 8 a.m. and 8 p.m.
Eastern time on any fund business day by
calling 1-800-SCUDDER.
- --------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
Policies about transactions
The fund is open for business each day the New York Stock Exchange is open.
Bankers Trust Company or its agent calculates the fund's share price every
business day, as of the close of regular trading on the Exchange (typically 4
p.m. Eastern time, but sometimes earlier, as in the case of scheduled half-day
trading or unscheduled suspensions of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
15
<PAGE>
- --------------------------------------------------------------------------------
[ICON] The Scudder Web site can be a valuable resource for
shareholders with Internet access. Go to www.scudder.com to
get up-to-date information, review balances or even place
orders for exchanges.
- --------------------------------------------------------------------------------
SAIL(TM), the Scudder Automated Information Line, is available 24 hours a day by
calling 1-800-343-2890. You can use SAIL to get information on Scudder funds
generally and on accounts held directly at Scudder. You can also use it to make
exchanges and sell shares.
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The funds
can only accept wires of $100 or more.
Exchanges among Scudder funds are an option for shareholders who bought their
fund shares directly from Scudder and many other investors as well. Exchanges
are a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject purchase orders, for these or
other reasons.
16
<PAGE>
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.
17
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax,
you can always send us your order in writing.
- --------------------------------------------------------------------------------
How the fund calculates share price
The fund's share price is its net asset value per share, or NAV. To calculate
NAV, the fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
------------------------------------ = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
Bankers Trust Company typically uses market prices to value securities. However,
when a market price isn't available, or when it has reason to believe it doesn't
represent market realities, Bankers Trust Company may use fair value methods
approved by the portfolio's Board. In such a case, the portfolio's value for a
security is likely to be different from quoted market prices.
18
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o charge you $10 a year if your account balance falls below $2,500, and close
your account and send you the proceeds if your balance falls below $1,000;
in either case, we will give you 60 days' notice so you can either increase
your balance or close your account (these policies don't apply to
retirement accounts, to investors with $100,000 or more in Scudder fund
shares or in any case where a fall in share price created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash; generally, the fund won't make a redemption
in kind unless your requests over a 90-day period total more than $250,000
or 1% of the fund's net asset value, whichever is less
o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)
19
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is unique, it's
always a good idea to ask your tax professional about the tax
consequences of your investments, including any state and
local tax consequences.
- --------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchases and sales of shares.) A
fund may not always pay a distribution for a given period.
The fund intends to pay income dividends to its shareholders quarterly, in
March, June, September and December. Capital gains will be paid to shareholders
in November or December. Additional distributions may be made if necessary.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
20
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- -----------------------------------------------------------------
o short-term capital gains from selling fund shares
- -----------------------------------------------------------------
o taxable income dividends you receive from the fund
- -----------------------------------------------------------------
o short-term capital gains distributions you receive from the
fund
Generally taxed at capital gains rates
- -----------------------------------------------------------------
o long-term capital gains from selling fund shares
- -----------------------------------------------------------------
o long-term capital gains distributions you receive from the
fund
- -----------------------------------------------------------------
The fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.
21
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effect of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get these
reports automatically. To reduce costs, we may mail one copy per household. For
more copies, call 1-800-SCUDDER.
Statement of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Scudder or the SEC (see below). Materials you
get from Scudder are free; those from the SEC involve a copying fee. If you
like, you can look over these materials at the SEC's Public Reference Room in
Washington, DC or request them electronically at [email protected].
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-SCUDDER 1-202-942-8090
www.scudder.com www.sec.gov
SEC File Number 811-43
<PAGE>
SCUDDER S&P 500 INDEX FUND
A series of Investment Trust
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 500
Composite Stock Price Index
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 12, 2000
- --------------------------------------------------------------------------------
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
April 12, 2000, as amended from time to time, a copy of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder S&P 500 Index Fund dated
December 31, 1999, 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
Additional Information Regarding the S&P 500 Index.........................................................1
Investment Techniques......................................................................................2
Index Futures Contracts and Options on Index Futures Contracts.............................................5
Additional Risk Factors....................................................................................8
Investment Restrictions....................................................................................9
Other Investment Policies.................................................................................10
PURCHASES..........................................................................................................12
Additional Information About Opening An Account...........................................................12
Minimum Balances..........................................................................................12
Additional Information About Making Subsequent Investments................................................12
Additional Information About Making Subsequent Investments by QuickBuy....................................13
Checks....................................................................................................13
Wire Transfer of Federal Funds............................................................................13
Share Price...............................................................................................14
Share Certificates........................................................................................14
Other Information.........................................................................................14
EXCHANGES AND REDEMPTIONS..........................................................................................15
Exchanges.................................................................................................15
Redemption by Telephone...................................................................................16
Redemption by QuickSell...................................................................................16
Redemption by Mail or Fax.................................................................................17
Other Information.........................................................................................17
FEATURES AND SERVICES OFFERED BY THE FUND..........................................................................18
The No-Load Concept.......................................................................................18
Internet access...........................................................................................18
Dividends and Capital Gains Distribution Options..........................................................19
Scudder Investor Centers..................................................................................19
Reports to Shareholders...................................................................................19
Transaction Summaries.....................................................................................19
SPECIAL PLAN ACCOUNTS..............................................................................................22
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals..............................................................22
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals...............................................................................22
Scudder IRA: Individual Retirement Account...............................................................22
Scudder Roth IRA: Individual Retirement Account..........................................................23
Scudder 403(b) Plan.......................................................................................23
Automatic Withdrawal Plan.................................................................................23
Group or Salary Deduction Plan............................................................................24
Automatic Investment Plan.................................................................................24
Uniform Transfers/Gifts to Minors Act.....................................................................24
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS..........................................................................25
PERFORMANCE INFORMATION............................................................................................25
Average Annual Total Return...............................................................................25
Cumulative Total Return...................................................................................26
Total Return..............................................................................................26
Comparison of Fund Performance............................................................................26
FUND ORGANIZATION..................................................................................................27
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TABLE OF CONTENTS (continued)
Page
INVESTMENT MANAGER AND ADMINISTRATOR FOR THE FUND..................................................................28
Personal Investments by Employees of Scudder..............................................................30
INVESTMENT ADVISER AND ADMINISTRATOR FOR THE PORTFOLIO.............................................................30
Banking Regulatory Matters................................................................................32
Administrator.............................................................................................32
Personal Investments by Employees of Bankers Trust Company................................................32
TRUSTEES AND OFFICERS OF THE TRUST.................................................................................33
REMUNERATION.......................................................................................................35
Responsibilities of the Board -- Board and Committee Meetings.............................................35
Compensation of Officers and Trustees of the Trust........................................................35
TRUSTEES AND OFFICERS OF THE PORTFOLIO.............................................................................36
REMUNERATION.......................................................................................................39
Control Persons and Principal Holders of Securities.......................................................39
Compensation of Officers and Trustees of the Portfolio....................................................40
DISTRIBUTOR........................................................................................................40
TAXES ..........................................................................................................41
PORTFOLIO TRANSACTIONS.............................................................................................44
Brokerage Allocation And Other Practices..................................................................44
Portfolio Turnover........................................................................................46
NET ASSET VALUE....................................................................................................46
ADDITIONAL INFORMATION.............................................................................................47
Experts...................................................................................................47
Shareholder Indemnification...............................................................................47
Other Information.........................................................................................47
FINANCIAL STATEMENTS...............................................................................................48
APPENDIX A
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The Fund's Investment Objective And Policies
Scudder S&P 500 Index Fund (the "Fund") is a diversified, no-load
series of 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
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Portfolio may engage
(such as hedging, etc.) or a financial instrument which the Portfolio may
purchase (such as options, forward foreign currency contracts, etc.) are meant
to describe the spectrum of investments that Bankers Trust Company ("Bankers
Trust" or the "Adviser"), in its discretion, might, but is not required to, use
in managing the Portfolio's assets. The Adviser employs such practice, technique
or instrument at its discretion. Furthermore, it is possible that certain types
of financial instruments or investment techniques described herein may not be
available, permissible, economically feasible or effective for their intended
purposes in all markets. Certain practices, techniques, or instruments may not
be principal activities of the Portfolio, but, to the extent employed, could,
from time to time, have a material impact on the Portfolio's performance.
The Fund's investment objective is to provide investment results that,
before expenses, correspond to the total return of common publicly traded in the
United States, as represented by the Standard & Poor's Composite Stock Price
Index (S&P 500 Index") . 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. 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.
Interfund Borrowing and Lending Program
The Trust's Board of Directors has approved the filing of an application for
exemptive relief with the SEC which would permit the Fund to participate in an
interfund lending program among certain investment companies advised by the
Manager. If the Fund receives the requested relief, the interfund lending
program would allow the participating funds to borrow money from and loan money
to each other for temporary or emergency purposes. The program would be subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
would participate in the program only if and to the extent that such
participation is consistent with the fund's investment objectives and policies
(for instance, money market funds would normally participate only as lenders and
tax exempt funds only as borrowers). Interfund loans and borrowings would extend
overnight, but could have a maximum duration of seven days. Loans could be
called on one day's notice. A fund may have to borrow from a bank at a higher
interest rate if an interfund loan is called or not renewed. Any delay in
repayment to a lending fund could result in a lost investment opportunity or
additional costs. The program is subject to the oversight and periodic review of
the Boards of the participating funds. To the extent the Fund is actually
engaged in borrowing through the interfund lending program, the Fund, as a
matter of non-fundamental policy, may not borrow for other than temporary or
emergency purposes (including through dollar roll transactions) for any purpose
in excess of 10% of the Fund's (Portfolio's) assets (taken at cost).
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Additional Information Regarding the S&P 500 Index
Neither the Fund nor the Portfolio is sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"). S&P makes no representation or warranty, express or implied, to the
shareholders of the Fund or any member of the public regarding the advisability
of investing in securities generally, or in the Fund and the Portfolio
particularly, or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Fund and the Portfolio is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index,
which is determined, composed and calculated by S&P without regard to the Fund
or the Portfolio. S&P has no obligation to take the needs of the shareholders of
the Fund or the Portfolio into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Fund and the
Portfolio, or the timing of the issuance or sale of shares of the Fund and the
Portfolio, or in the determination or calculation of the equation by which the
Fund or the Portfolio is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
Fund or the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, THE FUND OR THE PORTFOLIO,
SHAREHOLDERS OF THE FUND OR THE PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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
Corporation ("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
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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 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.
Investment Company Securities. The Fund (Portfolio) may acquire securities of
other investment companies to the extent consistent with its investment
objective and subject to the limitations of the 1940 Act. The Fund (Portfolio)
will indirectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies.
For example, the Fund (Portfolio) may invest in a variety of investment
companies which seek to track the composition and performance of specific
indexes or a specific portion of an index. These index-based investments hold
substantially all of their assets in securities representing their specific
index. Accordingly, the main risk of investing in index-based investments is the
same as investing in a portfolio of equity securities comprising the index. The
market prices of index-based investments will fluctuate in accordance with both
changes in the market value of their underlying portfolio securities and due to
supply and demand for the instruments on the exchanges on which they are traded
(which may result in their trading at a discount or premium to their NAVs).
Index-based investments may not replicate exactly the performance of their
specified index because of transaction costs and because of the temporary
unavailability of certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
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Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
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, 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).
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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.
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"). 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 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 instrument
5
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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.
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.
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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 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.
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Additional Risk Factors
In addition to the risks discussed above, the Portfolio's investments
may be subject to the following risk factors:
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 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.
Unless otherwise stated, the Fund's investment objective and policies
are not fundamental 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.
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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 Moody's and S&P is
set forth in Appendix A 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):
(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 net (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
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<PAGE>
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.
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
net 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
10
<PAGE>
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;
(8) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration,
for securities of the same issue and equal in amount to, the
securities sold short, and unless not more than 10% of the
Portfolio's (Fund's) net assets (taken at market value) is
represented by such securities, or securities convertible into
or exchangeable for such securities, at any one time (the
Portfolio (Fund) have no current intention to engage in short
selling);
(9) 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
(10) 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 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.
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PURCHASES
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, 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-SCUDDER
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.
Minimum Balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts), which
amount may be changed by the Board of Trustees. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for fiduciary/custodial
accounts) is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per Fund charge (with the fee to be paid to
the Fund) for any non-fiduciary/non-custodial account without an
automatic investment plan (AIP) in place and a balance of less
than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a reduction
in value has occurred due to a redemption, exchange or transfer
out of the account. The Fund will mail the proceeds of the
redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Contact the Distributor at 1-800-SCUDDER for additional
information. Orders placed in this manner may be directed to any office of the
Distributor
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<PAGE>
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 the 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, Inc. (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.
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).
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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.
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.
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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.
EXCHANGES AND REDEMPTIONS
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.
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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-SCUDDER.
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 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 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.
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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.
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-SCUDDER.
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.
The Trust, on behalf of the Fund, has elected to be governed by Rule
18f-1 under the 1940 Act, as a result of which the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90 day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period.
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FEATURES AND SERVICES OFFERED BY THE FUND
The No-Load Concept(TM)
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Because funds and classes in the Scudder Family of Funds do not pay any
asset-based sales charges or service fees, Scudder uses the phrase no-load to
distinguish Scudder funds and classes from other no-load funds. Scudder
pioneered the no-load concept when it created the nation's first no-load fund in
1928, and later developed the nation's first family of no-load mutual funds.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://www.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.
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.
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<PAGE>
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders also may change their dividend option either
by calling 1-800-SCUDDER or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See
"Purchases" in the Funds' prospectuses 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 a 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-SCUDDER. 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 Investor Centers maintained by the
Distributor listed in the Funds' prospectuses. 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 should be mailed to "The Scudder Funds" at the address
listed under "Purchases" in the prospectus.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. The Trust presently intends to
distribute to shareholders informal quarterly reports during the intervening
quarters, containing a statement of the investments of the Funds.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-SCUDDER.
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THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds and the
nation's oldest family of no-load mutual funds; a list of Scudder's funds
follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series*
Scudder Government Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series+
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 GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
Scudder Pathway Series: International Portfolio
- ----------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 500 Index Fund
Scudder Real Estate Investment Fund
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International 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
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
- ----------------------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
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<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.
Certain Scudder funds or classes thereof may not be available for purchase or
exchange. For more information, please call 1-800-SCUDDER
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the 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, such as a pension or profit sharing plan, a
governmental plan, a simplified employee pension plan, a simple retirement
account, or a tax-deferred annuity program (a "qualified plan"), and a married
individual who is not an active participant in a qualified plan and whose spouse
is also not an active participant in a qualified plan, are eligible to make tax
deductible contributions of up to $2,000 to an IRA prior to the year such
individual attains age 70 1/2. In addition, certain 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
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individual will be eligible to deduct will be determined by the amount of his,
her, or their adjusted gross income for the year. If an individual is an active
participant, the deductibility of his or her IRA contributions in 2000 is phased
out if the individual has gross income between $32,000 and $42,000 and is
single, if the individual has gross income between $52,000 and $62,000 and is
married filing jointly, or if the individual has gross income between $0 and
$10,000 and is married filing separately; the phase-out ranges for individuals
who are single or married filing jointly are subject to annual adjustment
through 2005 and 2007, respectively. If an individual is married filing jointly
and the individual's spouse is an active participant but the individual is not,
the deductibility of his or her IRA contributions is phased out if their
combined gross income is between $150,000 and $160,000. Whenever the adjusted
gross income limitation prohibits an individual from contributing what would
otherwise be the maximum tax-deductible contribution he or she could make, the
individual will be eligible to contribute the difference to an IRA in the form
of nondeductible contributions. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the 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, certain medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the 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
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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-SCUDDER.
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 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.
24
<PAGE>
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
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.
PERFORMANCE INFORMATION
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.
25
<PAGE>
Total Return for the periods ended December 31, 1999
Scudder S&P 500 Index Fund
One Year 20.37%
Life of the Fund^(1) 24.60%
^(1) For the period from August 29, 1997, commencement of operations to
December 31, 1999.
Note: If the Adviser had not maintained expenses, the total returns would have
been lower.
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
Cumulative Total Return for the periods ended December 31, 1999
Scudder S&P 500 Index Fund
One Year 20.37%
Life of the Fund^(1) 67.30%
^(1) For the period from August 29, 1997, commencement of operations to
December 31, 1999.
Note: If the Adviser had not maintained expenses, the total returns would have
been lower.
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
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.
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.
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
26
<PAGE>
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.
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.
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.
FUND ORGANIZATION
The Fund is a diversified 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 March 6, 1991,
from Scudder Growth and Income Fund, and on June 10, 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 eight series, 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.
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
27
<PAGE>
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.
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 Trust 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 FOR THE FUND
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. 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 December 31, 1997, Zurich Insurance
Company ("Zurich") acquired a majority interest in the Manager, and Zurich
Kemper Investments, Inc., a Zurich subsidiary, became part of the Manager. The
Manager's name changed to Scudder Kemper Investments, Inc. On September 7, 1998,
the businesses of Zurich (including Zurich's 70% interest in Scudder Kemper) and
the financial services businesses of B.A.T Industries p.l.c. ("B.A.T") were
combined to form a new global insurance and financial services company known as
Zurich Financial Services Group. By way of a dual holding company structure,
former Zurich shareholders initially owned approximately 57% of Zurich Financial
Services Group, with the balance initially owned by former B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance
28
<PAGE>
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, as well as providing investment advice to over 280 open- and
closed-end mutual funds.
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. The Manager 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
Manager's clients. However, the Manager 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 Manager with respect to the Fund are based primarily
on the analyses of its own research department.
As described above, the Fund retains the Manager as investment manager
to the Fund, pursuant to an investment management agreement, to monitor the
Fund's investments in the Portfolio, subject to the authority of and supervision
by the Trust's Board of Trustees. The present investment management agreement
(the "Agreement") was approved by the Trustees on August 10, 1998, became
effective September 7, 1998, and was approved at a shareholder meeting held on
December 15, 1998. The Agreement will continue in effect until September 30,
2000, and from year to year thereafter only if its continuance is approved
annually by the vote of a majority of those Trustees who are not parties to such
Agreement or interested persons of the Manager or the Trust, cast in person at a
meeting called for the purpose of voting on such approval, and either by a vote
of the Trust's Trustees or of a majority of the outstanding voting securities of
the 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.
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 April 30, 2000, the Manager has agreed to maintain
expenses of the Fund to 0.40% of its annual average daily net assets (including
the Fund's pro rata share of the expenses of the Portfolio).
[To Be Updated]
For the years ended December 31, 1999, 1998, and the period August 29,
1997 (commencement of operations) to December 31, 1997, the Manager did not
impose any of its administrative fee, which amounted to $251,451, $55,735 and
$1,934, respectively. Further, due to the limitations of such Agreement, the
Manager's reimbursement to the Fund for the periods ended December 31, 1999,
1998 and 1997 amounted to $0, $11,936 and $85,349, respectively.
The term Scudder Investments is the designation given to the services
provided by Scudder Kemper Investment, Inc. and its affiliates to the Scudder
Family of Funds.
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.
29
<PAGE>
The Manager may serve as adviser to other funds with investment
objectives and policies similar to those of the Fund that may have different
distribution arrangements or expenses, which may affect performance.
The term Scudder Investments is the designation given to the services
provided by Scudder Kemper Investments, Inc. and its affiliates to the Scudder
Family of Funds.
AMA InvestmentLink(SM) Program
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.
Personal Investments by Employees of Scudder
The Fund, the Adviser and principal underwriter have each adopted codes
of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Fund and employees of the Manager and principal underwriter, are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Fund, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The Manager's Code
of Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Fund. Among other things, the Manager's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the
Manager's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
INVESTMENT ADVISER AND ADMINISTRATOR FOR THE PORTFOLIO
Bankers Trust is a wholly owned subsidiary of Deutsche Bank A.G.
("Deutsche Bank"). Deutsche Bank is a banking company with limited liability
organized under the laws of the Federal Republic of Germany. Deutsche Bank is
the parent company of a group consisting of banks, capital markets companies,
fund management companies, mortgage banks, a property finance company,
installments financing and leasing companies, insurance companies, research and
consultancy companies and other domestic and foreign companies.
30
<PAGE>
On March 11, 1999, Bankers Trust announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record keeping problems that occurred between 1994
and early 1996. Pursuant to its agreement with the U.S. Attorney's Office,
Bankers Trust pleaded guilty to misstating entries in its books and records, and
agreed to pay a $63.5 million fine to state and federal authorities. On July 26,
1999, the federal criminal proceedings were concluded with Bankers Trust's
formal sentencing. The events leading up to the guilty pleas did not arise out
of the investment advisory or mutual fund management activities of Bankers Trust
or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust
would not be able to continue to provide investment advisory services to the
Portfolio. The SEC has granted a temporary order to permit Bankers Trust and its
affiliates to continue to provide investment advisory services to registered
investment companies. The Adviser has submitted an application for a permanent
order; however, there is no assurance that the SEC will grant a permanent order.
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 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 of 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.
31
<PAGE>
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. For the period January
1, 1998 to May 6, 1998, the Advisory fee was 0.10%.
For the fiscal years ended December 31, 1999,1998 and 1997, the Adviser
accrued $5,134,906, $3,186,503 and $2,430,147, respectively, in compensation for
investment advisory services provided to the Portfolio. During the same periods,
Bankers Trust reimbursed $0, $799,296 and $1,739,490, 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.
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 Portfolio reasonably deem necessary for the proper
administration of the Portfolio. The Adviser will generally assist in all
aspects of the '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.
Under the Administration and Services Agreement, Bankers Trust receives
a fee from the Portfolio, computed daily and paid monthly, at an annual rate
equal to the lesser of 0.005% of the average daily net assets of the Portfolio
or the amount that brings the total annual operating expenses as a percentage of
the portfolio's average daily net assets up to 0.08%. For the period January 1,
1998 to May 6, 1998, the Administration and Service fee was 0.05% on an accrual
basis.
For the years ended December 31, 1999, 1998 and 1997, the Adviser
accrued $344,960 , $676,625 and $1,215,073, 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
32
<PAGE>
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 TRUST
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Name, Age and Address Position with Trust Principal Occupation** Investor Services, Inc.
- --------------------- ------------------- ---------------------- -----------------------
<S> <C> <C> <C>
Linda C. Coughlin (48)+ Trustees and President Managing Director of Scudder Senior Vice President
Kemper Investments, Inc.
Henry P. Becton, Jr. (56) Trustee President and General Manager, --
125 Western Avenue WGBH Educational Foundation
Allston, MA 02134
Dawn-Marie Driscoll (53) 4909 SW Trustee Executive Fellow, Center for --
9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates (consulting firm)
Peter B. Freeman (67) 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 investment trust)
Boston, MA 02109
Wesley W. Marple, Jr. (68)= Trustee Professor of Business --
413 Hayden Hall Administration, Northeastern
360 Huntington Ave. University, College of Business
Boston, MA 02115 Administration
Kathryn L. Quirk (47)++*= Trustee, Vice President Managing Director of Scudder Director, Assistant
and Assistant Secretary Kemper Investments, Inc. Treasurer and Senior Vice
President
Jean C. Tempel (57) Trustee Managing Partner, Technology --
Ten Post Office Square Equity Partners
Suite 1325
Boston, MA 02109
Bruce F. Beaty (41)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Jennifer P. Carter (37)@ Vice President Vice President of Scudder --
Kemper Investments, Inc.
William F. Gadsden (45)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
33
<PAGE>
John R. Hebble (41)+ Treasurer Senior Vice President of --
Scudder Kemper Investments, Inc.
James M. Eysenbach (38)@ Vice President Managing Director of Scudder __
Kemper Investments, Inc.
Robert T. Hoffman (40)++ Vice President --
Valerie F. Malter (41)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Ann M. McCreary (43)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Kathleen T. Millard (39)++ Vice President Managing Director of Scudder __
Kemper Investments, Inc.
Robert Tymoczko (30) Vice President Assistant Vice President of
Scudder Kemper Investments Inc.
John Millette (37)+ Vice President and Assistant Vice President of __
Secretary Scudder Kemper Investments Inc.
Caroline Pearson (38)+ Assistant Secretary Senior Vice President, Scudder Clerk
Kemper Investments, Inc.;
Associate, Dechert Price &
Rhoads (law firm) 1989 to 1997
</TABLE>
* Mses. Quirk and Coughlin 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 and Marple and Mses. Quirk and Coughlin 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
@ Address: 101 California Street, Suite 4100, San Francisco, California
As of March 15, 2000, 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.
34
<PAGE>
To the best of the Fund's knowledge, as of March 15, 2000, no person
owned of record 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 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 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
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 and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1999 from the Trust and from all of Scudder funds as a group. In
1998, the Trustees of the Fund met six times.
<TABLE>
<CAPTION>
Name Investment Trust^(1) All Scudder Funds
---- -------------------- -----------------
<S> <C> <C> <C>
Henry P. Becton $31,110 $140,000 (28 funds)
Trustee
35
<PAGE>
Name Investment Trust^(1) All Scudder Funds
---- -------------------- -----------------
Dawn-Marie Driscoll $23.960 $150,000 (28 funds)
Trustee
Peter B. Freeman $34,134 $179,783 (50 funds)
Trustee
George M. Lovejoy, Jr. $31,025 $153,200 (29 funds)
Trustee
Wesley W. Marple, Jr. $31,025 $140,000 (28 funds)
Trustee
Jean C. Tempel $31,025 $140,000 (28 funds)
Trustee
</TABLE>
^(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 Fund each commenced operations on July 31,
1998.
During 1999, the Independent Trustees participated in 25 meetings of the Fund's
board or board committees, which were held on 21 different days during the year.
TRUSTEES AND OFFICERS OF THE PORTFOLIO
The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Portfolio. In
addition, the Trustees review contractual arrangements with companies that
provide services to the Portfolio and review the Portfolio's 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
Name, Age and Address the Portfolio Principal Occupation ICC Distributors, Inc.
- --------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
Charles P. Biggar (69) Trustee Trustee of each of the other investment --
12 Hitching Post Lane companies in the Deutsche Asset
Chappaqua, NY 10514 Management Fund Complex;1 Retired;
formerly Vice President, International
Business Machines ("IBM") and President,
National Services and the Field
Engineering Divisions of IBM
- ---------------------------------------
1 The "Deutsche Asset Management Fund Complex" consists of BT Investment
Funds, BT Institutional Funds, BT Pyramid Mutual Funds, BT Advisor
Funds, Cash Management Portfolio, Intermediate Tax Free Portfolio, Tax
Free Money Portfolio, NY Tax Free Money Portfolio, Treasury Money
Portfolio, International Equity Portfolio, Equity 500 Index Portfolio,
Capital Appreciation Portfolio, Asset Management Portfolio and BT
Investment Portfolios.
36
<PAGE>
Position with
Position with Underwriter
Name, Age and Address the Portfolio Principal Occupation ICC Distributors, Inc.
- --------------------- ------------- -------------------- ----------------------
S. Leland Dill (70) Trustee Trustee of each of the other investment --
5070 North Ocean Drive companies in the Deutsche Asset
Singer Island, FL 33404 Management Fund Complex;^1 Retired;
formerly Partner, KPMG Peat Marwick;
Director, Vinters International Company
Inc.; Director, Coutts (U.S.A.)
International; Trustee, Phoenix Zweig
Series Trust; Trustee, Phoenix Euclid
Market Neutral Fund; Director, Coutts
Trust Holdings Ltd.; Director, Coutts
Group; General Partner, Pemco^2
Martin J. Gruber (62) Trustee Trustee of each of the other investment --
229 South Irving Street companies in the Deutsche Asset Management
Ridgewood, New Jersey 07450 Fund Complex; Nomura Professor of Finance,
Leonard N. Stern School of Business, New
York University (since 1964); Trustee,
TIAA;^2 Director, S.G. Cowen Mutual Funds;^2
Director, Japan Equity Fund, Inc;^2
Director, Taiwan Equity Fund, Inc.^2
Richard T. Hale (54)* Trustee Trustee of each of the other investment --
205 Woodbrook Lane companies in the Deutsche Asset
Baltimore, Maryland 21202 Management Fund Complex; Managing
Director, Deutsche Asset Management;
Director, Flag Investors Funds; 2
Managing Director, Deutsche Banc Alex.
Brown Incorporated; Director and
President, Investment Company Capital
Corp.
Richard J. Herring (54) Trustee Trustee of each of the other investment --
325 South Roberts Road companies in the Deutsche Asset
Bryn Mawr, Pennsylvania Management Fund Complex; Jacob Safra
19010 Professor of International Banking and
Professor, Finance Department, The
Wharton School, University of
Pennsylvania (since 1972).
- --------------------------------
^2 An investment company registered under the Investment Company Act of
1940.
37
<PAGE>
Position with
Position with Underwriter
Name, Age and Address the Portfolio Principal Occupation ICC Distributors, Inc.
- --------------------- ------------- -------------------- ----------------------
Bruce E. Langton (68) Trustee Trustee of each of the other investment --
99 Jordan Lane companies in the Deutsche Asset
Stamford, Connecticut 06903 Management Fund Complex; Retired;
formerly Assistant Treasurer
of IBM Corporation (until
1986); Trustee and Member,
Investment Operations
Committee, Allmerica Financial
Mutual Funds (1992-present);
Member, Investment Committee,
Unilever U.S. Pension and
Thrift Plans (1989 to
present);^3 Director, TWA
Pilots Directed Account Plan
and 401(k) Plan (1988 to
present)2
Philip Saunders, Jr. (64) Trustee Trustee of each of the other investment --
Philip Saunders Associates companies in the Deutsche Asset
445 Glen Road Management Fund Complex; Principal,
Weston, MA 02193 Philip Saunders Associates (Economic and
Financial Consulting); former
Director, Financial Industry
Consulting, Wolf & Company;
President, John Hancock Home
Mortgage Corporation; Senior
Vice President of Treasury and
Financial Services, John
Hancock Mutual Life Insurance
Company, Inc.
Harry Van Benschoten (73) Trustee Trustee of each of the other investment --
6581 Ridgewood Drive companies in the Deutsche Asset
Naples, Florida 34108 Management Fund Complex; Retired;
Corporate Vice President,
Newmont Mining Corporation
(prior to 1987); Director,
Canada Life Insurance
Corporation of New York (since
1987).
John A. Keffer (56) President and President, Forum Financial Group L.L.C. President
2 Portland Square Chief Executive and its affiliates; President, ICC
Portland, Maine 04101 Officer Distributors, Inc.^4
- -------------------------------------------
^3 A publicly held company with securities registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended. 4
Underwriter/distributor for the Portfolio. Mr. Keffer owns 100% of the
shares of ICC Distributors, Inc.
^4 Underwriter/distributor for the Portfolio. Mr. Keffer owns 100% of the
shares of ICC Distributors, Inc.
38
<PAGE>
Position with
Position with Underwriter
Name, Age and Address the Portfolio Principal Occupation ICC Distributors, Inc.
- --------------------- ------------- -------------------- ----------------------
Charles A. Rizzo (42) Treasurer Vice President and Department Head, __
One South Street Deutsche Asset Management since 1998;
Baltimore, Maryland 21202 Senior Manager, PricewaterhouseCoopers
LLP from 1993 to 1998.
Daniel O. Hirsch (45) Secretary Director, Deutsche Banc Alex. Brown __
One South Street Incorporated and Investment Company
Baltimore,Maryland 21202 Capital Corp. since July 1998; Assistant
General Counsel, Office of the
General Counsel, United States
Securities and Exchange
Commission from 1993 to 1998.
</TABLE>
* "Interested Person" within the meaning of Section 2(a)(19) of the
Act. Mr. Hale is a Managing Director of Deutsche Asset Management, the U.S.
asset management unit of Deutsche Bank A.G. and its affiliates.
The Board has an Audit Committee that meets with the Portfolio's
independent accountants to review the financial statements of the Portfolio, the
adequacy of internal controls and the accounting procedures and policies of the
Portfolio. Each member of the Board except Mr. Hale also is a member of the
Audit Committee.
Messrs. Keffer, Rizzo 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.
39
<PAGE>
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, 1999:
<TABLE>
<CAPTION>
Trustee Compensation Table
----------------------------------------------------------------------------------------
Aggregate Total Compensation from
Compensation Deutsche Asset Management
Trustee From Portfolio* Fund Complex**
<S> <C> <C>
Charles P. Biggar $1,235 $43,750
S. Leland Dill 1,074 43,750
Martin Gruber 212 45,000
Richard J. Herring 189 43,750
Kelvin Lancaster N/A 18,750
Bruce E. Langton 212 43,750
Philip Saunders, Jr. 1,108 45,000
HarryVan Benschoten 212 45,000
</TABLE>
* The aggregate compensation is provided for the Equity 500 Index
Portfolio for the Portfolio's fiscal year ended December 31, 1999.
** Aggregated information is furnished for the Deutsche Asset Management
Fund Complex 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, 1999.
DISTRIBUTOR
The Trust on behalf of the Fund has an underwriting agreement with
Scudder Investor Services, Inc. Two International Place, Boston, MA 02110-4103,
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
40
<PAGE>
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
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.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions would be taxable to shareholders to the extent of the
Fund's earnings and profits, and would be eligible for the dividends received
deduction, in the case of corporate shareholders.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
At December 31, 1999, the Fund had a net tax basis capital loss
carryforward of approximately $4,700,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until December 31, 2007, the expiration date.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
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
41
<PAGE>
reduced to the extent the shares of the Fund with respect to which the dividends
are received are treated as debt-financed under federal income tax law, and is
eliminated if either those shares or the shares of the Fund are deemed to have
been held by the Fund or the shareholder, as the case may be, for less than 46
days during the 90-day period beginning 45 days before the shares become
ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, 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 ($52,000 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $52,000 and $62,000; $32,000 for a single individual, with a
phase-out for adjusted gross income between $32,000 and $42,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,500 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.
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
42
<PAGE>
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 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.
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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.
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.
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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
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, 1999, 1998 and 1997, the
Portfolio paid brokerage commissions in the amounts of $678,820, $534,801 and
$341,058, respectively. For the year ended December 31, 1998, the Portfolio paid
$333 in brokerage commissions to Bankers Trust, an affiliate of the Portfolio.
This represents 0.06%____% of the Fund's aggregate brokerage commissions and 0%
of the Fund's aggregate
45
<PAGE>
dollar amount of transactions involving the payment of commissions during the
fiscal year. For the years ended December 31, 1999 and 1997, the Portfolio did
not pay brokerage commissions to an affiliate.
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.
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, Dr. Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas, and on the preceding
Friday or subsequent Monday when one of these holidays falls on a Saturday or
Sunday, respectively. Net asset value per share is determined by dividing the
value of the total assets of 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 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 on the exchange it is traded as of the Value Time.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean") on such exchange as of the Value Time. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation on such exchange as of the
Value Time. An equity security which is traded on The National Association of
Securities Dealers Automated Quotation ("Nasdaq") system will be valued at its
most recent sale price on such system as of the Value Time. Lacking any sales,
the security will be valued at the most recent bid quotation as of the Value
Time. The value of an equity security not quoted on the Nasdaq system, but
traded in another over-the-counter market, is its most recent sale price if
there are any sales of such security on such market as of the Value Time.
Lacking any sales, the security is valued at the Calculated Mean quotation for
such security as of the Value Time. Lacking a Calculated Mean quotation, the
security will be valued at the most recent bid quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at
prices supplied by the Portfolio's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money market
instruments with an original maturity of sixty days or less maturing at par
shall be valued at amortized cost, which the Board believes approximates market
value. If it is not possible to value a particular debt security pursuant to
these
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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 Additional Information have been so included or incorporated
by reference in reliance on the report of PricewaterhouseCoopers LLP, 250 West
Pratt Street, Baltimore, MD 21201, 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.
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 "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
47
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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.
The Fund has a fiscal year end of December 31.
The CUSIP number of the Fund is 811167402.
PricewaterhouseCoopers LLP, 250 West Pratt Street, Baltimore, MD 21201
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 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 for this service.
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. Pursuant to a services agreement with SSC,
Kemper Service Company, an affiliate of Scudder Kemper, may perform, from time
to time, certain transaction and shareholder servicing functions. For the years
ended December 31, 1998 and 1997, SSC did not impose any of its fee, which
amounted $256,642 and $28,721, respectively. For the year ended December 31,
1999, SSC did not impose a portion of its fee, which amounted to $371,277. The
amount imposed aggregated $403,682, of which $136,097 was unpaid at December 31,
1999.
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 generally
held in an omnibus account.
Scudder Trust Company ("STC"), an affiliate of the Manager, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended December 31,
1998, STC did not impose any of its fee, which amounted to $2,594. For the year
ended December 31, 1999, STC did not impose a portion of its fee, which amounted
to $47,859. The amount imposed aggregated 12,302, of which $7,676 was unpaid at
December 31, 1999.
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, 1999 are incorporated by reference in
their 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>
PART C. OTHER INFORMATION
INVESTMENT TRUST
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
<TABLE>
<CAPTION>
Item 23 Exhibits.
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<S> <C> <C> <C>
(a) (1) Amended and Restated Declaration of Trust dated November 3, 1987.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(2) Certificate of Amendment of Declaration of Trust dated November 13,
1990.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(3) Certificate of Amendment of Declaration of Trust dated February 12,
1991.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(4) Certificate of Amendment of Declaration of Trust dated May 28, 1998.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(5) 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.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(6) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Classic Growth
Fund.
(Incorporated by reference to Post-Effective Amendment No. 76 to the
Registration Statement.)
(7) 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, Scudder Classic Growth
Fund, and Scudder S&P 500 Index Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(8) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Real Estate
Investment Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
<PAGE>
(9) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Dividend + Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(10) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Tax Managed
Growth Fund and Scudder Tax Managed Small Company Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(11) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Kemper A, B & C Shares, and Scudder S
Shares, with respect to Classic Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 94 to the
Registration Statement.)
(12) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class R Shares, with respect to Scudder
Growth and Income Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(13) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class R Shares, with respect to Scudder
Large Company Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(14) Redesignation of Series, Scudder Classic Growth Fund to Classic
Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 94 to the
Registration Statement.)
(15) Redesignation of Series, Scudder Quality Growth Fund to Scudder
Large Company Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(16) Redesignation of Series, Scudder Dividend + Growth Fund to Scudder
Dividend & Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(b) Amendment to By-Laws of the Registrant dated November 12, 1991.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(c) Inapplicable.
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<PAGE>
(d) (1) Investment Management Agreement between the Registrant (on behalf of
Scudder Growth and Income Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(2) Investment Management Agreement between the Registrant (on behalf of
Scudder Large Company Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(3) Investment Management Agreement between the Registrant (on behalf of
Classic Growth Fund) and Scudder Kemper Investments, Inc. dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(4) Investment Management Agreement between the Registrant (on behalf of
Scudder Real Estate Investment Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(5) Investment Management Agreement between the Registrant (on behalf of
Scudder S&P 500 Index Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(6) Investment Management Agreement between the Registrant (on behalf of
Scudder Dividend & Growth Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(7) Investment Management Agreement between the Registrant (on behalf of
Scudder Tax Managed Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(8) Investment Management Agreement between the Registrant (on behalf of
Scudder Tax Managed Small Company Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(9) Investment Advisory Agreement between the Registrant (on behalf of
Scudder S&P 500 Index Fund) and Bankers Trust Company dated
September 9, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
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(e) (1) Underwriting Agreement and Distribution Services Agreement between
the Registrant on behalf of Classic Growth Fund and Kemper
Distributors, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(2) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(3) Amendment No. 1 dated August 31, 1999 to the Underwriting and
Distribution Services Agreement between the Registrant, on behalf of
Classic Growth Fund, and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(4) Amendment dated November 2, 1999 to the Underwriting and
Distribution Services Agreement between the Registrant, on behalf of
Classic Growth Fund, and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(f) Inapplicable.
(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.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(2) Amendment dated April 1, 1985 to the Custodian Agreement between the
Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(3) Amendment dated August 8, 1987 to the Custodian Agreement between
the Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(4) Amendment dated August 9, 1988 to the Custodian Agreement between
the Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(5) Amendment dated July 29, 1991 to the Custodian Agreement between the
Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(6) Amendment dated February 8, 1999 to the Custodian Agreement between
the Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
4
<PAGE>
(7) Custodian fee schedule for Scudder S&P 500 Index Fund.
(Incorporated by reference to Post-Effective Amendment No. 84 to the
Registration Statement.)
(8) Subcustodian Agreement with fee schedule between State Street Bank
and The Bank of New York, London office, dated December 31, 1978.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(9) Subcustodian Agreement between State Street Bank and The Chase
Manhattan Bank, N.A. dated September 1, 1986.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(10) Custodian fee schedule for Scudder Quality Growth Fund and Scudder
Growth and Income Fund.
(Incorporated by reference to Post-Effective Amendment No. 72 to the
Registration Statement.)
(11) Custodian fee schedule for Scudder Classic Growth Fund dated August
1, 1994.
(Incorporated by reference to Post-Effective Amendment No. 77 to the
Registration Statement.)
(h) (1) Transfer Agency and Service Agreement with fee schedule between the
Registrant and Scudder Service Corporation dated October 2, 1989.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(1)(a) Revised fee schedule dated October 6, 1995.
(Incorporated by reference to Post-Effective Amendment No. 76 to the
Registration Statement.)
(1)(b) Form of revised fee schedule dated October 1, 1996.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(2) Transfer Agency Fee Schedule between the Registrant, on behalf of
Scudder Classic Growth Fund, and Kemper Service Company dated
January 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(3) Agency Agreement between the Registrant on behalf of Classic Growth
Fund and Kemper Service Company dated April 1998. (Incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.)
5
<PAGE>
(4) Agency Agreement between the Registrant on behalf of Scudder Growth
and Income Fund Class R shares and Scudder Large Company Growth
Fund Class R shares, and Kemper Service Company dated May 3, 1999.
(Incorporated by reference to Post-Effective Amendment No. 106 to
the Registration Statement.)
(5) COMPASS Service Agreement and fee schedule between the Registrant
and Scudder Trust Company dated January 1, 1990.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(6) COMPASS and TRAK 2000 Service Agreement between Scudder Trust
Company and the Registrant dated October 1, 1995.
(Incorporated by reference to Post-Effective Amendment No. 74 to the
Registration Statement.)
(6)(a) Fee Schedule for Services Provided Under Compass and TRAK 2000
Service Agreement between Scudder Trust Company and the Registrant
dated October 1, 1996.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(7) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Quality Growth Fund and Scudder Fund Accounting
Corporation dated November 1, 1994.
(Incorporated by reference to Post-Effective Amendment No. 72 to the
Registration Statement.)
(8) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Growth and Income Fund and Scudder Fund Accounting
Corporation dated October 17, 1994.
(Incorporated by reference to Post-Effective Amendment No. 73 to the
Registration Statement.)
(9) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Classic Growth Fund, and Scudder Fund Accounting
Corporation dated September 9, 1996.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(10) Amendment No. 1 dated August 31, 1999 to the Fund Accounting
Services Agreement between the Registrant, on behalf of Classic
Growth Fund, and Scudder Fund Accounting Corporation.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(11) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Tax Managed Small Company and Scudder Fund Accounting
Corporation dated July 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
6
<PAGE>
(12) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Tax Managed Growth Fund and Scudder Fund Accounting
Corporation dated July 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(13) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Dividend & Growth Fund and Scudder Fund Accounting
Corporation dated June 1, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(14) Scudder Accounting Fee Schedule between the Registrant, on behalf of
Scudder Large Company Growth Fund - Class R Shares, and Scudder
Fund Accounting Corporation dated September 14, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(15) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Real Estate Investment Fund and Scudder Fund Accounting
Corporation dated March 2, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(16) Investment Accounting Agreement between the Registrant, on behalf of
Scudder S&P 500 Index Fund and Scudder Fund Accounting Corporation
dated August 28, 1997.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(17) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(18) 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.
(Incorporated by reference to Post-Effective Amendment No. 74 to the
Registration Statement.)
(19) Administrative Services Agreement between the Registrant on behalf
of Classic Growth Fund, and Kemper Distributors, Inc., dated April
1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(19)(a) Amendment No. 1 to the Administrative Services Agreement between the
Registrant on behalf of Classic Growth Fund, and Kemper
Distributors, Inc., dated August 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
7
<PAGE>
(20) Administrative Services Agreement between the Registrant on behalf
of Scudder Growth and Income Fund, and Scudder Investor Services,
Inc., dated May 3, 1999.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(21) Administrative Services Agreement between the Registrant on behalf
of Scudder Large Company Growth Fund, and Scudder Investor Services,
Inc., dated May 3, 1999.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(i) Opinion and Consent of Legal Counsel is filed herein.
(j) Consent of Independent Accountants is filed herein.
(k) Inapplicable.
(l) Inapplicable
(m) (1) 12b-1 Plan between the Registrant, on behalf of Scudder Growth and
Income Fund (Class R shares) and Scudder Large Company Growth Fund
(Class R shares), and Scudder Investor Services, Inc. (Incorporated
by reference to Post-Effective Amendment No. 105 to the Registration
Statement, as filed on May 28, 1999.)
(n) Inapplicable.
(o) (1) Mutual Funds Multi-Distribution System Plan, Rule 18f-3 Plan.
(Incorporated by reference to Post-Effective Amendment No. 94 to the
Registration Statement.)
(2) Plan with respect to Scudder Growth and Income Fund pursuant to
Rule 18f-3.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(3) Plan with respect to Scudder Large Company Growth Fund pursuant to
Rule 18f-3.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(p) (1) Scudder Kemper Investments, Inc. Code of Ethics is filed herein.
(2) Bankers Trust Company Code of Ethics is filed herein.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
As permitted by Sections 17(h) and 17(i) of the Investment
Company Act of 1940, as amended (the "1940 Act"), pursuant to
Article IV of the Registrant's By-Laws (filed as Exhibit No. 2
to the Registration Statement), officers, directors, employees
and representatives of the Funds may be indemnified against
certain liabilities in connection with the Funds, and pursuant
to Section 12 of the
8
<PAGE>
Underwriting Agreement dated May 6, 1998 (filed as Exhibit No.
6(c) to the Registration Statement), Scudder Investor
Services, Inc. (formerly "Scudder Fund Distributors, Inc."),
as principal underwriter of the Registrant, may be indemnified
against certain liabilities that it may incur. Said Article IV
of the By-Laws and Section 12 of the Underwriting Agreement
are hereby incorporated by reference in their entirety.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be
permitted to directors, officers and controlling persons of
the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or
controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant
by such director, officer or controlling person or the
principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
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 Director, Kemper Distributors, Inc.
Director, Kemper Service Company
Treasurer, Scudder Kemper Investments, Inc.**
Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director and Treasurer, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Director, Scudder Investments (UK) Ltd.
Director, Scudder Kemper Holdings (UK)
Director and President, Scudder Realty Holdings Corporation
Director, Scudder, Stevens & Clark Overseas
Director and Treasurer, Zurich Investment Management, Inc.
Director and Treasurer, Zurich Kemper Investments, Inc.
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
9
<PAGE>
Chairman of the Board, Scudder, Stevens & Clark (Luxembourg) S.A.#
Director, Scudder Investments (U.K.) Ltd.
Chairman of the Board, Scudder Investments Asia, Ltd.
Chairman of the Board, Scudder Investments Japan, Inc.
Senior Vice President, Scudder Investor Services, Inc.
Director, Scudder Trust (Cayman) Ltd.
Director, Scudder, Stevens & Clark Australia
Director, Korea Bond Fund Management Co., Ltd.+
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company 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
Harold D. Kahn Director and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Hiromitsu Kunita President and Director, Scudder Investments Japan
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Vice President, Chief Legal Officer and Secretary, Kemper Distributors, Inc.
Director and Secretary, Kemper Service Company
Director, Senior Vice President, Chief Legal Officer & Assistant Clerk, Scudder
Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director and Secretary, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
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**
10
<PAGE>
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President, Chief Legal Officer and Secretary, Scudder Financial
Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Director, Scudder Investments (UK) Ltd.
Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd.
Director, Scudder Investments Japan, Inc.
Director and Secretary, Scudder Kemper Holdings (UK) Ltd.
Director and Secretary, Zurich Investment Management, 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
Director, Scudder Investments (UK) Ltd.
Director, Scudder Investments Japan, Inc.
Director, Scudder Kemper Holdings (UK) Ltd.
President and Director, Zurich Investment Management, Inc.
</TABLE>
* 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
xxx Grand Cayman, Cayman Islands, British West Indies
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
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
11
<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> <C>
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 President and Trustee
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 None
101 California Street
San Francisco, CA 94111
12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Trustee, Vice President
345 Park Avenue Legal Officer and Assistant Clerk and 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
</TABLE>
(c)
<TABLE>
<CAPTION> (1) (2) (3) (4) (5)
13
<PAGE>
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions And Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
(d)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Funds.
(e)
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> <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 and Vice President and Assistant Secretary
James J. McGovern Chief Financial Officer and Vice None
President
Linda J. Wondrack Vice President and 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
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary None
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director, Vice Chairman None
Stephen R. Beckwith Director None
</TABLE>
14
<PAGE>
(f) Not applicable
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 10th day of April, 2000.
INVESTMENT TRUST
By /s/Linda C. Coughlin
--------------------
Linda C. Coughlin
President (Principal Executive Officer) and Trustee
Pursuant to the requirements of the Securities Act of 1933, this amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Linda C. Coughlin
- --------------------------------------
Linda C. Coughlin President and Trustee April 10, 2000
/s/Henry P. Becton, Jr.
- --------------------------------------
Henry P. Becton, Jr.* Trustee April 10, 2000
/s/Dawn-Marie Driscoll
- --------------------------------------
Dawn-Marie Driscoll* Trustee April 10, 2000
/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman* Trustee April 10, 2000
/s/George M. Lovejoy, Jr.
- --------------------------------------
George M. Lovejoy, Jr.* Trustee April 10, 2000
/s/Wesley W. Marple, Jr.
- --------------------------------------
Wesley W. Marple, Jr.* Trustee April 10, 2000
/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Trustee, Vice President April 10, 2000
and Assistant Secretary
/s/Jean C. Tempel
- --------------------------------------
Jean C. Tempel* Trustee April 10, 2000
<PAGE>
/s/John R. Hebble
- --------------------------------------
John R. Hebble Treasurer April 10, 2000
</TABLE>
*By: /s/Caroline Pearson
-------------------
Caroline Pearson,
Assistant Secretary
Attorney-in-fact pursuant to the powers of
attorney for Lynn S. Birdsong, Henry P. Becton,
Dawn-Marie Driscoll, Peter B. Freeman,
George M. Lovejoy, Wesley W. Marple, Jr.,
Kathryn L. Quirk, and Jean C. Tempel,
contained in Post-Effective Amendment No. 107
to the Registration Statement.
2
<PAGE>
SIGNATURES
----------
Equity 500 Index Portfolio has duly caused this Post-Effective Amendment
No. 114 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 11th day of April, 2000.
EQUITY 500 INDEX PORTFOLIO
By: /s/ John A. Keffer
--------------------------------
John A. Keffer, President*
This Post Effective Amendment No. 114 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 April 11,
2000.
SIGNATURE TITLE
--------- -----
/s/ Charles P. Biggar
-------------------------------------
Charles P. Biggar* Trustee
/s/ S. Leland Dill
-------------------------------------
S. Leland Dill* Trustee
/s/ Martin J. Gruber
-------------------------------------
Martin J. Gruber* Trustee
/s/ Richard T. Hale
-------------------------------------
Richard T. Hale* Trustee
/s/ Richard J. Herring
-------------------------------------
Richard J. Herring* Trustee
/s/ Bruce E. Langton
-------------------------------------
Bruce E. Langton* Trustee
/s/ Philip Saunders, Jr.
-------------------------------------
Philip Saunders, Jr.* Trustee
/s/ Harry Van Benschoten
-------------------------------------
Harry Van Benschoten* Trustee
/s/ John A. Keffer
-------------------------------------
John A. Keffer* President and
Chief Executive
Officer
<PAGE>
/s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo* Treasurer
*By /s/ Daniel O. Hirsch
-----------------------------------------------
Daniel O. Hirsch, Secretary of Equity 500 Index Portfolio,
As Attorney-in-Fact pursuant to a Power of Attorney.
2
<PAGE>
Power of Attorney
This Power of Attorney will be contingent upon the election of the
Trustee nominees at the Special Shareholder Meetings to be held in September and
October 1999.
The undersigned Trustees and officers, as indicated respectively below,
of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, and BT
Advisor Funds (each, a "Trust") and Cash Management Portfolio, Treasury Money
Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International
Equity Portfolio, Equity 500 Index Portfolio, Asset Management Portfolio,
Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT
Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes and
appoints the Secretary, each Assistant Secretary and each authorized signatory
of each Trust and each Portfolio Trust, each of them with full powers of
substitution, as his true and lawful attorney-in-fact and agent to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, and all other documents, filed
by a Trust or a Portfolio Trust with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and (as applicable)
the Securities Act of 1933, as amended, and any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable the
Trust or Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney previously granted with respect to any Trust or
Portfolio Trust concerning the filings and actions described herein.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
as of the 8th day of September, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ---------- -----
<S> <C>
/s/ John A. Keffer President and Chief Executive Officer of each Trust
- --------------------------------------- and Portfolio Trust
John A. Keffer
/s/ Charles A. Rizzo Treasurer (Principal Financial and Accounting
- --------------------------------------- Officer) of each Trust and
Charles A. Rizzo Portfolio Trust
/s/ Charles P. Biggar Trustee of each Trust and Portfolio Trust
- ---------------------------------------
Charles P. Biggar
/s/ S. Leland Dill Trustee of each Trust and Portfolio Trust
- ---------------------------------------
S. Leland Dill
/s/ Richard T. Hale Trustee of each Trust and Portfolio Trust
- ---------------------------------------
Richard T. Hale
/s/ Richard J. Herring Trustee of each Trust and Portfolio Trust
- ---------------------------------------
Richard J. Herring
/s/ Bruce E. Langton Trustee of each Trust and Portfolio Trust
- ---------------------------------------
Bruce E. Langton
/s/ Martin J. Gruber Trustee of each Trust and Portfolio Trust
- ---------------------------------------
Martin J. Gruber
/s/ Philip Saunders, Jr. Trustee of each Trust and Portfolio Trust
- ---------------------------------------
Philip Saunders, Jr.
/s/ Harry Van Benschoten Trustee of each Trust and Portfolio Trust
- ---------------------------------------
Harry Van Benschoten
</TABLE>
2
<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. 114
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 66
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
INVESTMENT TRUST
<PAGE>
INVESTMENT TRUST
Exhibit (i)
Exhibit (j)
Exhibit (p)(1)
Exhibit (p)(2)
2
[DECHERT PRICE & RHOADS LETTERHEAD]
April 11, 2000
Investment Trust
Two International Place
Boston, Massachusetts 02110
Re: Post-Effective Amendment No. 114 to the Registration Statement
on Form N-1A (SEC File No. 2-13628)
Ladies and Gentlemen:
Investment Trust, formerly Scudder Growth and Income Fund and then
Scudder Investment Trust, (the "Trust") is a trust created under a written
Declaration of Trust dated September 20, 1984. The Declaration of Trust, as
amended from time to time, is referred to as the "Declaration of Trust." The
beneficial interest under the Declaration of Trust is represented by
transferable shares, $.01 par value per share ("Shares"). The Trustees have the
powers set forth in the Declaration of Trust, subject to the terms, provisions
and conditions therein provided.
We are of the opinion that all legal requirements have been complied
with in the creation of the Trust and that said Declaration of Trust is legal
and valid.
Under Article V, Section 5.4 of the Declaration of Trust, the Trustees
are empowered, in their discretion, from time to time, to issue Shares for such
amount and type of consideration, at such time or times and on such terms as the
Trustees may deem best. Under Article V, Section 5.1, it is provided that the
number of Shares authorized to be issued under the Declaration of Trust is
unlimited. Under Article V, Section 5.11, the Trustees may authorize the
division of Shares into two or more series and may also authorize the division
of Shares of series of the Trust into two or more classes. By written
instruments, the Trustees have from time to time established various series of
the Trust and various classes of the series. The Shares are currently divided
into eight series (the "Funds"). Currently, the Shares of three Funds are
divided into two or more classes.
<PAGE>
Investment Trust
April 11, 2000
Page 2
By votes adopted on November 9, 1998 and November 2, 1999, the Trustees
of the Trust authorized the President, any Vice President, the Secretary and the
Treasurer, from time to time, to determine the appropriate number of Shares to
be registered, to register with the Securities and Exchange Commission, and to
issue and sell to the public, such Shares.
We understand that you are about to file with the Securities and
Exchange Commission, on Form N-1A, Post Effective Amendment No. 114 to the
Trust's Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
the continuous offering of the Shares of three Funds: Scudder Dividend & Growth
Fund, Scudder Growth and Income Fund and Scudder S&P 500 Index Fund. We
understand that our opinion is required to be filed as an exhibit to the
Registration Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of the Shares of the Fund named above has been duly taken, and that all
such Shares may be legally and validly issued for cash, and when sold will be
fully paid and non-assessable by the Trust upon receipt by the Trust or its
agent of consideration for such Shares in accordance with the terms in the
Registration Statement, subject to compliance with the Securities Act, the
Investment Company Act of 1940, as amended, and applicable state laws regulating
the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Post-Effective Amendment No. 114 to the Registration
Statement.
Very truly yours,
/s/Dechert Price & Rhoads
2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information constituting the Post-Effective Amendment
No. 114 to the Registration Statement on Form N-1A ("Registration Statement") of
Investment Trust comprised of Scudder S&P 500 Index Fund, of our reports dated
February 11, 2000, on the financial statements and financial highlights of
Scudder S&P 500 Index Fund and Equity 500 Index Portfolio appearing in the
December 31, 1999 Annual Report to the Shareholders of Scudder S&P 500 Index
Fund, which is also incorporated by reference into the Registration Statement.
We further consent to the references to our Firm under the heading "Financial
Highlights," in the Prospectus and "Experts" in the Statement of Additional
Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 10, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information constituting the Post-Effective Amendment
No. 114 to the Registration Statement on Form N-1A (the "Registration
Statement") of Investment Trust comprised of Scudder Dividend & Growth Fund and
Scudder Growth and Income Fund, of our reports dated February 25, 2000 and
February 11, 2000, respectively, on the financial statements and financial
highlights appearing in the December 31, 1999 Annual Reports to the Shareholders
of Scudder Dividend & Growth Fund and Scudder Growth and Income Fund, which are
also incorporated by reference into the Registration Statement. We further
consent to the references to our Firm under the heading "Financial Highlights,"
in the Prospectus and "Experts" in the Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 10, 2000
SCUDDER KEMPER INVESTMENTS, INC.
CODE OF ETHICS
- --------------------------------------------------------------------------------
Preamble
We will at all times conduct ourselves with integrity and distinction, putting
first the interests of our clients.
From the time of our Firm's inception, we have looked on our obligations to our
clients as fiduciary in nature. Our relationships were to be unencumbered in
fact or appearance by conflicts of interest, and the needs of our clients thus
represented a benchmark for assessing our own business decisions.
We believe and have always believed that our own long-term business interests
are best served by strict adherence to these principles. They are reflected in
the following internal policies and prescriptions and are implicit in the
judgment that our responsibilities exceed in scope and depth the literal
restrictions imposed by law on investor behavior (e.g., the prohibition on use
of inside information.).
The rules set forth in this Code have been adopted by Scudder Kemper
Investments, Inc. ("Scudder Kemper") and certain of its subsidiaries (the
"Covered Companies"), including Scudder Investor Services, Inc., Kemper
Distributors, Inc., Scudder Financial Services, Inc., Kemper Service
Corporation, Scudder Service Corporation, Scudder Trust Company, Scudder Fund
Accounting Corporation, and by Scudder Kemper-sponsored investment companies as
their codes of ethics applicable to Scudder Kemper-affiliated personnel.
Part 1: Conflicts of Interest
This Code does not attempt to spell out all possible cases of conflicts of
interest and we believe that members of the organization should be conscious
that areas other than personal investment transactions may involve conflicts of
interest. One such area would be accepting favors from brokers or other vendors
or service providers. We are a natural object of cultivation by firms wishing to
do business with us and it is possible that this consideration could impair our
objectivity.
A conflict of interest could also occur in securities which have a thin market
or are being purchased or sold in volume by any client or clients. Likewise, the
purchase of stocks or bonds in anticipation of (1) an upwards change to "Buy" in
the price rating, (2) their being added to the Investment Universe with a "Buy"
rating, or (3) their being purchased by a large account or group of accounts
would clearly be in conflict with our clients' interest.
Other examples of such conflicts would include the purchase or sale of a
security by a member of the organization prior to initiating a similar
recommendation to a client. Analysts occupy a particularly visible position. It
follows that analysts should be particularly careful to avoid the appearance of
"jumping the gun" before recommending a change in the rating on one of the
stocks for which he or she is responsible.
<PAGE>
Accordingly, all personnel are required to adhere to the following rules
governing their investment activities. These rules cannot cover all situations
which may involve a possible conflict of interest. If an employee becomes aware
of a personal interest that is, or might be, in conflict with the interest of a
client, that person should disclose the potential conflict to the Legal
Department for appropriate consideration, before any transaction is executed.
We are anxious to give every member of the Firm reasonable freedom with respect
to his/her own and family's investment activities. Furthermore, we believe that
we will be stronger and our product better if the members of the organization
have a personal interest in investing and the courage of their convictions with
respect to investment decisions. At the same time, in a profession such as ours,
it is possible to abuse the trust which has been placed in us and there could be
conflicts of interest between our clients and our personal investment
activities. In many cases such conflicts might be somewhat theoretical. On the
other hand, in a matter of this nature we must be almost as careful of
appearances as we are of the actual facts.
Our underlying philosophy has always been to avoid conflicts of interest
wherever possible and, where they unavoidably occur, to resolve them in favor of
the client. When a conflict does occur, an individual in an investment counsel
organization must recognize that the client's interests supercede the interests
of the Firm's employees and those of any members of the person's family whom he
or she may advise. This condition inevitably places some restriction on freedom
of investment for members of the organization and their families.
When any member of the organization thinks it possible that a personal
transaction can be misinterpreted as involving a conflict of interest, that
person is encouraged to write a short explanatory memorandum and attach it to
the confidential quarterly Personal Transaction Report (Form 1). Such a
memorandum should, of course, briefly document any discussion with and approval
by the Legal Department.
Personal Transaction Reports are reviewed by designees of the Ethics Committee,
who are responsible for determining whether violations have occurred, giving the
person involved an opportunity to supply additional information, and
recommending appropriate follow-up action including disciplinary measures for
late reports or other infractions.
Part 2: Personal Investments
Definitions
a. Access Person includes employees who have access to timely
information relating to investment management activities,
research and/or client portfolio holdings.
b. Affiliated person letter (407 letter) is a letter from the
compliance department on behalf of Scudder Kemper Investments,
Inc. authorizing an employee to open a brokerage account and
providing for the direction of duplicate trade confirmations
and account statements to the compliance department. All
access persons must apply for an affiliated person letter for
each personal account prior to making any personal trades for
the account. Employees who
2
<PAGE>
are not deemed access persons will receive an affiliated
person letter on request, but such letter will NOT require the
direction of duplicate trade confirmations and account
statements.
c. Beneficial Interest. You will be considered to have a
Beneficial Interest in any investment that is (whether
directly or indirectly) held by you, or by others for your
benefit (such as custodians, trustees, executors, etc.); held
by you as a trustee for members of your immediate family
(spouse, children, stepchildren, grandchildren, parents,
stepparents, grandparents, siblings, parents-in-law,
children-in-law, siblings-in-law); and held in the name of
your spouse, or minor children (including custodians under the
Uniform Gifts to Minors Act) or any relative of yours or of
your spouse (including an adult child) who is sharing your
home, whether or not you supervise such investments. You will
also be considered to have a Beneficial Interest in any
investment as to which you have a contract, understanding,
relationship, agreement or other arrangement that gives you,
or any person described above, a present or future benefit
substantially equivalent to an ownership interest in that
investment. For example, you would be considered to have a
Beneficial Interest in the following:
o an investment held by a trust of which you are the
settlor, if you have the power to revoke the trust
without obtaining the consent of all the
beneficiaries;
o an investment held by any partnership in which you
are a partner;
o an investment held by an investment club of which you
are a member;
o an investment held by a personal holding company
controlled by you alone or jointly with others.
If you have any question as to whether you have a Beneficial Interest in an
investment, you should review it with the Legal Department.
d. Covered Company is defined in the Preamble on page 1.
e. Derivative includes options, futures contracts, options on
futures contracts, swaps, caps and the like, where the
underlying instrument is a Security, a securities index, a
financial indicator, or a precious metal.
f. Employees includes all employees of each of the Covered
Companies who do not fall within the definition of Access
Person, Investment Personnel or Portfolio Manager.
g. Initial Public Offering shall include initial offerings in
equities.
h. Investment Personnel are traders, analysts, and other
employees who work directly with Portfolio Managers in an
assistant capacity, as well as those who in the course of
their job regularly receive access to client trading activity
(this
3
<PAGE>
would generally include members of the Investment Operations
and Mutual Fund Accounting groups). As those responsible for
providing information or advice to Portfolio Managers or
otherwise helping to execute or implement the Portfolio
Managers' recommendations, Investment Personnel occupy a
comparably sensitive position, and thus additional rules
outlined herein apply to such individuals.
i. Personal Account means an account through which an employee of
a Covered Company has a Beneficial Interest in any Security or
Derivative.
j. Personal Transaction means an investment transaction in a
Security or Derivative in which an employee of a Covered
Company has a Beneficial Interest.
k. Portfolio Managers are those employees of a Covered Company
entrusted with the direct responsibility and authority to make
investment decisions affecting a client. PIC Consultants are
included in this definition. In their capacities as
fiduciaries, Portfolio Managers occupy a more sensitive
position than many members of the Scudder Kemper organization
because they are originating transactions for their clients.
l. Private Placement is defined as an offering of a security,
which is being acquired in connection with an offering not
being made to "the public" but to a limited number of
investors and which has been deemed not to require
registration with the SEC.
m. Reportable Transaction includes any transaction in a Security
or Derivative; provided that Reportable Transaction does not
include any transaction in (i) direct obligations of the US
Government, or (ii) open-end investment companies for which
none of the Advisers serves as investment adviser.
n. Security includes without limitation stocks, bonds,
debentures, notes, bills and any interest commonly known as a
security, and all rights or contracts to purchase or sell a
security.
o. Scudder Kemper Funds means each registered investment company
to which an Adviser renders advisory services, other than
funds sponsored by an organization unaffiliated with Scudder
Kemper.
p. Waiver from preclearance exempts certain accounts from the
preclearance requirements. An access person may receive a
certificate of waiver from preclearance under the following
circumstances:
i. Account under the exclusive discretion of an access
person's spouse, where the spouse is employed by an
investment firm where the spouse is subject to
comparable preclearance requirements;
ii. The account is under the exclusive discretion of an
outside money manager; or
4
<PAGE>
iii. Any other situation where a waiver of preclearance is
appropriate.
A certificate of waiver from preclearance is available at the discretion of the
Ethics Committee. All accounts receiving a certificate of waiver from
preclearance must apply for a 407 letter. Transactions occurring in accounts
which have obtained a waiver from preclearance are not exempt from the quarterly
reporting requirement.
Specific Rules and Restrictions Applicable to all Employees
The following rules and restrictions are applicable to all Employees (including
Access Persons, Investment Personnel and Portfolio Managers):
a. Every Employee must file by the seventh day of the month
following the end of each quarter with the individual
designated by the Ethics Committee a confidential Personal
Transaction Report for the immediately preceding quarter (Form
1: Quarterly Personal Transaction Report). Each report must
set forth every Reportable Transaction for any Personal
Account in which the Employee has any Beneficial Interest.
In filing the reports for accounts within these rules please
note:
i. You must file a report every quarter whether or not
there were any Reportable Transactions. All
Reportable Transactions should be listed if possible
on a single form. For every Security listed on the
report, the information called for in each column
must be completed by all reporting individuals.
ii. Reports must show sales, purchases, or other
acquisitions, or dispositions, including gifts,
exercise of conversion rights and the exercise or
sale of subscription rights. Approved Personal
Transaction Preclearance Forms must be attached for
all applicable transactions. Reinvestment of
dividends (but not additional share purchases)
through dividend reinvestment plans of publicly held
companies need be indicated only on the line provided
above PURCHASES on the reverse side of the report.
iii. Quarterly reports on family and other accounts that
are fee-paying firm clients need merely list the
Scudder Kemper account number under Item #1 on Page 1
of the report; these securities transactions do not
have to be itemized.
iv. Employees may not purchase securities issued as part
of an initial public offering until three business
days after the public offering date (i.e., the
settlement date), and then only at the prevailing
market price. In addition, employees may not
participate in new issues of municipal bonds until a
CUSIP number has been identified.
5
<PAGE>
b. Employees are not permitted to serve on the boards of publicly
traded companies unless such service is approved in advance by
the Ethics Committee or its designee on the basis that it
would be consistent with the interests of the Firm. In the
case of Investment Personnel service on the board of a public
company must be consistent with the interests of the Fund with
which the Investment Personnel is associated as well as the
shareholders of such Fund, and the Investment Personnel must
be isolated from participating in investment decisions
relating to that company. See Part 7: Fiduciary and Corporate
Activities for further detail on the approval process.
c. For purposes of this Code, a prohibition or requirement
applicable to any given person applies also to transactions in
securities for any of that person's Personal Accounts,
including transactions executed by that person's spouse or
relatives living in that person's household, unless such
account is specifically exempted from such requirement by the
Ethics Committee or its designee.
d. Employees may not purchase or sell securities on the
Restricted List absent a special exception from the Legal
Department. Employees may not disclose the identities of
issuers on the Restricted List to others outside the firm.
Please See Part 3: Insider Trading, which is incorporated by
reference.
Specific Rules and Restrictions Applicable to all Access Persons
a. Access Persons are subject to each of the foregoing rules and
restrictions applicable to Employees.
b. Access Persons may not purchase or sell a "private placement"
security without the prior written approval of the Ethics
Committee or its designee and, in the case of Portfolio
Managers and research analysts, the additional approval of
their departmental reviewer (see Form 3: Special Preclearance
Form). Typically, a purchase of a private placement will not
be approved where any part of the offering is being acquired
by a client.
c. All Access Persons must disclose promptly to the Ethics
Committee or its designee the existence of any Personal
Account and must direct their brokers to supply duplicate
confirmations of all Reportable Transactions and copies of
periodic statements for all such accounts to an individual
designated by the Ethics Committee. (Use Form 5: Affiliated
Persons Letter.) These confirmations will be used to check for
conflicts of interest by comparing the information on the
confirmations against the Firm's pre-clearance records (see
sub-section (f) below) and quarterly Personal Transaction
Reports.
d. All Access Persons are required to "pre-clear" their personal
transactions with the Ethics Committee's designee. (Use Form
2: Preclearance Form.) If circumstances are such that the Firm
lacks the ability to preclear a particular transaction,
permission to execute that transaction will not be granted.
Submissions for request of trade approval must be submitted no
later than 3:30pm. If preclearance is granted, the Access
Person has until the end of the day preclearance is granted to
execute his or her trade. After such time the
6
<PAGE>
Access Person must obtain preclearance again. (Limit orders
which have been precleared and placed within this time limit
need not be precleared on subsequent days so long as the terms
of the order are not changed.) Prior approval is not required
for the exercise of rights, the rounding out of fractional
shares and receipt of stock dividends or stock splits.
Similarly, prior approval is not required for transactions in
shares of registered open-end investment companies (except in
the case of a Portfolio Manager who wishes to purchase or sell
shares of his/her Fund when the Fund is other than a money
market fund) and U.S. Government securities transactions.
e. Access Persons may not purchase any Security where the
investment rating is upgraded to "Buy" (or any Security added
to the Investment Universe with a "Buy" rating until two weeks
after the date of the rating change or addition. (See SP&P
#31-5 regarding Price Rating System.)
f. Access Persons may not sell any Security where the investment
rating is downgraded to "Unattractive" until two weeks after
the date of the rating change.
g. Access Persons may not purchase securities that are added to
the PIC Universe until two weeks after the date of the
addition.
h. In the event that an Access Person desires to trade less than
$10,000 of a Security that has a market capitalization of at
least $5 billion, pre-clearance will be granted absent special
circumstances. (However, please note that even trades falling
within this de minimus exception must be pre-cleared with the
Ethics Committee or its designee.)
i. No Access Person will receive approval to execute a securities
transaction when any client has a pending "buy" or "sell"
order in that same (or a related) Security until that order is
executed or withdrawn. Examples of related securities include
options, warrants, rights, convertible securities and American
Depository Receipts, each of which is considered "related" to
the Security into which it can be converted or exchanged.
j. Within 10 days of the commencement of employment (or within 10
days of obtaining Access Person status) all Access Persons
must disclose all holdings of securities and/or derivatives in
which they have a Beneficial Interest (and indicate which of
those holdings are private placements). Access Persons must
file an initial report even if they have no holdings. Holdings
in direct obligations of the U.S. Government and mutual (i.e.,
open-end) funds other than Scudder Kemper Funds need not be
listed.
k. Access Persons shall submit an Annual Statement of Securities
Holdings as part of the annual ethics questionnaire. The
Annual Statement of Securities Holdings shall only include
holdings that are not received by the Legal Department in the
form of duplicate statements.
7
<PAGE>
Specific Rules and Restrictions Applicable to Investment Personnel
a. Investment Personnel are subject to each of the foregoing
rules and restrictions applicable to Employees and Access
Persons.
b. Investment Personnel are prohibited from profiting from the
buying and selling, or selling and buying, of the same (or
related) securities within a 60 calendar-day period.
c. Investment Personnel who hold a privately placed Security of
an issuer whose securities are being considered for purchase
by a client must disclose to their departmental reviewer that
preexisting interest where they are involved in the
consideration of the investment by the client (using Form 3:
Special Transaction Preclearance Form). The client's purchase
of such securities must be approved by the relevant
departmental reviewer.
d. Research analysts are required to obtain special preclearance
(using Form 3: Special Transaction Preclearance Form) and
approval from their supervisor prior to purchasing or selling
a Security in an industry or country he or she follows.
Specific Rules and Restrictions Applicable to Portfolio Managers
a. Portfolio Managers are subject to each of the foregoing rules
and restrictions applicable to Employees, Access Persons and
Investment Personnel.
b. Portfolio Managers may not buy or sell a Security within seven
calendar days before and after a portfolio that he or she
manages trades in that Security.
c. When a Portfolio Manager wants to sell from his or her
Personal Account securities held by his or her clients, the
Portfolio Manager must receive prior written approval from the
Ethics Committee or its designee (Using Form 3) before acting
for the Personal Account. The Portfolio Manager must explain
his or her reasons for selling the securities.
d. When a Portfolio Manager wants to purchase for a Personal
Account a Security eligible for purchase by one of his or her
clients, the Portfolio Manager must receive prior written
approval from the Ethics Committee or its designee (Using Form
3) before acting for the Personal Account. The Portfolio
Manager must explain his or her reasons for purchasing the
securities.
e. A Portfolio Manager may not engage in short sales other than
"short sales against the box" for which both Regular and
Special Preclearance are required.
8
<PAGE>
General
a. Apart from these specific rules, purchases and sales should be
arranged in such a way as to avoid any conflict with clients
in order to implement the intent of this Code. Any attempt by
an employee to do indirectly what this Code is meant to
prohibit will be deemed a direct violation of the Code. If
there is any doubt whether you may be in conflict with
clients, particularly with respect to securities with thin
markets, you should check before buying or selling with the
Ethics Committee or its designee.
b. Hardship exceptions may be granted, in the sole discretion of
the Ethics Committee or its designee, with respect to certain
provisions of this Code in rare instances where unique
circumstances exist.
c. The Ethics Committee or its designee, on behalf of the Firm,
will report annually to each Scudder Kemper Fund's board of
directors concerning existing procedures and any material
changes to those procedures as well as any instances requiring
significant remedial action during the past year which relate
to that Fund.
d. Access Persons are permitted to maintain Margin Accounts.
Nonetheless, sales by Access Persons pursuant to margin calls
must be precleared in accordance with standard preclearance
procedures.
Excessive Trading
The firm believes that it is appropriate for its members to participate in the
public securities markets as part of their overall personal investment programs.
As in other areas, however, this should be done in a way that creates no
potential conflicts with the interests of our clients or our firm. Further, it
is important that members recognize that otherwise appropriate trading, if
excessive (measured in terms of frequency, complexity of trading programs or
numbers of trades), or if conducted during work-time or using firm resources,
can give rise to conflicts of a different category such as by distracting time,
focus, and energy from our efforts on behalf of our clients or by exceeding a
reasonable standard of firm accommodation of members' basic personal needs.
Accordingly, personal trading rising to such dimension as to create this
possibility is not consistent with the Code of Ethics, should be avoided, and
will not be approved. This provision is consistent with Group policies and by
Zurich Basics, which sets out the Group's core values and basic principles.
Disgorgement; Other Penalties
Any profits realized from a transaction that was not precleared or from a
transaction that otherwise violates a provision of this Code will be disgorged
to an appropriate charity. The Ethics Committee, in its discretion, may waive
disgorgement in exceptional circumstances. The Ethics Committee also reserves
the right to impose other penalties for violations of the Code, including
requiring reversal of a trade, fines, suspension of trading privileges and,
under the most serious of violations, termination of employment.
9
<PAGE>
Part 3: Insider Trading
I. Introduction
Employees may not transact in a security while in possession of material,
nonpublic information relating to the issuer of the security. This prohibition
applies to trading on behalf of client accounts and personal accounts. In
addition, employees may not convey material, nonpublic information about public
traded issuers to others outside the company.
SP&P 16 -11B sets forth the company policy on Insider Trading, and is
incorporated into the Code of Ethics by reference.
II. General guidelines
Employees may not transact in a security, on behalf of a client account or a
personal account, while in possession of material, nonpublic information
concerning the issuer of the security.
a. Employees who receive information which they believe may be
material and nonpublic are required to contact the Legal
Department immediately. In such circumstances, employees
should not share the information with other employees,
including supervisors. Employees may not share material,
nonpublic information with others outside the firm.
b. Employees may not purchase or sell securities on the
Restricted List absent a special exception from the Legal
Department. Employees may not disclose the identities of
issuers on the Restricted List to others outside the firm.
c. Employees may not solicit material, nonpublic information from
officers, directors or employees of public issuers.
d. Employees may not knowingly transact in securities prior to
trades made on behalf of clients, or prior to the publication
of research relating to the security.
e. Employees may not cause nonpublic information about a security
to be passed across a firewall.
III. Definitions
Material information is information that a reasonable investor would find
relevant to making an investment decision. Any information which if announced to
the public, would likely cause a change in the price of a security, is likely to
be material.
The following types of information are likely to be material: earnings, mergers
and acquisitions, dividends and special dividends, product developments,
licenses, changes in management, major litigation or regulatory action, and/or
actions by prominent investors.
Nonpublic information is information that has not been disclosed to the public.
Information available in newspapers, magazines, radio, television, and/or news
services is generally public information.
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Restricted List is a document disseminated by the Legal Department setting forth
securities which employees may not buy and/or sell for personal and client
accounts.
A firewall is a procedure designed to prevent the misuse of material, nonpublic
information received by the firm in the course of its business. Employees with
questions concerning firewall procedures and their applicability should contact
the Legal Department for further guidance. SP&P 16 -11C sets forth the company
policy on Firewall Procedures, and is incorporated into the Code of Ethics by
reference.
Part 4: Confidentiality
Our obligation as fiduciaries to act at all times in our clients' best interests
requires that we share information concerning our clients -- including
particularly information concerning their identities, holdings and account
transactions -- with those outside the Firm only on a "need to know" basis.
Accordingly, no member of the organization may discuss with, or otherwise inform
others of, the identity of any client, or any actual or contemplated transaction
for the account of a client, except in the performance of employment duties or
in an official capacity and then only for the benefit of the client, and in no
event for a direct or indirect personal benefit.
Part 5: Proprietary Rights of the Firm
When a member of the organization leaves the firm, for whatever reason, certain
business principles and procedures should be observed. Some are obvious and
inherent in the basic ethical relationship between any person and his or her
firm. In our case, there are many additional constraints as a result of our
being a confidential fiduciary in a field involving special ethical, regulatory
and professional considerations.
By way of background, the firm does not wish to deter any individuals from
furthering their careers, if they think their situation can be improved with
another firm. But if any member of the organization does move on to another
firm, he or she does so subject to those constraints.
The collective efforts of everyone at Scudder Kemper have contributed over a
period of years to what our firm is today. This includes our recognized
reputation as professional investors with a high sense of personal integrity and
ethics. Many persons have contributed to the investment product we offer and
have participated in the development of our roster of existing and prospective
clients. The central principle is that the client has retained the firm, not any
individual. Members of the firm should also understand that our clients and our
employees are central to the value of the firm. Accordingly, for at least six
quarters after the departure (unless a longer period has been agreed to),
departing members of the firm may not solicit clients to retain, or other firm
employees to join, another investment management firm.
Any member of the organization must recognize that these elements of our
business are the property of the firm and its clients. In addition, the firm has
certain obligations not to disclose the confidential and proprietary information
of third party suppliers. None of such materials
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or information may be removed from the firm or used in any way outside of
Scudder Kemper either during or after association with the firm.
In brief, the actions of anyone in the organization or of any departing member
of the organization are expected to be consistent with the spirit and intent of
this memorandum which reasserts the fact that no one of us can take away, use or
otherwise make available to a third party what belongs to the firm or its
supplier.
For example, the following items are representative of the property of the firm
or its suppliers and are not to be removed whether they are original documents,
copies, tapes or reproductions of any kind:
o Names, addresses, telephone numbers and other client contact
and correspondence procedures.
o Records and files of our clients' accounts including the
computer database.
o Account operational procedures and instructions.
o Asset listings for clients and prospects including cost
prices, dates of acquisition and the like.
o All firm research memoranda, procedures and files, including
drafts thereof, as well as procedures, notes or tapes of
research interviews, discussions, annual reports and company
releases, brokers' reports, outside consultants' reports and
any other material pertaining to investments.
o All operating memoranda such as Standard Policy and Procedures
memoranda, operations manuals, procedures and memoranda, and
compliance checklists, manuals, procedures and memoranda.
o All computer software programs, databases and related
documentation pertaining to account or research operations,
procedures or controls including access to and use of such
programs.
o Presentation materials (including drafts, memoranda and other
materials related thereto) prepared for marketing purposes or
client meetings, including computer software programs and
documentation of third party suppliers.
o All information pertaining to investment counsel and fund
prospects including lists and contact logs.
o Account performance data for all accounts which have been or
are under the supervision of the firm.
o Internal analyses, management information reports and
worksheets such as marketing and business plans, profit margin
studies, and compensation reviews.
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These examples are only illustrative and not intended as all inclusive. In
addition, you are reminded of our long and strong tradition of confidentiality
with respect to client affairs and the confidential information of third party
suppliers and the representations we make to our clients and our suppliers in
this regard.
In order to maintain the professional nature of the firm, we have an obligation
to protect vigorously the rights of our clients and the firm. The firm may
enforce these rights pursuant to appropriate judicial proceedings.
Alternatively, the firm, in its discretion, may initiate proceedings before the
American Arbitration Association in order to resolve any controversy or claim it
may have arising out of or relating to this policy, or breach of it, and
judgment on an award rendered by the arbitrator may be entered in any court
having jurisdiction.
Part 6: Gifts and Entertainment
I. Overview
It is appropriate for employees to maintain friendly but professional
relationships with persons with whom Scudder Kemper conducts its business. These
business counterparts may include persons who are associated with Scudder
Kemper's vendors, contractors, providers of service, and members of the
investment community. It is appropriate for employees to give and/or receive
gifts, business meals and/or entertainment from such business counterparts,
provided that they are not excessive in value or frequency. The good judgment of
our employees and their supervisors is of paramount importance in ensuring
compliance with this provision.
SP&P 16-11A sets forth the company policy on Gifts and Entertainment, and is
incorporated into the Code of Ethics by reference.
II. General Guidelines
a. Employees may not accept gifts that are excessive in value or
frequency.
b. The following types of transactions should be approved by a
supervisor using Form 6 (The Scudder Kemper Gift Form; See
Section III):
i. Gifts valued in excess of $100;
ii. Business meals valued in excess of $200; and
iii. Entertainment valued in excess of $300.
c. Invitations which involve the payment of substantial expenses
generally should be avoided (See SP&P 16-2A). Under most
circumstances lodging and transportation charges should be
considered the obligation of Scudder Kemper.
d. The frequency of invitations should also be taken into
account, especially entertainment. Employees generally should
not accept more than three invitations a year from any single
individual, group or organization, subject to
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approval from a supervisor.
e. When analysts and product leaders accept broker invitations to
research and investment meetings, an effort should be made to
use firms on our "Approved List" or those which are bona fide
candidates for the list. It is not good business practice to
accept assistance and invitations from firms with which we are
not likely to do business.
f. Employees may not accept gifts of cash. Employees may not
accept gifts of favorable rates on financial transactions such
as loans or brokerage commissions.
III. Reporting and Supervision
As described above, gifts valued at over $100 and the other items outlined in
II(b) hereof, must be approved by a supervisor. The supervisor must have a
corporate title of Managing Director or Senior Vice President, and must be in
the same department as the employee receiving the gift. The Scudder Kemper Gift
Form (Form 6) must be completed within ten days of receipt of the gift.
Completed gift forms are sent to Carol Beckett, at 345 Park Avenue, NY, NY
10154. In addition, gifts subject to Form 6 must be reported on the Quarterly
Personal Transaction Report.
Part 7: Fiduciary and Corporate Activities
In many fiduciary and corporate activities, members of the organization are, or
will become, engaged in responsible duties involving the expenditure of time and
the application of information and experience which properly belong to the firm
or are derived from the Scudder Kemper relationship. With certain exceptions
referred to below, any compensation or profits from these activities are,
accordingly, considered to be Scudder Kemper's income.
The Ethics Committee must give written approval to all existing or prospective
relationships and activities as described below, and no new relationship should
be initiated without written authorization on Form 7: Request For Approval of
Fiduciary, Corporate or Other Outside Activity. In those instances when approval
of a prospective fiduciary relationship, e.g., executor or trustee, has been
given and the individual subsequently is in a position to qualify and act in the
fiduciary capacity, that person is required to reapply for approval if the
character of the activity changes. The same procedures should be followed as
those for the approval of any fiduciary activity except that reference should be
made to the earlier obtained approval under "Salient Facts" on the approval
form.
Executorships
The duties of an executor are often arduous, time consuming and, to a
considerable extent, foreign to our business. As a general rule, Scudder Kemper
wishes to discourage acceptance of executorships by members of the organization.
However, business considerations or family relationships may make it desirable
to accept executorships under certain wills. In these instances follow the
procedures set forth in SP&P #16-15, Acting As Executor Under A Client's Will.
In all cases, it is necessary for the individual to have the written
authorization
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of the firm to act as an executor.
When members of the organization accept executorships under clients' wills, the
organization has consistently held to the belief that these individuals are
acting for Scudder Kemper and that fees received for executors' services
rendered while associated with the firm are exclusively Scudder Kemper income.
In such instances, the firm will indemnify the individual, and the individual
will be required at the time of qualifying as executor to make a written
assignment to the firm of any executor's fees due under such executorship.
Copies of this assignment and Scudder Kemper's authorization to act as executor
are to be filed in the client's file.
Generally speaking, it is not desirable for members of the organization to
accept executorships under the wills of non-clients. Normally, however,
authorization will be given in the case of executorships for members of an
individual's immediate family assuming that arrangements for the anticipated
work load can be made without undue interference with the individual's
responsibilities to Scudder Kemper. (For example, this may require the
employment of an agent to handle the large amount of detail which is usually
involved.) In such a case, the firm would expect the individual to retain the
commission. There may be other exceptions which will be determined by the facts
of each case. All such existing or prospective relationships should be reported
in writing.
Trusteeships
It is often desirable for members of the organization to act individually as
trustees for clients' trusts. Such relationships are not inconsistent with the
nature of our business. As a general rule, Scudder Kemper does not accept
trustee's commissions where it acts as investment counsel. As in the case of
executorships, all trusteeships must have the written approval of the firm.
It is our standard practice to indemnify those individuals who act as trustees
for clients' trusts at the request of the firm. In this connection, the
individual member of the organization acting as a trustee will be asked to agree
not to claim or accept trustee's commissions for acting. This applies to trusts
which employ Scudder Kemper as investment counsel or those which are invested in
one or more of the Funds administered by Scudder Kemper.
It is recognized that individuals may be asked to serve as trustees of trusts
which do not employ Scudder Kemper. As in the case of executorships, the firm
will normally authorize individuals to act as trustees for trusts of their
immediate family. Other non-client trusteeships can conflict with our clients'
interests so that acceptance of such trusteeships will be authorized only in
unusual circumstances.
Custodianships for Minors
It is expected that most custodianships will be for minors of an individual's
immediate family. These will be considered as automatically authorized and do
not require written approval of the firm. However, the written approval of
Scudder Kemper is required for all other custodianships for minors.
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Directorships and Consultant Positions in Business Corporations
Occasionally, members of the organization are asked to serve as directors or
consultants in business organizations. As a general policy, Scudder Kemper
considers it inadvisable for such individuals to serve in these capacities. No
such position may be accepted without the written authorization of the Ethics
Committee or its designee. In the exceptional instances where such authorization
is granted, the fees or other income resulting from such a relationship are to
be turned over to Scudder Kemper (unless the firm decides otherwise) to
compensate it for the resources made available. Scudder Kemper reserves the
right to require that any member of the organization relinquish any outside
business connection when it believes that such connection is unduly time
consuming or conflicts with the interests of the firm or its clients.
Public and Charitable Positions
Scudder Kemper has consistently encouraged members of the organization to take
part in community activities and to take an active role in public and charitable
organizations. The firm expects that when accepting such duties, members of the
organization will consider possible conflicts of interest with our business as
well as the demands that such positions make upon their time. Several examples
of possible conflicts might be helpful.
When agreeing to serve in a public or charitable position, a member of the
organization should clarify in advance in writing that he or she will not
provide free continuous investment advice and management. This should be made
particularly clear where Investment Committee responsibilities are considered.
Serving without compensation on the Investment Committee of a charity which
might appropriately employ Scudder Kemper would ordinarily not be in our best
interest and prior written approval is required.
Another example of a possible conflict which should be avoided arises when a
charity is involved in fund raising. Our work gives us access to detailed
knowledge of each client's capacity to contribute and is compounded by the close
relationship which should exist between consultant and client. For any member of
the organization in the course of a charitable solicitation to take advantage of
this confidential relationship -- or even to seem to do so -- would be
unprofessional. Even under the best circumstances, the solicitation of a client
by a member of the organization is awkward and discouraged.
Members of the organization should also make it clear in writing to the public
or charitable organization that they will not participate in any search or
selection process for a future investment adviser. It is expected that the
participation of a member of the Scudder Kemper organization in a charitable
organization will not preclude the firm from being a candidate for employment as
investment counsel to that organization.
Outside Activities
The foregoing does not cover all situations in which a member of the
organization may be in a position to realize financial gain which should be
treated as belonging to Scudder Kemper. It is expected that opportunities for
substantial compensation or profit from sources outside of the firm may, for
example, be offered to a member of the organization by reason of his association
with the firm or because of his investment and financial skill or experience.
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Scudder Kemper reserves the right to decide if such compensation or profit
should be accepted and, if accepted, whether or not it should be turned over to
Scudder Kemper. All such cases must be reported promptly in writing for Ethics
Committee review and before they are operative.
New Employees
It is desirable that any fiduciary or corporate activities of a prospective
employee be reviewed by Scudder Kemper prior to the conclusion of arrangements
for employment. However, if such activities have not been reported prior to
employment, they should be reported in writing as promptly as possible
thereafter. It is recognized that there may be justification for treating such
activities which ante-date the individual's association with the firm on a
different basis than might otherwise apply. However, Scudder Kemper reserves the
right to make what it considers an appropriate determination in each case. It
also reserves the right to require that any employee give up any fiduciary or
corporate activity which it finds in conflict with the best interests of the
firm or any of its clients.
Written Approval
Where written approval is required, Form 7 should be filed with the Ethics
Committee. A separate form should be filed for each trust, executorship and the
like. Note that once an activity has been approved, no additional requests for
approval need be filed unless the character of the activity changes, e.g., if a
member of the organization has obtained approval to be named as a prospective
executor or trustee, that individual should submit a new request to qualify and
serve in this capacity by resubmitting a new Form 7 for review.
Part 8: External Communications
In our sales, marketing, client reporting and corporate communications
activities, the Firm's products, services, capabilities, and past and potential
accomplishments must be presented fairly, accurately and clearly. All marketing
materials must be reviewed by the Global Compliance Group in accordance with
SP&P #12-7. All press interviews must be cleared in advance by Public Relations.
Reports to clients, including client account valuation and performance data,
must be fair.
Part 9: Reporting Apparent Violations
Scudder Kemper believes that maintaining a strong compliance culture is in the
best interest of the firm and its clients, in that it helps both to maintain
client and employee confidence, and to avoid the costs (both reputational and
monetary) associated with compliance violations. While reducing compliance
violations to a minimum is our goal, realistically speaking, violations may
occur from time to time in an organization as large as ours. When violations
occur, it is important that they be dealt with immediately by the appropriate
members of the organization. We encourage all Scudder Kemper employees to report
apparent compliance violations to the Legal Department. Violations that go
unreported have the potential to cause far more damage than violations that are
taken care of immediately upon discovery.
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It is extremely important that apparent compliance violations be reported
through the appropriate channels. The Legal Department should be contacted in
all cases except cases involving potential violations of Human Resources
policies, which should be reported directly to Human Resources. While resolving
apparent compliance violations should virtually always involve the management of
the business unit involved, it is not necessarily appropriate (nor is it
required) that an employee report apparent violations to his or her manager, as
well as to the Legal Department.
Reports of apparent compliance violations will be treated confidentially to the
fullest extent possible. In no event will the firm tolerate retaliation against
persons who report apparent compliance violations. We realize that employees may
lack the training to distinguish actual from apparent compliance violations, and
accordingly, the fact that a reported incident proves, after investigation, not
to have involved a compliance violation will not result in any sanction against
the reporter, provided that the report was made in good faith.
Part 10: Condition of Employment or Service
Compliance with the Code of Ethics is a condition of employment or continued
affiliation with Scudder Kemper and the Scudder Kemper Funds, and conduct not in
accordance shall constitute grounds for actions including termination of
employment or removal from office.
Employees must certify annually that they have read and agree to comply in all
respects with this Code of Ethics and that they have disclosed or reported all
personal transactions it requires to be disclosed or reported. (See Form 4:
Annual Acknowledgement of Obligations Under Code of Ethics). In addition, each
year every member of the organization is required to file with the Legal
Department a complete list of all fiduciary, corporate, and other relationships
of the nature described in Part 7 above. The report is titled Form 8: Annual
Review of Personal Activities and is attached to this memorandum.
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Exhibit (p)(2)
Code of Ethics and Procedures
Pursuant to Rule 17j-1 under the
Investment Company Act of 1940
This Code of Ethics (the "Code") has been adopted by each Investment Company
listed on Exhibit A, attached hereto (each, a "Trust") to specify and prohibit
certain types of personal securities transactions deemed to create a conflict of
interest and to establish reporting requirements and preventive procedures
pursuant to the provisions of Rule 17j-1(b)(1) under the Investment Company Act
of 1940 (the "1940 Act").
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, officer, or Advisory
Person (as defined below) of the Investment Company or any investment
advisor thereof, or (ii) any director or officer of a principal underwriter
of the Investment Company, who, in the ordinary course of his or her
business, makes, participates in or obtains information regarding the
purchase or sale of securities for the Investment Company for which the
principal underwriter so acts or whose functions or duties as part of the
ordinary course of his or her business relate to the making of any
recommendation to the Investment company regarding the purchase or sale of
securities or (iii) notwithstanding the provisions of clause (i) above,
where the investment adviser is primarily engaged in a business or
businesses other than advising registered investment companies or other
advisory clients, any trustee, director, officer or Advisory Person of the
investment adviser who, with respect to the Investment Company, makes any
recommendation or participates in the determination of which
recommendations shall be made, or whose principal function of duties relate
to the determination of which recommendations shall be made to the
Investment Company or who in connection with his or her duties, obtains any
information concerning securities recommendations being made by such
investment adviser to the Investment Company.
B. An "Advisory Person" means any employee of the Investment Company or any
investment advisor thereof (or of any company in a control relationship to
the Investment Company or such investment adviser), who, in connection with
his or her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of securities by the Investment
Company or whose functions relate to any recommendations with respect to
such purchases or sales and any natural person in a control relationship
with the Investment Company or adviser who obtains information regarding
the purchase or sale of securities.
C. A "Portfolio Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting the
Investment Company.
D. "Access Persons", "Advisory Persons" and "Portfolio Managers" shall not,
unless otherwise provided in the code of ethics of the Investment Company's
investment adviser any subadviser, administrator or principal underwriter,
include any individual who is required to file quarterly reports with the
Investment Company's investment adviser, any subadviser, administrator or
principal underwriter pursuant to a code of ethics substantially in
conformity with Rule 17j-1 of the 1940 Act or Rule 204-2 of the Investment
Advisers Act of 1940 which has been approved by the Investment Company's
Board of Trustees.
E. "Beneficial Ownership" shall be interpreted subject to the provisions of
Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the Securities
Exchange Act of 1934.
F. "Control" shall have the same meaning as set forth in Section 2(a)(9) of
the 1940 Act.
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G. "Disinterested Trustee" means a Trustee who is not an "interested person"
of the Investment Company within the meaning of Section 2(a)(19) of the
1940 Act. An "interested person" includes any person who is a trustee,
director, officer or employee of any investment adviser of the Investment
Company, or owner of 5% or more of the outstanding stock of any investment
adviser of the Investment Company. Affiliates of brokers or dealers are
also "interested persons", except as provided in Rule 2(a)(19)(1) under the
1940 Act.
H. "Review Officer" is the person designated by the Investment Company's Board
of Trustees to monitor the overall compliance with this Code. In the
absence of any such designation, the Review Officer shall be the Treasurer
or any Assistant Treasurer of the Investment Company.
I. "Preclearance Officer" is the person designated by the Investment Company's
Board of Trustees to provide preclearance of any personal security
transaction as required by this Code.
J. "Purchase or sale of a security" includes, among other things, the writing
of an option to purchase or sell a security or the purchase or sale of a
future or index on a security or option thereon.
K. "Security" shall have the meaning set forth in Section 2(a)(36) of the 1940
Act (in effect, all securities) except that is shall not include securities
issued by the U.S. Government (or any other "government security" as that
term is defined in the 1940 Act), bankers' acceptances, bank certificates
of deposit, commercial paper and such other money market instruments as may
be designated by the Trustees of the Investment Company, and shares of
registered open-end investment companies.
L. A security is "being considered for purchase or sale" when a recommendation
to purchase or sell the security has been made and communicated and, with
respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal investment
activities of all Access Persons.
Each Access Person shall:
A. At all times, place the interests of the Investment Company before his or
her personal interests;
B. Conduct all personal securities transactions in a manner consistent with
this Code, so as to avoid any actual or potential conflicts of interest, or
an abuse of position of trust and responsibility; and
C. Not take an inappropriate advantage of his or her position with or on
behalf of the Investment Company.
III. UNLAWFUL ACTIONS
It is unlawful for any affiliated person of or principal underwriter for a Fund,
or any affiliated person of an investment adviser of or principal underwriter
for a Fund, in connection with the purchase or sale, directly or indirectly, by
the person of a security held or to be acquired by the Fund:
A. To employ any device, scheme or artifice to defraud the Fund;
B. To make any untrue statement of a material fact to the Fund or to omit to
state a material fact necessary in order to make statements made to the
Fund, in light of the circumstances in which they are made, not misleading;
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C. To engage in any act, practice or course of business that operates or would
operate as a fraud or deceit on the Fund; or
D. To engage in any manipulative practice with respect to the Fund.
IV. RESTRICTIONS OF PERSONAL INVESTING ACTIVITIES
A. Blackout Periods
1. No Access Person (other than a Disinterested Trustee) shall purchase
or sell, directly or indirectly, any security in which he or she has,
or by reason of such transaction acquires, any direct or indirect
beneficial ownership on a day during which he or she knows or should
have known the Investment Company has a pending "buy" and "sell" order
in that same security until that order is executed or withdrawn.
2. No Advisory Person or Portfolio Manager shall purchase or sell,
directly or indirectly, any security in which he or she has, or by
reason of such transaction acquires, any direct or indirect beneficial
ownership within at least seven calendar days before and after the
Investment Company trades (or has traded) in that security.
B. Initial Public Offerings
No Advisory Person shall acquire any security in an initial public offering
for his or her personal account.
C. Private Placements
With regard to private placements, each Advisory Person shall:
1. Obtain express prior written approval from the Preclearance Officer
for any acquisition of securities in a private placement (the
Preclearance Officer, in making such determination, shall consider,
among other factors, whether the investment opportunity should be
reserved for the Investment Company, and whether such opportunity is
being offered to such Advisory Person by virtue of his or her position
with the Investment Company); and
2. After authorization to acquire securities in a private placement has
been obtained, disclose such personal investment with respect to any
subsequent consideration by the Investment Company (or any other
investment company for which he or she acts in a capacity as an
Advisory Person) for investment in that issuer.
If the Investment Company decides to purchase securities of an issuer
the shares of which have been previously obtained for personal
investment by an Advisory Person, that decision shall be subject to an
independent review by Advisory Persons with no personal interest in
the issuer.
D. Short-Term Trading Profits
No Advisory Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities of which such Advisory
Person has beneficial ownership within 60 calendar days. any profit so
realized shall, unless the Investment Company" Board of Trustees approves
otherwise, be disgorged as directed by the Investment Company's Board of
Trustees.
E. Gifts
No Advisory Person shall receive any gift or other things of more than de
minimis value from any person or entity that does business with or on
behalf of the Investment Company.
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F. Service as a Director or Trustee
1. No Advisory Person shall serve on the board of directors or trustees
of a publicly traded company without prior authorization from the
Board of Trustees of the Investment Company, based upon a
determination that such board service would be consistent with the
interests of the Investment Company and its investors.
2. If board service by an Advisory Person is authorized by the Board of
Trustees of the Investment Company such Advisory Person shall be
isolated from the investment making decisions of the Investment
Company with respect to the companies of which he or she is a director
or trustee.
G. Exempted Transactions
The prohibitions of Section IV shall not apply to:
1. Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of the Access
Person or the Investment Company, including mergers, recapitalizations
or similar transactions;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired; and
5. Purchases or sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to the
Investment Company because they would be very unlikely to affect a
highly institutional market, (b) clearly not economically related to
the securities to be purchased or sold or held by the Investment
company or client, and (c) not representing any danger of the abuses
proscribed by Rule 17j-1, but only if in each case the prospective
purchaser has identified to the Review Officer all factors of which he
or she is aware which are potentially relevant to a conflict of
interest analysis, including the existence of any substantial economic
relationship between his or her transaction and securities held or to
be held by the Investment Company.
V. COMPLIANCE PROCEDURES
A. Preclearance
1. An Access Person (other than a Disinterested Trustee) may not,
directly or indirectly, acquire or dispose of beneficial ownership of
a security except as provided below unless:
a. Such purchase or sale has been approved by the Preclearance
Officer;
b. The approved transaction is completed on the same day approval is
received; and
c. The Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
2. Each Access person may effect total purchase and sales of up to
$25,000 of securities listed on a national securities exchange or on
NASDAQ within any six month period without preclearance from the Board
of Trustees or the Preclearance Officer provided that:
a. The six month period is a "rolling" period, i.e., the limit is
applicable between any two dates which are six months apart;
b. Transactions in options and futures, other than options or
futures on commodities, will be included for purposes of
calculating whether the $25,000 limit has been exceeded. such
transactions will be measured by the value of the securities
underlying options and futures; and
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c. although preclearance is not required for personal transactions
in securities which fall into this "de minimis" exception, these
trades must still be reported on a quarterly basis pursuant to
Section V.B.2. hereunder, if such transactions are reportable.
B. Reporting
1. Coverage: Each Access Person (other than Disinterested Trustees) shall
file with the Review Officer confidential quarterly reports containing
the information required in Section V.B.2 hereunder with respect to
all transactions during the preceding quarter in any securities in
which such person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership, provided that no Access
Person shall be required to report transactions effected for any
account over which such Access Person has no direct or indirect
influence or control (except that such an Access Person must file a
written certification stating that he or she has no direct or indirect
influence or control over the account in question).
2. Filings: Every report shall be made no later than ten days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information:
a. The date of the transaction, the title and the number of shares
and the principal amount of each security involved;
b. The nature of the transaction (i.e. purchase, sale, or any other
type of acquisition or disposition);
c. The price at which the transaction was effected; and
d. The name of the broker, dealer or bank with or through whom the
transaction was effected.
3. Any report may contain a statement that it shall not be construed as
an admission by the person making the report that he or she has any
direct or indirect beneficial ownership in the security to which the
report relates.
4. Confirmations: All Access Persons (other than Disinterested Trustees)
shall direct their brokers to supply the Investment Company's Review
Officer on a timely basis, duplicate copies of all personal securities
transactions.
C. Review
In reviewing transactions and holding reports, the Review Officer shall
take into account the exemptions allowed under Section IV.G. hereunder.
Before making a determination that a violation has been committed by an
Access Person, the Review Officer shall give such person an opportunity to
supply additional information regarding the transaction in question. Each
Fund, investment adviser or principal underwriter shall maintain a list of
names of appropriate management and compliance personnel responsible for
reviewing securities transactions and holdings reports.
D. Disclosure of Personal Holdings
All Advisory Persons shall disclose personal securities holdings upon
commencement of employment and thereafter on an annual basis.
E. Certification of Compliance
Each Access Person is required to certify annually that he or she has read
and understood this Code and recognizes that he or she is subject to the
Code. Further, each Access Person is required to certify annually that he
or she has complied with all the requirements of this Code and that he or
she has disclosed or reported all personal securities transactions pursuant
to the requirements of the Code.
<PAGE>
VI. REQUIREMENTS FOR DISINTERESTED TRUSTEES
A. No report is required if such person is a Disinterested Trustee, and such
person would be required to make such report solely by reason of being a
Trustee, except where such Trustee knew, or in the ordinary course of
fulfilling his official duties as a Trustee of the Funds, should have known
that during the fifteen day period immediately preceding or after the date
of the transaction in a security by the Trustee, such security is or was
purchased or sold, or considered for purchase or sale by the Funds.
B. Notwithstanding the preceding section, any Disinterested Trustee may, at
his or her option, report the information described in Section V.B.2. above
with respect to any one or more transactions and may include a statement
that the report shall not be construed as an admission that the person knew
or should have known of portfolio transactions by the Investment Company in
such securities.
VII. REVIEW BY THE BOARD OF TRUSTEES
The Board of Trustees, including a majority of Trustees who are not interested
persons, must approve the Code of Ethics of the Fund, the Code of Ethics of each
investment adviser and principal underwriter of the Fund, and any material
changes to these Codes. The board must base its approval of a Code and any
material changes to the Code based on a determination that the Code contains
provisions reasonably necessary to to prevent Access Persons from engaging in
any conduct prohibited by paragraph III. of these policies and procedures.
Before approving a Code of a Fund, investment adviser or principal underwriter
or any amendment to the Code, the Board of Trustees must receive a certification
from the Fund, investment adviser or principal underwriter that it has adopted
procedures reasonably necessary to prevent Access Persons from violating the
investment adviser's or principal underwriter's Code of Ethics. The Fund's board
must approve the Code of an investment adviser or principal underwriter before
initially retaining the services of the investment adviser or principal
underwriter. The Fund's board must approve a material change to a Code no later
than six months after adoption of the material change.
At least annually, the Review Officer shall provide to the Board of Trustees:
A. A review of all existing procedures concerning Access Persons' personal
trading activities and any procedural changes made during the past year;
B. Any recommended changes to the Investment Company's Code or procedures; and
C. A written report describing any issues or violations that occurred during
the past year, including, but not limited to, information about material
Code or procedural violations and sanctions imposed in response to those
violations.
D. Certification that the Fund, investment adviser or principal underwriter
has adopted procedures reasonably necessary to prevent its access persons
from violating its Code of Ethics.
VIII. SANCTIONS
A. Sanctions for Violations By Access Persons (Except Disinterested Trustees)
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Trustees and the Board may
impose such sanctions as it deems appropriate, including inter alia,
disgorgement of profits, censure, suspension or termination of the
employment of the violator. All material violations of the code and any
sanctions imposed as a result thereto shall be reported periodically to the
Board of Trustees.
<PAGE>
B. Sanctions for Violations by Disinterested Trustees
If the Review Officer determines that any Disinterested Trustee has
violated this code, he or she shall so advise the President of the
Investment Company and also a committee consisting of the Disinterested
Trustees (other than the person whose transaction is at issue) and shall
provide the committee with a report, including the record of pertinent
actual or contemplated portfolio transactions of the Investment Company and
any additional information supplied by the person whose transaction is at
issue. The committee, at its option, shall either impose such sanctions as
it deems appropriate or refer the matter to the full Board of Trustees of
each Trust, which shall impose such sanctions as it deems appropriate.
IX. MISCELLANEOUS
A. Access Persons
The Review Officer of the Investment Company will identify all Access
Persons who are under a duty to make reports to the Investment Company and
will inform such person so of such duty. Any failure by the Review Officer
to notify any person of his or her duties shall not relieve such person of
his or her obligations hereunder.
B. Records
The Investment Company's administrator shall maintain records in the manner
and to the extent set froth below, which records may be maintained on
microfilm under the conditions described in Rule 31a-2(f) under the 1940
Act, and shall be available for examination by representatives of the
Securities and Exchange Commission ("SEC"):
1. A copy of this Code and any other code which is, or at any time within
the past five years has been, in effect shall be preserved in an
easily accessible place;
2. A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs;
3. A copy of each report made pursuant to this Code shall be preserved
for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily accessible
place; and
4. A list of all persons who are required, or within the past five years
have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by Law.
D. Interpretation of Provisions
The Board of Trustees of the Investment Company may from time to time adopt
such interpretations of this Code as it deems appropriate.
<PAGE>
<TABLE>
<S> <C>
BT INVESTMENT FUNDS PRESERVATIONPLUS FUND
BT INSTITUTIONAL FUNDS PRESERVATIONPLUS INCOME FUND
THE LEADERSHIP TRUST U.S. BOND INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
SMALL CAP PORTFOLIO EQUITY 500 INDEX PORTFOLIO
CASH MANAGEMENT PORTFOLIO ASSET MANAGEMENT I,II & III PORTFOLIO
TREASURY MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
DAILY ASSETS FUND EQUITY APPRECIATION PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND QUANTITATIVE EQUITY FUND
TAX FREE MONEY PORTFOLIO INTERMEDIATE TAX FREE PORTFOLIO
NY TAX FREE MONEY PORTFOLIO BT INVESTMENT PORTFOLIOS
INTERNATIONAL EQUITY PORTFOLIO BT INSURANCE FUNDS TRUST
LATIN AMERICAN EQUITY PORTFOLIO (each, an "Investment Company")
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
</TABLE>
TRANSACTION REPORT
------------------
To: ____________________________, Review Officer
From: ______________________________________
(Your name)
This Transaction Report (the "Report") is submitted pursuant to Section
V of the Code of Ethics, as of [ , 1999] (the Code), of the above referenced
Trust and supplies (below) information with respect to transactions in any
security in which I may be deemed to have, or by reason of such transaction
acquire, any direct or indirect beneficial ownership interest (whether or not
such security is a security held or to be acquired by the Investment Company)
for the calendar quarter ended ____________.
Unless the context otherwise requires, all terms used in this Report
shall have the same meaning as set forth in the Code.
For purposes of this Report, beneficial ownership shall be interpreted
subject to the provisions of the Code and Rule 16a-1(a) (exclusive of Section
(a)(1) of such Rule) of the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------ ---------------
Title of Securities Date of Nature of Principal Amount Price at Which Name of the Nature of
- ------------------- Disposition of Transaction, of Securities the Transaction Broker, Dealer, Securities*
Transaction Whether Transaction was Effected or Bank with -----------
-------------- Purchase, Sale Disposed Of --------------- Whom the
or Other type of ---------------- Ownership Was
Acquired Or Effected
Acquisition --------------
-----------------
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------ ---------------
</TABLE>
* If appropriate, you may disclaim beneficial ownership of any security
listed in this Report.
<PAGE>
I HEREBY CERTIFY THAT I (1) HAVE READ AND UNDERSTAND THE CODE OF THE
INVESTMENT COMPANY (2) RECOGNIZE THAT I AM SUBJECT TOT HE CODE, (3) HAVE
COMPLIED WITH THE REQUIREMENTS OF THE CODE OVER THE PAST YEAR*, (4) HAVE
DISCLOSED ALL PERSONAL SECURITIES TRANSACTIONS OVER THE PAST YEAR* REQUIRED TO
BE DISCLOSED BY THE CODE, (5) HAVE SOUGHT AND OBTAINED PRECLEARANCE WHENEVER
REQUIRED BY THE CODE AND (6) CERTIFY THAT TO THE BEST OF MY KNOWLEDGE THE
INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
NAME (Print): _________________________________________________________
SIGNATURE: ___________________________________________________________
DATE: _____________________________________________________________
(*) OR PORTION THEREOF DURING WHICH THE CODE HAS BEEN IN EFFECT.
<PAGE>
BT INVESTMENT FUNDS INTERNATIONAL EQUITY PORTFOLIO
BT INSTITUTIONAL FUNDS LATIN AMERICAN EQUITY PORTFOLIO
BT PYRAMID MUTUAL FUNDS PACIFIC BASIN EQUITY PORTFOLIO
THE LEADERSHIP TRUST GLOBAL EMERGING MARKETS EQUITY
BT INVESTMENT PORTFOLIO PORTFOLIO
BT INSURANCE FUNDS TRUST QUANTITATIVE EQUITY FUND
CASH MANAGEMENT PORTFOLIO SMALL CAP PORTFOLIO
TREASURY MONEY PORTFOLIO EQUITY 500 INDEX PORTFOLIO
INSTITUTIONAL TREASURY ASSETS EAFE INDEX PORTFOLIO
FUND U.S. BOND INDEX PORTFOLIO
DAILY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND ASSET MANAGEMENT I, II & III
TAX FREE MONEY PORTFOLIO PORTFOLIOS
NY TAX FREE MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
PRESERVATIONPLUS FUND EQUITY APPRECIATION PORTFOLIO
PRESERVATIONPLUS INCOME FUND INTERMEDIATE TAX FREE PORTFOLIO
PERSONAL TRADING REQUEST AND AUTHORIZATION
------------------------------------------
This Personal Trading Request and Authorization is submitted pursuant
to the Code of Ethics as of [ , 1999] (the "Code") of the above referenced.
Unless the context otherwise requires, all terms used herein shall have the same
meaning as set forth in the Code.
Personal Trading Request (to be completed by Access Person prior to any personal
trade):
Name of Access Person: ___________________________________________________
Date of proposed transaction: ________________________________________________
Name of the issuer and dollar amount or number of securities of the issuer to be
purchased or sold:
________________________________________________________________________________
Nature of the transaction (i.e. purchase, sale)^1:
________________________________________________________________________________
Are you or is a member of your immediate family an officer, trustee, or
director of the issuer of the securities or any affiliate^2 of the
issuer? |_| Yes |_| No
If yes, please describe:
________________________________________________________________________________
________________________________________________________________________________
^1 If other than market order, please describe any proposed limits.
^2 For purposes of this question, "affiliate" includes (I) any entity that
directly or indirectly owns, controls or holds with power to vote 5% or
more of the outstanding voting securities of the issuer and (II) any entity
under common control with the issuer.
<PAGE>
Describe the nature of any direct or indirect professional or business
relationship that you may have with the issuer of the securities.^3
________________________________________________________________________________
________________________________________________________________________________
Do you have an material nonpublic information concerning the
issuer? |_| Yes |_| No
Do you beneficially own more than 1/2 of 1% of the outstanding equity securities
of the issuer?
|_| Yes |_| No
If yes, please report the name of the issuer and the total number of
shares "beneficially owned":
________________________________________________________________________________
________________________________________________________________________________
Are you aware of any facts regarding the proposed transaction, including the
existence of any substantial economic relationship between the proposed
transaction and any securities held or to be acquired by the Investment Company,
that may be relevant to a determination as to the existence of a potential
conflict of interest?^4 |_| Yes |_| No
If yes, please describe:
________________________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
^3 A "professional relationship" includes, for example, the provision of legal
counsel or accounting services. a "business relationship" includes, for
example, the provision of consulting services or insurance coverage.
^4 Facts that would be responsive to this question would include, for example
the receipt of "special favors" from a stock promoter, including
participation in a private placement or initial public offering as an
inducement to purchase other securities for the Investment Company. Another
example would be investment in securities of a limited partnership that in
turn owned warrants of a company formed for the purpose of effecting a
leveraged buy-out in circumstances where the Investment Company might
invest in securities related to a leveraged buy-out. The foregoing are only
examples of pertinent facts and in no way limit the types of facts that may
be responsive to this question.
<PAGE>
To the best of my knowledge and belief, the answers I have provided above are
true and correct.
Dated:
------------------------------- ---------------------------------------
Signature of Access Person
Approval or Disapproval of Personal Trading Request (to be completed by
Preclearance Officer) prior to personal trade:
___ I confirm that the above-described proposed transaction appears to be
consistent with the policies described in the Code and that the
conditions necessary^5 for approval of the proposed transaction have been
satisfied.
___ I do not believe that the above-described proposed transaction appears to
be consistent with the policies described in the Code or that the
conditions necessary for the approval of the proposed transaction have
been satisfied.
Dated:
------------------------------- ---------------------------------------
Signature of Preclearance Officer
- --------------------------------------------------------------------------------
^5 In the case of a personal securities transaction by an Access Person of the
Investment Company (other than Disinterested Trustees), the Code requires
that the Preclearance Officer determine that the proposed personal
securities transaction (I) is not potentially harmful to the Investment
Company (II) would be unlikely to affect the market in which the Investment
Company's portfolio securities are traded, and (III) is not related
economically to securities to be purchased, sold, or held by the Investment
Company. In addition, the Code requires that the Preclearance Officer
determine that the decision to purchase or sell the security at issue is
not he result of information obtained in the course of the Access Person's
relationship with the Investment Company.
<PAGE>
EXHIBIT A
BT INVESTMENT FUNDS
BT INSTITUTIONAL FUNDS
BT PYRAMID MUTUAL FUNDS
THE LEADERSHIP TRUST
BT INVESTMENT PORTFOLIO
BT INSURANCE FUNDS TRUST
CASH MANAGEMENT PORTFOLIO
TREASURY MONEY PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND
DAILY ASSETS FUND
LIQUID ASSETS FUND
TAX FREE MONEY PORTFOLIO
NY TAX FREE MONEY PORTFOLIO
PRESERVATIONPLUS FUND
PRESERVATIONPLUS INCOME FUND
INTERNATIONAL EQUITY PORTFOLIO
LATIN AMERICAN EQUITY PORTFOLIO
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
QUANTITATIVE EQUITY FUND
SMALL CAP PORTFOLIO
EQUITY 500 INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
U.S. BOND INDEX PORTFOLIO
SMALL CAP INDEX PORTFOLIO
ASSET MANAGEMENT I, II & III PORTFOLIOS
CAPITAL APPRECIATION PORTFOLIO
EQUITY APPRECIATION PORTFOLIO
INTERMEDIATE TAX FREE PORTFOLIO
<PAGE>
Rules for Business Conduct
Issue Date: September 1998
- --------------------------------------------------------------------------------
Contents
--------
Letter to All Employees
-----------------------
Introduction
------------
Corporate Conduct
-----------------
Bankers Trust's Reputation
--------------------------
Ethical Conduct
---------------
Lawful Conduct
--------------
Bankers Trust Policies and Standards
------------------------------------
Internal Reporting Obligation
-----------------------------
Questions
---------
Rules for Dealing with Potential Conflicts of Interest
------------------------------------------------------
The Basic Rule
--------------
Personal Benefit
----------------
Improper Payments or Gifts
--------------------------
Permissible Business Gifts
--------------------------
Bankers Trust Gifts to Persons Other than Government Officials
--------------------------------------------------------------
Bankers Trust Gifts to Government Officials
-------------------------------------------
Business Affiliations
---------------------
Borrowing Arrangements
----------------------
Outside Employment
------------------
Personal Fiduciary Arrangements with Customers
----------------------------------------------
Personal Investments
--------------------
Rules for Dealing with Governmental Officials and Political Candidates
----------------------------------------------------------------------
Corporate Payments or Political Contributions
---------------------------------------------
Personal Political Contributions
--------------------------------
Entertainment of Government Officials
-------------------------------------
Rules for Dealing with Information
----------------------------------
Insider Trading
---------------
Confidential Information
------------------------
Proprietary Information
-----------------------
Proprietary Products and Transactions
-------------------------------------
Information Technology
----------------------
Privacy of Electronic and Other Information
-------------------------------------------
Financial and Accounting Information
------------------------------------
Regulatory and Other Reporting
------------------------------
Information and Accounting Controls
-----------------------------------
Governmental or Regulatory Inquiries
------------------------------------
Responding to Media Inquiries and Requests for Speeches
-------------------------------------------------------
Rules for Dealing with Customers, Suppliers and the Public
----------------------------------------------------------
The Basic Rule
--------------
New Business Initiatives
------------------------
New Client Approval
-------------------
"Know Your Customer"
--------------------
Communication with Customers and the Public
-------------------------------------------
Pricing and Terms
-----------------
Customer Complaints
-------------------
Improper Customer Conduct
-------------------------
Special Regulatory Matters Involving Customers
----------------------------------------------
Anti-Competitive Conduct
------------------------
Tying Arrangements
------------------
Purchases and Commitments
-------------------------
Rules for Dealing with Other Employees
--------------------------------------
The Basic Rule
--------------
Cooperation
-----------
Awareness
---------
Supervision
-----------
Due Care in Delegation
----------------------
Instruction and Training
------------------------
Review and Monitoring
---------------------
Correction and Follow-Up
------------------------
Preferential Treatment
----------------------
Unlawful Conduct
----------------
Human Resources Policies
------------------------
Off-Premises Requirement for Employees In Sensitive Positions
-------------------------------------------------------------
Rules for Dealing with Certain Legal, Judicial or Regulatory Matters;
---------------------------------------------------------------------
Reports of Violations
---------------------
General Matters
---------------
Violations of Bankers Trust Policies
------------------------------------
Fraudulent Activity
-------------------
Arrests, Indictments and Convictions
------------------------------------
Employee Involvement in Regulatory and Other Formal Proceedings
---------------------------------------------------------------
Lobbying, Public Testimony and Related Matters
----------------------------------------------
Managing Officer Reporting
--------------------------
Other Matters
-------------
Ongoing Compliance
------------------
Resignation and Termination
---------------------------
Modifications to or Waivers of the Rules
----------------------------------------
Confirming Your Compliance with the Rules
-----------------------------------------
If You Have Questions
---------------------
(C) 1998 Bankers Trust Corporation
Bankers Trust
September 1998
All Employees:
This is your personal copy of the Rules for Business Conduct, which sets forth
the Firm's code of business ethics. Please read this document carefully and
advise any staff members you may supervise to do so as well.
The Rules describe our commitment to conduct all business of Bankers Trust in
the spirit of fair dealings, consideration for the rights of others, and strict
principles of good corporate citizenship and practices. As employees, we have an
important responsibility to ensure that our own conduct meets the highest
standards of personal and corporate integrity. Only through the continuing
efforts of each of us to adhere to these principles can Bankers Trust's
reputation for high ethical and professional standards be maintained.
These Rules apply to all employees of Bankers Trust and its subsidiaries,
regardless of location. The policies and standards contained in the booklet
protect and guide each of us in making our business decisions, and in our
dealings on behalf of Bankers Trust. Your commitment to comply with the letter
and the spirit of these Rules, and your common sense and good judgment in
recognizing when you may need to seek guidance as to how they should be applied
to situations you encounter, are essential.
Should you ever have any question as to how to interpret or apply the Rules to
any event or circumstance, I encourage you to seek guidance from the Compliance
Department.
Sincerely,
Frank Newman
Chairman and
Chief Executive Officer
Introduction
- --------------------------------------------------------------------------------
The Rules for Business Conduct (the Rules) apply worldwide to all employees of
Bankers Trust Corporation and its subsidiaries (referred to herein as "Bankers
Trust" or the "Firm"). These Rules set forth the Firm's global commitment to
conduct all business of Bankers Trust lawfully and in accordance with high
standards of personal and corporate integrity.
Adhering to the Rules for Business Conduct is one of the conditions of
employment with Bankers Trust. Failure to comply may subject you to disciplinary
action, including possible dismissal.
No written rules can anticipate every situation. Common sense and good judgment
in responding to situations that may not seem to be specifically covered by
these Rules, and in recognizing when to seek advice regarding the application of
the Rules, are a must for each employee.
The Rules for Business Conduct incorporate certain requirements of U.S. Federal
and New York state laws and regulations. Where there is a conflict between the
provisions of the Rules for Business Conduct and the requirements of local laws
and regulations of other jurisdictions in which Bankers Trust does business,
those local laws will prevail.
Corporate Conduct
- --------------------------------------------------------------------------------
1. Bankers Trust's Reputation
The Firm's reputation for integrity is its most valuable asset, and the conduct
of its employees must protect this asset at all times. Accordingly, Bankers
Trust and its employees obligate themselves to conduct their business on behalf
of Bankers Trust in accordance with high ethical standards, and to avoid
personal conduct which may compromise the Firm's reputation.
2. Ethical Conduct
The Rules for Business Conduct are based on fundamental principles of fairness,
honesty and ethical behavior. All business of Bankers Trust should be conducted
in the spirit of fair dealings, consideration for the rights of others, and
strict principles of good corporate citizenship and practices.
3. Lawful Conduct
Bankers Trust requires compliance with the law in the conduct of its business.
Employees should consult with the Legal Department if they have any questions
regarding the laws of any country or jurisdiction where Bankers Trust does
business.
4. Bankers Trust Policies and Standards
All employees are required to maintain ongoing compliance with all statements of
policies, procedures and standards of Bankers Trust, and with lawful and ethical
business practices, whether or not they are specifically mentioned in the Rules
for Business Conduct.
5. Internal Reporting Obligation
You are required to report any known or suspected violations of the Rules to
your Managing Officer and to the Compliance Department. If for any reason you
believe that the matter cannot be raised through that channel, you should report
it directly to the head of Corporate Compliance in New York.
For purposes of these Rules, your "Managing Officer" is defined to be an officer
of at least the Managing Director level to whom you directly or indirectly
report, who is in charge of the unit or office to which you are assigned. Your
Managing Officer is senior to you and would generally be a Department Head,
Division Head, Function Head, Group Head, General Manager or Company President.
For purposes of these Rules, the "Compliance Department" refers to the Bankers
Trust Compliance Department and the BTAL Compliance Department. The Bankers
Trust Compliance Department is organized generally by U.S. business lines and
regionally for Asia, Europe/Middle East/Africa and Latin America, and is
comprised of the following groups:
o Broker-Dealer Compliance (including Latin America)
o Fiduciary Compliance
o Corporate Compliance
o Europe & Asia Regional Compliance
The BTAL Compliance Department is organized generally by business lines in
Australia and New Zealand.
6. Questions
If you are in doubt as to the specific application of these Rules or about the
propriety of any particular conduct, you must bring the matter to the attention
of your Managing Officer and the Compliance Department prior to taking action.
Rules for Dealing with Potential Conflicts of Interest
- --------------------------------------------------------------------------------
1. The Basic Rule
There must be no conflict, or appearance of conflict, between the self-interest
of any employee and the responsibility of that employee to Bankers Trust, its
shareholders or its customers.
2. Personal Benefit
You must never improperly use your position with Bankers Trust for personal or
private gain to you, your family or any other person.
3. Improper Payments or Gifts
You are prohibited from soliciting or accepting any personal payment or gift to
influence, support or reward any service, transaction or business involving
Bankers Trust, or that appears to be made or offered to you in anticipation of
any future service, transaction or business opportunity. A payment or gift
includes any fee, compensation, remuneration or thing of value.
Under the Bank Bribery Act and other applicable laws and regulations, severe
penalties may be imposed on anyone who offers or accepts such improper payments
or gifts. If you receive or are offered an improper payment or gift, or if you
have any questions as to the application or interpretation of Bankers Trust's
rules regarding the acceptance of gifts, you must bring the matter to the
attention of the Compliance Department.
4. Permissible Business Gifts
Subject to the prerequisites of honesty, absolute fulfillment of fiduciary duty
to Bankers Trust, relevant laws and regulations, and reasonable conduct on the
part of the employee, the acceptance of some types of reasonable business gifts
received by employees may be permissible, and the rules are as follows:
o Cash gifts of any amount are prohibited. This includes cash
equivalents such as gift certificates, bonds, securities or
other items that may be readily converted to cash.
o Acceptance of non-cash gifts, souvenirs, tickets for sporting
or entertainment events, and other items with a value less
than U.S. $200 or its equivalent is generally permitted, when
it is clear that they are unsolicited, unrelated to a
transaction and the donor is not attempting to influence the
employee. In accordance with regulations and practices in
various jurisdictions, as well as the rules of the New York
Stock Exchange (the "NYSE") and the National Association of
Securities Dealers (the "NASD"), employees of certain business
lines may be subject to more stringent gift giving and
receiving guidelines. For example, employees of BT Alex. Brown
Incorporated (the U.S. Broker-Dealer) are generally not
permitted to offer or accept gifts with a value greater than
U.S. $100.
o Acceptance of gifts, other than cash, given in connection with
special occasions (e.g., promotions, retirements, weddings,
holidays), that are of reasonable value in the circumstances
are permissible.
o Employees may accept reasonable and conventional business
courtesies, such as joining a customer or vendor in attending
sporting events, golf outings or concerts, provided that such
activities involve no more than the customary amenities.
o The cost of working session meals or reasonable related
expenses involving the discussion or review of business
matters related to Bankers Trust may be paid by the customer,
vendor or others, provided that such costs would have
otherwise been reimbursable to the employee by Bankers Trust
in accordance with the Firm's travel and entertainment and
expense reimbursement policies.
5. Bankers Trust Gifts to Persons Other than Government Officials
In appropriate circumstances, it may be acceptable and customary for Bankers
Trust to extend gifts to customers or others who do business with the Firm. You
should be certain that the gift will not give rise to a conflict of interest, or
appearance of conflict, and that there is no reason to believe that the gift
will violate applicable codes of conduct of the recipient. Employees with
appropriate authority to do so may make business gifts at the Firm's expense,
provided that the following requirements are met:
o Gifts in the form of cash or cash equivalents may not be given
regardless of amount.
o The gift must be of reasonable value in the circumstances, and
should not exceed a value of U.S. $200 (or U.S. $100 if the
gift falls under NYSE, NASD or similar applicable rules)
unless the specific prior approval of the appropriate Managing
Officer is obtained.
o The gift must be lawful and in accordance with generally
accepted business practices of the governing
jurisdictions.
o The gift must not be given with the intent to influence or
reward any person regarding any business or transaction
involving Bankers Trust.
6. Bankers Trust Gifts to Government Officials
You must contact the Compliance Department prior to making any gift to a
governmental employee or official. You should be aware that various government
agencies, legislative bodies and jurisdictions may have rules and regulations
regarding the receipt of gifts by their employees or officials. In some cases,
government employees or officials may be prohibited from accepting any gifts.
(Refer to page 12 for additional rules regarding political contributions.)
- --------------------------------------------------------------------------
7. Business Affiliations
As a general rule, a conflict of interest, or the appearance of a conflict,
might arise if your Bankers Trust duties involve any actual or potential
business with a person, entity or organization in which you or your Family
Members have a substantial personal or financial interest. Accordingly, the
following rules apply:
a. You may not act on behalf of Bankers Trust in connection with
any business or potential business involving any person,
entity or organization in which you or your Family Members
have direct or indirect (i) managerial influence, such as
serving as an executive officer, director, general partner or
similar position or (ii) substantial ownership or beneficial
interest.
b. You must promptly notify your Managing Officer and the
Compliance Department of any business affiliation that you or
your Family Members have that might give rise to a conflict of
interest, or the appearance of a conflict, by virtue of your
Bankers Trust duties and position, the nature of the
activities of your business unit and the nature of your
outside business affiliation. If, in the judgment of Bankers
Trust, the situation presents a concern, steps will be taken
to resolve it.
c. You must obtain the permission of a member of the Bankers
Trust Management Committee prior to accepting any appointment
to serve as an executive officer, director, general partner or
similar position of any person, entity or organization which
is an existing or prospective customer, supplier or competitor
of Bankers Trust.
d. If you are an officer of any Bankers Trust entity, you are
required to report certain information about your business
affiliations annually to the Office of the Secretary. In
addition, you must report to the Office of the Secretary,
within 10 days of each occurrence, any situation involving an
existing or prospective customer, supplier or competitor of
Bankers Trust in which either you or your Family Members:
o serve or accept an appointment to serve as an
executive officer, director, general partner or
similar position; or
o hold or acquire any substantial ownership or
beneficial interest, or have a 10% or greater
ownership or controlling interest.
You must determine whether any of the following definitions apply to your
business affiliation or the situation of the person, entity or organization with
which you are affiliated, and you should raise any questions about their
application to your Managing Officer and the Compliance Department. The
following definitions help you determine how this rule applies to your
particular circumstances:
"Family Members" For purposes of the Rules for Business Conduct, your Family
Members include your spouse, minor children, and any other person who resides in
your household or depends on you or your spouse for financial support.
"Substantial Interest" Whether a particular ownership or beneficial interest is
"substantial" depends on the circumstances, such as the size and nature of the
entity's business and the nature of its relationship to Bankers Trust; your
Bankers Trust duties in relation to that entity; and the size and nature of the
interest in that entity in relation to your compensation and net worth.
"Existing or Prospective Customer, Supplier or Competitor" An existing or
prospective customer or supplier of Bankers Trust includes any person, entity or
organization that (i) has done business with Bankers Trust within the past year,
or (ii) has been in contact with Bankers Trust during the past year regarding
potential business, regardless of whether or not you work in the particular unit
that deals with that customer or supplier. A competitor of Bankers Trust
includes any person, entity or organization that does business in competition
with any unit of Bankers Trust.
8. Borrowing Arrangements
In general, you should borrow only from banks, thrifts, consumer finance
companies, brokerage firms, and other institutions that regularly lend money and
extend credit in the ordinary course of their business (herein called "Financial
or Consumer Lenders"). The following additional rules apply:
o You are not permitted to solicit or accept treatment from any
lender which the lender would not in the ordinary course of
business extend to any unrelated third party.
o You are not permitted to borrow from an existing or
prospective customer, supplier or competitor of Bankers Trust
unless it is a Financial or Consumer Lender, and the credit is
extended in the ordinary course of its business and involves
only the usual and customary terms.
o You are required to obtain the written permission of your
Managing Officer prior to borrowing from other than a Consumer
and Financial Lender.
o In general, you are permitted to borrow personally from your
parents, grandparents or other close relatives. However, you
must still ensure that such borrowing will not give rise to a
conflict of interest regarding Bankers Trust or your Bankers
Trust duties.
If you are a Bankers Trust officer, borrowing arrangements from other than a
Financial or Consumer Lender must be reported to the Office of the Secretary
within 10 days of being incurred.
9. Outside Employment
You may not engage in any employment or activity outside of Bankers Trust that
could reasonably be expected to conflict with the interests of Bankers Trust or
interfere with your Bankers Trust responsibilities. You must obtain the written
permission of your Managing Officer prior to accepting any outside employment,
consultancy or position for which you will receive compensation.
You are permitted to engage on a voluntary basis in lawful charitable, civic,
religious or political organizations, and to receive reimbursement of reasonable
and normal expenses from such an organization. No Managing Officer approval is
required if your volunteer activities do not interfere with your ability to
perform your Bankers Trust duties, and there is no conflict of interest, or
appearance of a conflict, resulting from any relationship between the
organization and Bankers Trust.
10. Personal Fiduciary Arrangements with Customers
You may not directly or indirectly accept any bequest or legacy from a customer,
or accept personal appointment to serve as a customer's executor, administrator,
trustee or guardian, unless that customer is your Family Member (as previously
defined), or is closely related to you (such as your parents or grandparents).
Additionally, you may not personally accept power of attorney or sole signing
authority on behalf of any customer account. Any exception to the foregoing
requires the written approval of a member of the Bankers Trust Management
Committee.
11. Personal Investments
You must always act to avoid any actual or potential conflict of interest
between your Bankers Trust duties and responsibilities, and your personal
investment activities. To avoid potential conflicts, you should not personally
invest in securities issued by companies with which you have significant
dealings on behalf of Bankers Trust, or in investment vehicles sponsored by
them. Additional rules that apply to securities transactions by employees,
including the requirement for employees to pre-clear personal securities
transactions and rules regarding how Employee Related Accounts must be
maintained, are described in the booklet entitled Personal Securities
Transactions by Employees, a supplement to the Firm's policy statement
Confidential Information, Insider Trading and Related Matters. Copies of these
policies can be obtained from the Compliance Department.
Rules for Dealing with Governmental Officials and Political Candidates
- --------------------------------------------------------------------------------
1. Corporate Payments or Political Contributions
No corporate payments or gifts of value may be made to any outside party,
including any government official or political candidate or official, for the
purpose of securing or retaining business for the Firm, or influencing any
decision on its behalf.
o Bankers Trust maintains a Political Action Committee,
supported by voluntary contributions from its officers,
through which contributions are made to political parties or
candidates. The Political Action Committee is the only means
by which Bankers Trust may lawfully participate in U.S.
Federal elections.
o Corporate contributions to political parties or candidates in
jurisdictions not involving U.S. Federal elections are
permitted only when such contributions are made in accordance
with applicable local laws and regulations, and the prior
approval of a member of the Bankers Trust Management Committee
has been obtained.
Under the Foreign Corrupt Practices Act, Bank Bribery Law, Elections Law and
other applicable regulations, severe penalties may be imposed on Bankers Trust
and on individuals who violate these laws and regulations. Similar laws and
regulations may also apply in various countries and legal jurisdictions where
Bankers Trust does business.
2. Personal Political Contributions
No personal payments or gifts of value may be made to any outside party,
including any government official or political candidate or official, for the
purpose of securing business for Bankers Trust or influencing any decision on
its behalf. You should always exercise care and good judgment to avoid making
any political contribution that may give rise to a conflict of interest, or the
appearance of conflict. For example, if your business unit engages in business
with a particular governmental entity or official, you should avoid making
personal political contributions to officials or candidates who may appear to be
in a position to influence the award of business to Bankers Trust.
Certain employees, such as those who are engaged in Bankers Trust's municipal
finance and municipal securities activities, are subject to the requirements set
forth in Bankers Trust's policy "Complying with MSRB G-37." In addition,
employees assigned to certain areas of BT Alex. Brown Incorporated are required
to obtain approval of the Compliance Department prior to making or soliciting
political contributions. Contact your supervisor or the Compliance Department to
obtain a copy of this policy or if you have any questions regarding political
contributions.
3. Entertainment of Government Officials
Entertainment and other acts of hospitality toward government or political
officials should never compromise or appear to compromise the integrity or
reputation of the official or Bankers Trust. When hospitality is extended, it
should be with the expectation that it will become a matter of public knowledge.
Rules for Dealing with Information
- --------------------------------------------------------------------------------
1. Insider Trading
Purchasing or selling securities, futures, loans or other financial instruments
while in possession of material nonpublic information about or affecting them,
or improperly disclosing such nonpublic information directly or indirectly to
others, is prohibited. This prohibition applies to personal transactions as well
as transactions effected in the course of your employment, and to all material
nonpublic information, regardless of whether you obtained it as a result of your
employment with Bankers Trust. If you are uncertain whether information in your
possession is material or nonpublic, you must consult the Compliance Department
before making a purchase or sale to which it is relevant. Violation of
applicable insider trading laws and regulations could subject you to substantial
personal civil or criminal penalties.
2. Confidential Information
Improper disclosure or misuse of confidential information, such as information
related to specific transactions, Bankers Trust, its customers or others, is
prohibited. You are required to treat confidential information in a responsible
and proper manner, and in accordance with the policies and procedures of Bankers
Trust.
You must read and comply with Bankers Trust's policies and procedures regarding
the protection and use of confidential information, as set forth in the policy
statement "Confidential Information, Insider Trading and Related Matters." You
should contact the Compliance Department if you need a copy of this policy.
3. Proprietary Information
Bankers Trust's trade secrets and know-how, financial information concerning
Bankers Trust, its customers, and its employees, and specifications, programs,
materials and documentation relating to all financial models and products,
computer and telecommunications systems, software, hardware and applications
developed or used by Bankers Trust are confidential and proprietary to Bankers
Trust. You are prohibited from using or divulging such information except as
permitted or required in connection with your work on behalf of Bankers Trust,
and you may not use it for your personal or private benefit, or for the benefit
of any other person or entity, during or after your employment with Bankers
Trust.
4. Proprietary Products and Transactions
Transactions and business opportunities developed by other employees or by you
in connection with your work activities on behalf of Bankers Trust belong to
Bankers Trust, and may not be used for your personal or private benefit, or for
the benefit of any other person or entity, during or after your employment with
Bankers Trust.
5. Information Technology
The unauthorized duplication of software developed internally or obtained from
outside suppliers is prohibited, regardless of whether such unauthorized
duplication is for business or personal use. Additionally, you must adhere to
the Firm's standards and policies regarding the use of its technology and
computer equipment. Copies of Bankers Trust's "End-User Technology Policy" can
be obtained from the Technology Strategic Planning Department or from your local
or regional Human Resources Officer.
6. Privacy of Electronic and Other Information
If you use Bankers Trust equipment, systems or electronic mail to prepare, store
or transmit information of a personal or private nature, you waive your right to
privacy regarding such information. Under certain circumstances, Bankers Trust
audit, compliance, security and other investigatory personnel may be permitted
to access all information on such equipment.
7. Financial and Accounting Information
Accounting and other records must accurately, completely and properly describe
the transactions they record. All transactions, contracts, assets, liabilities,
revenues and expenses of Bankers Trust must be recorded in its regular books of
account and records, and all commitments, assets held in custody for clients and
other "off-balance sheet" items must be completely, accurately and properly
reported. No secret or unrecorded transaction, contract, fund or asset may be
created or maintained for any purpose. False, fictitious or misleading entries
regarding any transaction or account are prohibited.
8. Regulatory and Other Reporting
Bankers Trust will disclose, on a timely basis, information required to evaluate
the fairness of its financial presentation, soundness of its financial condition
and the propriety of its operations. All such reports, whether they are required
in connection with specific regulations or otherwise, must be fair, complete and
accurate. Concealment, alteration or withholding of information from authorized
auditors or regulatory agencies is prohibited.
9. Information and Accounting Controls
Employees having control or input regarding Bankers Trust assets or transactions
are required to handle them with the strictest integrity, and ensure that such
transactions and the acquisition or disposal of assets are in accordance with
management's general or specific authorization. Adherence to prescribed
accounting and control policies and procedures is required at all times.
10. Governmental or Regulatory Inquiries
Governmental agencies and regulatory organizations may from time to time conduct
surveys or make inquiries that request information about Bankers Trust, its
customers or others that would generally be considered to be confidential or
proprietary. If you receive such a request that is outside the normal course of
your business unit's activities, you should notify your Managing Officer and the
Compliance Department before you respond.
11. Responding to Media Inquiries and Requests for Speeches
All requests for speeches, interviews or comments for use in broadcasts,
newspapers, magazines or other media should be referred to, or cleared by,
Corporate Affairs (in the U.S. and Australia), the designated Communications
Officer (in London), Marketing Services (in Asia) or the head of your Bankers
Trust office (for all other international locations). When practical, these
departments should be furnished with, given an opportunity to comment on, the
text or outline of the statement or speech and responses to any likely
questions.
Rules for Dealing with Customers, Suppliers and the Public
- --------------------------------------------------------------------------------
1. The Basic Rule
Bankers Trust will compete for business only on the basis of quality, price of
product and service to its customers. All dealings with existing and prospective
customers of Bankers Trust, and with others, must be handled with honesty,
integrity and high ethical standards, and must adhere to the letter and the
spirit of applicable laws and regulations.
2. New Business Activities
The types of products and services offered and sold to customers must be
permissible under applicable regulations, and must meet the Firm's standards
regarding product disclosure, approval and other matters. New products and
business initiatives require special approval before they can initially be sold
to customers as described in Bankers Trust's New Business Activity Policy,
copies of which can be obtain from the Compliance Department.
3. New Client Approval
Certain information must be reviewed and approved by management prior to
establishing a business relationship with a new customer. Bankers Trust's
policy, New Client Approval, can be obtained from the Compliance Department.
4. "Know Your Customer"
If you have responsibilities for managing customer relationships, you should
ensure that appropriate "know your customer" procedures are properly applied
throughout the duration of Bankers Trust's relationship with the customer. Such
procedures should be sufficient to provide reasonable assurance that the
customer is not using Bankers Trust for the furtherance of illegal or improper
activities as described further in the Firm's policy statement Prevention and
Detection of Money Laundering and Reporting of Criminal and Suspicious Activity.
5. Communication with Customers and the Public
Communication with customers and others must be fair, balanced and honest.
Misleading, exaggerated or false claims about Bankers Trust's products, services
or their characteristics should never be made to customers or others.
6. Pricing and Terms
Product pricing and related terms and conditions of products and services must
comply with applicable laws and regulations, and must be consistent with Bankers
Trust standards of fairness and integrity.
7. Customer Complaints
Customer complaints, disputes or dissatisfaction with the products or services
of Bankers Trust must be addressed fairly and promptly. Customer complaints of a
severe or unusual nature that may affect the overall reputation of Bankers Trust
should be immediately brought to the attention of your Managing Officer and the
Compliance Department.
8. Improper Customer Conduct
Knowingly aiding or assisting any customer or other person in the violation of
laws and regulations that apply to such customer or other person is prohibited.
9. Special Regulatory Matters Involving Customers
Bankers Trust may, from time to time, receive notification that a customer is
under investigation by regulatory or law enforcement authorities, describing
certain information, account blockages or other actions that may be required.
You should not inform the customer of such regulatory action, or of any response
submitted by Bankers Trust, without the prior specific permission of the Legal
Department or the Compliance Department.
10. Anti-Competitive Conduct
All business of Bankers Trust must be conducted in fair and open competition.
Under no circumstances should an employee discuss or commit the Firm to any
arrangement with competitors affecting pricing or marketing policies. Violation
of anti-trust laws and regulations (referred to in some jurisdictions as
competition laws) could subject you and the Firm to substantial civil and
criminal penalties.
11. Tying Arrangements
Anti-trust and competition laws and regulations of many jurisdictions may
prohibit or restrict anti-competitive conduct, including certain forms of tying
arrangements. Bankers Trust is also subject to additional anti-tying
restrictions as set forth in the Bank Holding Company Act and Regulation Y, as
interpreted by the Federal Reserve Board (the "Federal Reserve tying rules").
Recently, the Federal Reserve modified these rules to eliminate certain types of
tying restrictions while continuing to prohibit others. Since the laws and
regulations that apply to tying arrangements are complex, you should seek
guidance from the Compliance Department or Legal Department if you are unsure as
to whether a proposed tying arrangement is permissible.
Bank tying arrangements are generally those in which the extension of credit,
the provision of a service or the related pricing is varied or conditioned upon
the customer obtaining additional products or services from Bankers Trust. Tying
could involve linking products and services to be provided by the same or
another Bankers Trust entity.
As a general matter, the Federal Reserve tying rules are more restrictive when
Bankers Trust Company ("BTCo") or another affiliated bank is involved in the
proposed tying arrangement. The Federal Reserve tying rules no longer apply if
BTCo or another affiliated bank is not involved in the tying arrangement.
Restricting Availability or Varying the Pricing of Bank Products
A bank is prohibited under the Federal Reserve tying rules from conditioning the
availability of a loan or other product or service, or vary the pricing thereof,
on the condition that a customer obtains an additional product or service
offered by the bank or another affiliate unless the additional product or
service is a "traditional" bank product, such as a loan, deposit or trust
service.
For example, it would be permissible under the Federal Reserve tying rules for
the bank to condition its loan on the requirement that the customer must
maintain a deposit account with the bank or another affiliate. However, it would
not be permissible for the bank to condition the availability or vary the
pricing of its loan on the requirement that the customer chooses an affiliate as
an underwriter of the customer's securities.
Safe Harbors
If BTCo or another affiliated bank is not involved in providing or varying the
pricing of the product or services, or in restricting the customer's ability to
use a competitor's product or service, then the Federal Reserve tying rules do
not apply.
For example, it would be permissible under the Federal Reserve tying rules for a
nonbank affiliate to tie a merger and acquisition advisory service to the
customer's appointment of that affiliate (or another nonbank affiliate) as the
underwriter of the customer's securities.
Subject to compliance with applicable local laws and regulations, a safe harbor
under the Federal Reserve tying rules also exists for "foreign" transactions,
that is, where the customer is an entity organized and having its principal
place of business outside of the U.S. or, if the customer is a natural person,
he or she is a citizen of a foreign country other than the U.S. In such
instances, the Federal Reserve tying rules would not apply even if the tying
arrangement involves BTCo or another affiliated bank.
As stated earlier, the requirements of the Federal Reserve tying rules and
applicable local laws and regulations can be complex. If a tying arrangement is
contemplated, you should contact the Compliance Department or Legal Department
if you have questions.
12. Purchases and Commitments
Purchases and commitments on behalf of Bankers Trust must be made, and contracts
awarded and orders given, solely on a sound commercial basis in consideration of
quality, price and service, and may only be made by Bankers Trust personnel who
have been given express authority to do so.
Rules for Dealing with Other Employees
- --------------------------------------------------------------------------------
1. The Basic Rule
All dealings with other employees should be consistent with the Firm's
commitment to honesty, integrity and ethical behavior.
2. Cooperation
Every employee should cooperate fully with Bankers Trust internal and
independent auditors, attorneys, compliance and security personnel, and other
authorized parties acting on behalf of the Firm, and you should never withhold
information from them.
3. Awareness
Employees should obtain sufficient knowledge about the laws, regulations and
policies that apply to their particular Bankers Trust duties to enable them to
avoid possible violations, or recognize when they need to seek guidance from
their supervisor or others to avoid possible violations.
4. Supervision
The Firm's business activities must be subject to appropriate supervision by
Bankers Trust supervisory personnel.
You are a supervisor if your Bankers Trust duties involve managing or directing
the work of others. As a supervisor, you have a responsibility to ensure that
the Bankers Trust activities of the employees you supervise are properly
directed toward achieving the general and specific objectives of Bankers Trust,
in accordance with applicable policies and procedures. The supervisor is
accountable for the Bankers Trust activities performed under his or her
direction.
5. Due Care in Delegation
The supervisor should delegate responsibilities to other employees only if
satisfied that such other employees possess the necessary skills and experience
to properly fulfill the responsibilities assigned.
6. Instruction and Training
The supervisor should provide adequate training and instruction regarding the
objectives of the responsibilities delegated, and the manner in which they are
to be carried out in accordance with Bankers Trust policies.
7. Review and Monitoring
The supervisor should understand how the employees are performing the
responsibilities delegated to them. This monitoring should be sufficient in the
particular circumstances to reasonably ensure that the supervisor will promptly
identify errors or improper work-related activities.
8. Correction and Follow-Up
The supervisor should take prompt corrective action if errors or improper
conduct are identified. Depending on the severity and nature of the errors or
improper conduct, the supervisor is responsible for reporting such matters to
his or her Managing Officer and the Compliance Department.
9. Preferential Treatment
No employee should give or receive any preferred conditions of employment
because of family or personal relationships. Personnel decisions must be based
on sound management practices and not on personal concerns.
10. Unlawful Conduct
The Firm's policy prohibits employees from engaging in unlawful conduct that may
represent a threat to Bankers Trust or to the safety of any other employee or
agent of Bankers Trust. Any employee convicted of a serious crime, including but
not limited to the sale, possession or use of illegal drugs or substances, will
be subject to disciplinary action, including possible dismissal.
11. Human Resources Policies
Additional policies setting forth the Firm's standards regarding personnel
matters, such as equal opportunity and affirmative action, performance
evaluation and counseling, compensation and benefit programs, and other matters
related to employment with Bankers Trust, are issued by the Human Resources
Department. These Human Resources policies meet legal and regulatory
requirements of various jurisdictions in which Bankers Trust does business, and
you are required to comply with the letter and the spirit of these policies.
Copies of applicable policies can be obtained from the Human Resources
Department or your local or regional Human Resources Officer.
12. Off-Premise Requirement for Employees in Sensitive Positions
Employees in "sensitive positions" (as determined and notified by the employee's
manager) are required to be off-premises for a period of at least two
consecutive weeks each year. The off-premises period may be satisfied by using
available vacation, or through a combination of vacation, holiday, medical
leave, jury duty or other authorized absences.
Sensitive positions generally include those in which the employee has authority
and access to make entries to the books and records of the Firm, effect wire
transfers or move funds, or enter into specific transactions such as extending
credit or trading securities on behalf of the Firm.
During the required off-premises period, such employees are prohibited from
directing activity, entering transactions or changing the Firm's records in any
manner, whether through an off-site computer link, written instruction of any
kind, or by telephone or other sort of communication. Only communications of a
general business nature are permitted during the off-premises period.
Regional management and individual business units may also require employees in
non-sensitive positions to be off-premises for a period of at least two
consecutive weeks each year. Additional information about Bankers Trust's
"Vacation & Off-Premises Policy" can be obtained from the Compliance Department.
Rules for Dealing with Certain Legal, Judicial or Regulatory Matters;
Reports of Violations
- --------------------------------------------------------------------------------
1. General Matters
You must promptly inform your Managing Officer of matters about which you become
aware which might adversely affect the reputation of Bankers Trust or be a
threat to its assets.
2. Violations of Bankers Trust Policies
You must promptly report to your Managing Officer and the Compliance Department
every known or suspected violation of Bankers Trust's policies, including the
Rules for Business Conduct, regardless of whether such violation involves you or
another employee.
3. Fraudulent Activity
You must promptly report to the Compliance Department or Investigative Services
every known or suspected work-related event of questionable, fraudulent or
dishonest nature of which you become aware, whether such activity involves
employees or outsiders.
4. Arrests, Indictments and Convictions
You must promptly notify your Managing Officer and the Compliance Department if
you are arrested, indicted or convicted of any crime or violation of applicable
law, other than those involving minor traffic infractions.
5. Employee Involvement in Regulatory and Other Formal Proceedings
You are required to promptly report, to your Managing Officer and the Compliance
Department, your involvement in certain governmental proceedings (such as
judicial, legislative or administrative proceedings) or regulatory hearings.
Your involvement is reportable regardless of whether it involves your testimony
as a witness, an actual or prospective party or target, or otherwise, and such
involvement:
o calls into question in any way your character, integrity or
honesty; or
o concerns Bankers Trust or another Bankers Trust employee,
customer or supplier; or
o concerns you, and has received or is likely to receive
publicity.
6. Lobbying, Public Testimony and Related Matters
Regarding matters which may affect the business, reputation or standing of
Bankers Trust, you may not appear as a witness, give testimony or sign a
statement advocating a position at the request of outside parties, except as
required by law, and you may not lobby before any government, legislative,
judicial or administrative body without the specific prior approval of your
Managing Officer and the Government Relations Department.
7. Managing Officer Reporting
Each Managing Officer who receives a report or becomes aware of conduct,
behavior or other circumstance that is questionable or prohibited by the Rules
for Business Conduct must ensure that such matter is brought to the attention of
the Compliance Department.
Other Matters
- --------------------------------------------------------------------------------
1. Ongoing Compliance
Your adherence to the Rules for Business Conduct, and to all lawful policies and
procedures of Bankers Trust, is required of you. Failure to comply with them may
subject you to disciplinary action, including possible dismissal.
2. Resignation and Termination
None of the policies contained or referred to in these Rules constitutes or
grants a legal right of any nature to any employee of Bankers Trust, nor do any
of them confer any right or privilege upon any employee or on any particular
group of employees. The Rules do not constitute an employment contract. Subject
to relevant local law and the terms of any applicable individual written
employment contract, employment with Bankers Trust is "at will" and you have the
right to resign at any time. Conversely, Bankers Trust has the right to
terminate the employment of any employee at any time in its sole discretion, for
any lawful reason.
3. Modifications to or Waivers of the Rules
Modifications to or waivers of the Rules may be made only by a member of the
Bankers Trust Management Committee.
4. Confirming Your Compliance with the Rules
Annually, employees of Bankers Trust are required to sign a statement
acknowledging that they have received the Rules for Business Conduct and
confirming their adherence to Bankers Trust's policies.
5. If You Have Questions
All questions regarding the Rules, the propriety of an action not covered by the
Rules, or other compliance-related matters should be referred to the Compliance
Department.
NOTE: An Employee's failure to report matters required to be reported under the
Rules for Business conduct is itself a violation of these Rules and represents
an independent ground for disciplinary action, up to and including discharge.
<PAGE>
Confidential Information, Insider Trading
and Related Matters
Issue Date: September 1998
- --------------------------------------------------------------------------------
Contents
Letter to All Employees
- -----------------------
Introduction
- ------------
Protecting Confidential Information
- -----------------------------------
The Basic Policy
----------------
Nature of Confidential Information
----------------------------------
Safeguarding Documents and Files
--------------------------------
Securing Communications
-----------------------
Temporary Staff and Outside Services
------------------------------------
Client Confidentiality Agreements
---------------------------------
Inquiries from Outside Parties
------------------------------
Customer Inquiries Regarding Investment Advice
----------------------------------------------
Public Statements and Shareholder Communications
------------------------------------------------
Insider Trading and Conflict of Interest
- ----------------------------------------
The Basic Policy
----------------
Nature of Material Nonpublic Information
----------------------------------------
Insider Trading
---------------
"Frontrunning"
--------------
Dealing with Rumors
-------------------
Unintentional Receipt of Confidential Information
-------------------------------------------------
Personal Securities Trading by Employees
----------------------------------------
Sharing Information Within Bankers Trust - The "Chinese Wall"
- -------------------------------------------------------------
The Basic Policy
----------------
The "Chinese Wall"
------------------
Crossing the Chinese Wall
-------------------------
Avoid Unintended "Backflow" of Information
------------------------------------------
Additional Walls
----------------
The Restricted List and the Gray List
- -------------------------------------
What Are the Restricted and Gray Lists?
---------------------------------------
Updates and Distribution of the Lists
-------------------------------------
Trading Restrictions - The Restricted List
------------------------------------------
Waivers and Exceptions to Trading Restrictions
----------------------------------------------
Other Matters
- -------------
The Compliance Department
-------------------------
Waivers and Exceptions
----------------------
Confirming Your Compliance with Policies
----------------------------------------
If You Have Questions
---------------------
Personal Securities Transactions by Employees(Separate Booklet)
- ---------------------------------------------------------------
(C) 1998 Bankers Trust Corporation
Bankers Trust
September 1998
To All Employees:
This is your personal copy of Bankers Trust's Employee Compliance Guide,
Confidential Information, Insider Trading and Related Matters. These policies
and procedures are designed to protect the Firm against inadvertent leaks of
sensitive data and possible violations of various securities laws, as well as to
protect the reputation of the Firm and its employees. They are extremely
important.
The policies and procedures described in this booklet are comprehensive and are
supported by three basic guiding principles:
1. Information that you receive as a Bankers Trust employee is
confidential and intended to be used solely for the business
purposes of the Firm or its clients. You must safeguard
confidential information at all times.
2. If you possess material nonpublic information about or
affecting securities or their issuer, you may not buy or sell
such securities regardless of the source of the information.
3. Whenever potential conflicts of interest arise, you should
place our fiduciary duty to clients ahead of Bankers Trust's
immediate interests, and you should place the interests of
Bankers Trust ahead of your personal financial interests.
Thank you for your attention to both the letter and spirit of these standards of
professional conduct. Should you ever have a question on how to apply these
policies to some event or circumstance, I encourage you to seek the guidance of
the Compliance Department.
Sincerely,
Frank Newman
Chairman and
Chief Executive
Officer
Introduction
- --------------------------------------------------------------------------------
This policy statement, Confidential Information, Insider Trading and Related
Matters, applies worldwide to all employees of Bankers Trust Corporation and its
subsidiaries (referred to herein as "Bankers Trust" or the "Firm"). For legal
and business reasons, it is essential that our clients, prospective customers
and others are confident that they can rely on our integrity and discretion to
protect and properly use the confidential information they entrust to us.
Adhering to the policies and standards of conduct described in this booklet is a
condition of your employment with Bankers Trust. Failure to comply with them may
subject you to disciplinary action, including possible dismissal and civil or
criminal penalties. Also, if you become aware of an apparent violation of these
policies and procedures by another employee, you must report the relevant facts
to the Compliance Department.
No written policy can anticipate every situation. Use common sense and good
judgment when responding to situations that may not be specifically covered by
these standards, and recognize when to seek advice regarding their application.
Protecting Confidential Information
- --------------------------------------------------------------------------------
1. The Basic Policy
Improper disclosure or misuse of confidential information is prohibited. You are
required to treat confidential information in a responsible and proper manner,
and in accordance with the policies and procedures of Bankers Trust.
2. Nature of Confidential Information
Confidential information refers to business matters not generally known or made
available to the public. You should generally presume that all business
information acquired in connection with your responsibilities at Bankers Trust
regarding the Firm, its clients and business transactions is confidential unless
the contrary is clearly evident. This includes proprietary information, products
and transactions developed or used by Bankers Trust as explained further in the
Firm's Rules for Business Conduct.
- --------------------------------------------------------------------------------
Examples of Confidential Information
- --------------------------------------------------------------------------------
o a client's planned acquisition target or restructuring plan;
o forthcoming investment research recommendations;
o information about a client's accounts or borrowings;
o proprietary or fiduciary trading positions and strategies;
o customer, supplier, creditor and investor lists; and
o unannounced information about Bankers Trust's earnings or transactions.
- --------------------------------------------------------------------------------
3. Safeguarding Documents and Files
When handling confidential information contained in written documents, computer
files or other modes of communication and storage, you have a personal
responsibility to protect it. Also, each department should develop appropriate
policies and procedures to properly protect confidential information within its
control.
- --------------------------------------------------------------------------------
Recommended Practices to Safeguard
Confidential Documents and Files
- --------------------------------------------------------------------------------
o mark confidential documents as CONFIDENTIAL;
o prevent unrestricted copying of confidential documents and keep track
of copies made;
o shred confidential documents that are no longer needed;
o protect documents and files by using locked cabinets and limiting
computer access;
o use caution when carrying confidential documents and files in public
areas;
o keep desks and conference rooms clear;
o when appropriate, use code names to protect the identities of
participants in a transaction; and
o restrict access by visitors (including Bankers Trust personnel from
other departments) in areas where they can observe or overhear
confidential information.
- --------------------------------------------------------------------------------
4. Securing Communications
Avoid discussing confidential information in public areas such as elevators,
hallways, taxicabs, airplanes or restaurants where others may be listening. Be
careful when using speakerphones, cellular phones, e-mail, the Internet and
similar methods of communication because conversations and messages can be
overheard or intercepted. Also, don't share information over the telephone until
you have identified the caller. When asked informally by friends or at social
gatherings about confidential matters concerning Bankers Trust, its clients or
others, as a general rule you should decline to comment.
Those "in the know" can protect the Firm, family and friends - and themselves -
by keeping workplace information at the workplace.
5. Temporary Staff and Outside Services
If consultants or temporary staff are utilized in your department, exercise care
to ensure they do not gain unauthorized access to or mishandle confidential
information. Also recognize that certain functions or areas within Bankers Trust
may be too sensitive to entrust to temporary workers or outside service
organizations. When deemed appropriate by business line management or when
required by local regulations, outside personnel should sign a confidentiality
agreement (as approved by the Legal Department) to confirm their awareness and
understanding of the requirement to protect confidential information and not
misuse it.
6. Client Confidentiality Agreements
A confidentiality agreement with a client or a prospective customer may impose
additional obligations on the Firm with respect to protecting confidential
information. Business line management should establish appropriate internal
procedures and provide instructions to employees to ensure compliance with its
terms.
When initially drafted, some confidentiality agreements can be overly broad in
scope and could impair our ability to pursue other business opportunities during
or after the term of the agreement. Therefore, the Legal Department should
review confidentiality agreements prior to being signed by a duly authorized
department manager or their designee.
7. Inquiries from Outside Parties
Unless specifically consented to by the customer, we generally do not disclose
any confidential information about our customer's dealings with us to any
outside party. An exception to this general rule occurs when regulators and
other proper legal authorities or process require that we disclose specific
information. Before releasing information or taking any action, you should
immediately report the matter to your supervisor and seek the advice of either
the Compliance Department or the Legal Department.
Other financial institutions may ask that we respond to credit inquiries
concerning our dealings with existing or former customers. To avoid potential
liability, such responses should be limited to a very narrow statement of
objective factual matters known to us directly and should never express an
opinion as to the client's creditworthiness or integrity. Also, no response to a
credit inquiry should be made without first obtaining the approval of a
departmental credit officer or an officer in the Credit Policy Department.
8. Customer Inquiries Regarding Investment Advice
When appropriate in responding to a customer inquiry regarding investment
advice, departments engaged in investment research, investment management or
investment advisory functions should make sure that their customers understand
that we maintain a Chinese Wall and that Bankers Trust personnel who make
investment decisions or recommendations cannot gain access to, nor benefit from,
any confidential information obtained by the Private Functions of the Firm (see
page 11).
9. Public Statements and Shareholder Communications
When Bankers Trust information is released to the public, it must be accurate
and disclosed in a proper way. Since a public statement made by a Bankers Trust
employee - even a statement that does not release any confidential information -
could embarrass the Firm or subject it to liability, all contacts with
shareholders and security analysts should be cleared in advance with Corporate
Affairs in New York.
All requests for speeches, interviews or comments for use in broadcasts,
newspapers, magazines or other media should be referred to, or cleared by,
Corporate Affairs (in the U.S. and Australia), the designated Communications
Officer (in London), Marketing Services (in Asia) or the head of your Bankers
Trust office (for all other international locations). When practical, these
departments should be furnished with, and given an opportunity to comment on,
the text or outline of the statement or speech and responses to any likely
questions.
Insider Trading and Conflict of Interest
1. The Basic Policy
Trading securities or other financial instruments for the accounts of Bankers
Trust, its clients or for personal interests while you are in possession of
material nonpublic information about or affecting them (regardless of how it was
obtained) is prohibited. You are also prohibited from disclosing material
nonpublic information to third parties except in accordance with the policies
and procedures described in this booklet or where disclosure is required by law.
Avoid situations that may appear to be a conflict of interest, let alone any
actual conflict, in both business and personal securities transactions.
Under various securities laws, violations might occur if you trade securities
(or their derivatives such as options) while in possession of material nonpublic
information about them, or disclose such information to third parties who, in
turn, trade those securities or derivatives. The securities laws of various
jurisdictions provide a broad range of remedies to protect and maintain the
integrity of the securities markets. Violation of applicable insider trading
laws and regulations could subject you to substantial civil or criminal
penalties.
2. Nature of Material Nonpublic Information
Material nonpublic information (also known as price sensitive information in
some jurisdictions) refers to confidential information about or affecting a
particular issuer or its securities that is not generally known to the investing
public and a reasonable investor would likely consider important when making an
investment decision. While no single rule can define whether a particular item
is in fact material, information that, if known to the public, would likely
affect the price of a publicly traded security (or would likely influence
decisions to buy, sell or hold a security) has a high probability of being
material.
- --------------------------------------------------------------------------------
Examples of Nonpublic Information
About Issuers Likely to be Material
- --------------------------------------------------------------------------------
o knowledge of unannounced tender offers;
o plans to issue or redeem securities;
o new products or major contracts;
o liquidity problems or covenant defaults;
o significant management developments;
o estimates about revenues and earnings; and
o significant mergers, acquisitions or divestitures.
- --------------------------------------------------------------------------------
3. Insider Trading
"Insiders" are persons who owe a fiduciary duty to a company's stockholders and
typically include a company's officers, directors and employees. Insiders also
may include a company's outside advisors, bankers, lawyers, underwriters and
printers when they receive material nonpublic information about the company for
a specific purpose.
As a Bankers Trust employee, you should generally assume that any nonpublic
information coming into your possession is material and you may not trade in or
recommend any related securities while in possession of that information. Also,
you may not disclose such information to others (a practice generally referred
to as "tipping") since such conduct may be unethical and illegal. In fact,
indirect receipt of nonpublic information may subject you to these rules if you
knew, or should have known, that the information originated from the company or
from someone who had a duty not to disclose it.
The securities laws governing insider trading are complex and evolving. You
should consult the Compliance Department if uncertain whether the information
you possess is material or nonpublic before making a purchase, sale or
recommendation to which it relates.
4. "Frontrunning"
You are prohibited from buying or selling securities for the account of Bankers
Trust, as well as for your own account, on the basis of your knowledge about our
clients' trading positions, plans or strategies, or our own forthcoming research
recommendations.
5. Dealing With Rumors
Various securities laws prohibit the circulation of rumors where the underlying
intent is to manipulate the price of publicly traded securities. As a general
rule, you should refrain from conveying rumors to others. If you have reason to
believe that a particular rumor is being circulated to influence the market, you
should report the matter to the Compliance Department.
Securities trading on the basis of unsubstantiated rumors may subject you or the
Firm to regulatory scrutiny and possible civil or other penalties. Keep in mind
that recommendations and other statements to clients must have a reasonable
basis in fact. Contact your supervisor if uncertain how to handle a particular
rumor.
6. Unintentional Receipt of Confidential Information
Sometimes, confidential information is inadvertently or improperly communicated
to a person who should not have access to that information. To help avoid this
situation, you should clearly describe your position at the Firm when calling on
clients, prospects and in general discussions with others.
Contact the Compliance Department immediately if you inadvertently or improperly
receive nonpublic information that may be material to determine what action, if
any, is appropriate in the circumstances.
7. Personal Securities Trading by Employees
You must always avoid any actual or potential conflicts of interest between your
Bankers Trust duties and responsibilities, and your personal investment
activities. Restrictions that pertain to personal securities transactions by
employees, including opening and maintaining Employee Related Accounts (as
defined) and the requirement to pre-clear personal securities transactions, are
described in a separate booklet that supplements this policy statement entitled
Personal Securities Transactions by Employees.
Sharing Information Within Bankers Trust - The "Chinese Wall"
- --------------------------------------------------------------------------------
1. The Basic Policy
Absent appropriate consent, confidential and material nonpublic information,
whether relating to Bankers Trust, its clients or others, should not be
disclosed to anyone other than relevant Bankers Trust personnel, the Firm's
outside lawyers, advisors and accountants, and where appropriate concerning a
transaction, the participants in the transaction. You are permitted to share
confidential information within Bankers Trust only when the communication
observes our Chinese Wall policies and procedures, it complies with our duty of
confidentiality owed to clients and the recipient of the information:
o has a legitimate need to know the information in connection
with his or her Bankers Trust duties;
o has no responsibilities, whether to Bankers Trust, its clients
or others, that are likely to give rise to conflict of
interest or a misuse of the information; and
o understands that the information is confidential, as well as
the limitations on further distribution of the information.
This policy is extremely important. You must exercise caution before sharing
confidential information and, when appropriate, verify the identity of the
recipient and ascertain that he or she has a legitimate need for the information
and has no conflicting duties.
2. The "Chinese Wall"
Because Bankers Trust is a multi-faceted financial institution, some areas of
the Firm may have material nonpublic information about a particular company
while other areas of the Firm may wish to buy, sell or recommend that company's
securities. The controls provided by our "Chinese Wall" policies and procedures
allow us to engage in these diverse activities without violating the law or
breaching our fiduciary responsibilities.
The Chinese Wall separates the "Private" areas of the Firm ("Potential Insider
Functions") that are likely to come into possession of material nonpublic
information in the ordinary course of business from the "Public" areas of the
Firm ("Trading and Advising Functions") that trade securities or other
instruments for our own account or for the accounts of others, or that render
investment advice. Generally, material nonpublic information obtained by anyone
who works in the Potential Insider Functions should not be communicated to
anyone outside those functions, and particularly must not be communicated to
anyone in the Firm's Trading or Advising Functions.
- --------------------------------------------------------------------------------
Private Functions Public Functions
- --------------------------------------------------------------------------------
Examples include: Examples include:
o mergers, acquisitions and o trading, sales and funding;
corporate advisory;
o brokerage;
o commercial lending and credit;
o investment management; and
o corporate finance; and
o investment research.
o corporate trust.
- --------------------------------------------------------------------------------
Employees assigned to certain infrastructure and control groups, such as
Operations and Product Controllers, may obtain confidential information while
conducting their normal activities. In addition, members of senior management
and the Compliance, Legal, Audit and Credit departments are generally considered
"above the Chinese Wall" and therefore have ready access to confidential
information. If you are a member of one of these groups or a similar function
within the Firm, be careful to avoid any improper disclosure of confidential
information, particularly with respect to personnel on the "Public" side of the
Chinese Wall.
3. Crossing the Chinese Wall
In limited situations, communicating material nonpublic information to a person
involved in a Trading or Advising Function may be necessary to achieve a
legitimate business purpose. For example, an investment research analyst's
expertise in a particular industry may be necessary concerning a proposed
corporate finance transaction.
Unless the Compliance Department has expressly approved a particular
department's procedures for conducting Chinese Wall crossings, any communication
of material nonpublic information from the "Private" side of the Chinese Wall to
an employee on the "Public" side of the Chinese Wall must be handled through the
Compliance Department. Further, for departments that do not have approved
procedures, the Compliance Department must be notified regarding the proposed
communication prior to initiating any contact with the employee.
You should contact the Compliance Department if uncertain whether a proposed
communication of material nonpublic information is permissible. Also, the
Compliance Department should be notified immediately if you believe such
information may have been improperly communicated either within Bankers Trust or
elsewhere.
4. Avoid Unintended "Backflow" of Information
In principle, the Chinese Wall need not inhibit the flow of information from the
"Public" side to the "Private" side of the Wall. Communication of this type,
however, may cause an unintended "backflow" of confidential information. For
example, a request for public information on a particular company by a mergers
and acquisitions specialist (Private Function) to an investment research analyst
(Public Function) may provide the research analyst a hint as to a possible
material development.
All unnecessary business communications (in either direction) between the
Private Functions and Public Functions should be avoided and care must be
exercised whenever an employee engaged in a Private Function deems it necessary
to obtain information from an employee in a Public Function. Questions in this
regard should be directed to the Compliance Department.
5. Additional Walls
Beyond the Chinese Wall described above, we often establish other walls - some
temporary and some permanent - to insulate confidential information held within
certain business lines from other personnel who should not have access to that
information.
- --------------------------------------------------------------------------------
Examples of Additional Walls
- --------------------------------------------------------------------------------
o While our research functions that publish investment recommendations
for distribution to the public are generally considered to be on the
"Public" side of the Chinese Wall, information such as an analyst's
plan to significantly change an existing recommendation regarding
particular securities is confidential and should generally not be
disclosed to personnel in the Firm's trading and sales functions
(unless prior approval has been obtained from the Compliance
Department) until such research is released to customers.
o Investment management personnel who become aware of a significant
client investment plan that will likely affect market prices should not
reveal the plan to personnel who handle Bankers Trust's proprietary
trading and investing.
o In the lending areas of the Firm, information relating to a proposed
loan to one company should be insulated from personnel working on a
proposed loan to another company if the two companies are competing to
acquire the same target company.
- --------------------------------------------------------------------------------
The Restricted List and the Gray List
- --------------------------------------------------------------------------------
1. What Are the Restricted and Gray Lists?
For legal, regulatory and business reasons, the Compliance Department maintains
a Restricted List and a Gray List of securities. Securities may be placed on
these lists when certain conditions are met, such as when a business area within
Bankers Trust:
o possesses material nonpublic information about or affecting the
securities or their issuer;
o is involved in a securities offering or significant transaction
affecting the securities or their issuer; or
o may be issuing to the public a significant change in the Firm's
investment recommendation regarding certain securities or issuers.
The Restricted List is comprised of securities in which the normal trading or
recommending activity of the Firm and its employees is prohibited or subject to
specified restrictions as described in the List. While the Restricted List is
distributed quite extensively within Bankers Trust, its composition is generally
considered confidential and should not be shared with others outside of the
Firm. In response to any inquiry, you should reply simply that we are not able
to take a position or make a recommendation regarding the particular security at
this time.
The Gray List is a highly confidential list maintained by the Compliance
Department to check the integrity of the Chinese Wall, and to prevent or address
potential conflicts of interest concerning trading decisions and investment
recommendations. Securities may be placed on the Gray List when the Firm is
involved in an unannounced material transaction, or for other confidential
monitoring purposes.
2. Updates and Distribution of the Lists
The Compliance Department determines when securities should be added to or
removed from both the Restricted List and Gray List and distributes the
Restricted List to appropriate personnel within the Firm. Business line
management of the various Private Functions is responsible for informing and
updating the Compliance Department concerning details of the Firm's involvement
in certain confidential transactions.
Certain business units that are routinely involved in the Firm's investment
banking and advisory businesses follow specific procedures for providing deal
information to the Compliance Department. If you are assigned to a department
that does not have such procedures and you become aware of material nonpublic
information about or affecting a publicly traded company or its securities, you
should immediately notify the Compliance Department.
3. Trading Restrictions - The Restricted List
Personnel in the Firm's Public Functions, such as trading and sales, investment
management and investment research, must refer to the Restricted List regularly
and comply with its trading restrictions. Generally, the trading restrictions
may limit or prohibit:
o transactions involving securities on the Restricted List in the
accounts of Bankers Trust, its employees and its customers; and
o solicitation and investment advising activities, such as commenting
about, recommending or soliciting orders involving securities on the
Restricted List, or issuing research regarding such securities.
Trading restrictions may apply to customer accounts where Bankers Trust
exercises investment discretion, but do not generally apply to unsolicited
customer trades executed on an "agency" basis (i.e., where the Firm is not
acting as principal). Special rules apply to customer and proprietary accounts
connected with certain defined index, passive or basket trading strategies where
a transaction involving securities on the Restricted List is dictated by
contract or predetermined formula. Additional information about these special
rules can be obtained from the Compliance Department.
The Restricted List describes the various types of trading restrictions imposed
on Bankers Trust and its employees in light of certain legal, regulatory and
business requirements.
- --------------------------------------------------------------------------------
Trading Restrictions -- The Restricted List
- --------------------------------------------------------------------------------
Full Restriction
- --------------------------------------------------------------------------------
When securities are subject to "Full Restriction," the following activities with
respect to such securities are generally prohibited:
o trading for the Firm's proprietary account;
o trading for Employee Related Accounts;
o trading for customer accounts over which Bankers Trust exercises
investment discretion;
o basket trading for an account, such as an index fund, where the
transaction is dictated by a contract or predetermined formula;
o market making activities;
o solicitation of customer orders;
o issuance or distribution of written research or rendering oral
recommendations; and
o execution of unsolicited customer orders, unless such orders are
executed on an "agency" basis only.
Note: For securities not subject to "Full Restriction," the Restricted List
identifies which of the above specific activities are prohibited.
- --------------------------------------------------------------------------------
4. Waivers and Exceptions to Trading Restrictions
Waivers and exceptions to any trading restrictions identified on the Restricted
List require the specific prior approval of the Compliance Department. Violation
of the trading restrictions could subject the Firm and the employee involved to
civil or criminal penalties, as well as other disciplinary actions.
Other Matters
- --------------------------------------------------------------------------------
1. The Compliance Department
As used in this policy statement, the "Compliance Department" refers to the
Bankers Trust Compliance Department and the BTAL Compliance Department.
The Bankers Trust Compliance Department is organized generally by U.S. business
lines and regionally for Asia, Europe/Middle East/Africa and Latin America, and
is comprised of the following groups:
o Broker-Dealer Compliance (including Latin America);
o Fiduciary Compliance;
o Corporate Compliance; and
o Europe & Asia Regional Compliance.
The BTAL Compliance Department is organized generally by business lines in
Australia and New Zealand.
2. Waivers and Exceptions
Bankers Trust policies regarding confidential information, insider trading and
related matters as described in this booklet are necessarily a general summary.
In practice, some situations may arise that warrant making exceptions to some
general rules set forth herein, and you must obtain approval from the Compliance
Department before taking action regarding such an exception.
3. Confirming Your Compliance With Policies
Annually, you are required to sign a statement as a Bankers Trust employee
acknowledging that you have received this policy statement Confidential
Information, Insider Trading and Related Matters and confirm your adherence to
Bankers Trust's standards of conduct.
4. If You Have Questions
You should refer to the Compliance Department all questions concerning the
interpretation or application of these policies, the propriety of any particular
conduct, or other compliance-related matters.
NOTE -- Refer to Personal Securities Transactions by Employees, a separate
booklet that supplements this policy statement, for additional information
regarding opening and maintaining Employee Related Accounts (as defined),
pre-clearance of trades and other rules and restrictions regarding personal
securities transactions by employees.
<PAGE>
Personal Securities Transactions by Employees
Issue Date: September 1998
- --------------------------------------------------------------------------------
Contents
Introduction
- ------------
Summary
- -------
Opening and Maintaining Employee Related Accounts
- -------------------------------------------------
The Basic Policy
----------------
Employee Related Accounts Defined
---------------------------------
"Designated Broker" Rule
------------------------
Waivers to the Designated Broker Rule
-------------------------------------
Monitoring Employee Related Accounts
------------------------------------
Pre-Clearing Transactions in Employee Related Accounts
- ------------------------------------------------------
The Basic Policy
----------------
Pre-Clearance Procedures
------------------------
Additional Supervisory Pre-Clearance
------------------------------------
Private Securities Transactions
-------------------------------
Restrictions Regarding Personal Securities Transactions
- -------------------------------------------------------
The Basic Policy
----------------
Material Nonpublic Information
------------------------------
Corporate and Departmental Restricted Lists
-------------------------------------------
"Frontrunning"
--------------
Employee Transactions in Bankers Trust Securities
-------------------------------------------------
Avoiding Conflicts with Your Bankers Trust Job Responsibilities
---------------------------------------------------------------
Initial Public Offerings and New Issues
---------------------------------------
Other Matters
- -------------
Waivers and Exceptions
----------------------
Confirming Your Compliance with Policies
----------------------------------------
If You Have Questions
---------------------
Note: The policies contained in this booklet should be read in conjunction
with the policy statement Confidential Information, Insider Trading and
Related Matters.
(C) 1998 Bankers Trust Corporation
Introduction
- --------------------------------------------------------------------------------
This policy statement, Personal Securities Transactions by Employees, applies
worldwide to all employees of Bankers Trust Corporation and its subsidiaries
(referred to herein as "Bankers Trust" or the "Firm"). Along with the standards
provided in this booklet, you should be familiar with the contents of the Firm's
related policy statement Confidential Information, Insider Trading and Related
Matters.
As used in this Guide, "securities" transactions include those involving equity
or debt securities, derivatives of securities (such as options, warrants and
indexes), futures, commodities and similar instruments.
You should always conduct your personal trading activities lawfully, properly
and responsibly, and are encouraged to adopt long-term investment strategies
that are consistent with your financial resources and objectives. The Firm
generally discourages short-term trading strategies, and you are cautioned that
such strategies may inherently carry a higher risk of regulatory and other
scrutiny. In any event, excessive or inappropriate trading that interferes with
your job performance, or compromises the duty that Bankers Trust owes to its
clients and shareholders, will not be tolerated.
Summary
- --------------------------------------------------------------------------------
This booklet is organized to help you comply with Bankers Trust's policies and
procedures, and to protect you and the Firm from potential liability. In
summary, the section entitled:
o Opening and Maintaining Employee Related Accounts describes the types
of accounts you must disclose to the Compliance Department upon
joining the Firm and your requirement to obtain explicit permission
from the Compliance Department prior to opening and maintaining
Employee Related Accounts (as defined);
o Pre-Clearing Transactions in Employee Related Accounts describes the
procedures you must follow to pre-clear your personal securities
transactions with the Compliance Department before you place any order
with your broker; and
o Restrictions Regarding Personal Securities Transactions describes
certain trading prohibitions and procedures you must observe to avoid
violating the Firm's policies and various securities laws and
regulations.
Questions about this policy and the matters discussed herein should be directed
to your Compliance Officer or to the Compliance Department at (212) 250-5812.
Opening and Maintaining Employee Related Accounts
- --------------------------------------------------------------------------------
1. The Basic Policy
All employees must obtain the explicit permission of the Compliance Department
prior to opening a new Employee Related Account. Upon joining Bankers Trust, new
employees are required to disclose all of their Employee Related Accounts (as
defined below) to the Compliance Department and must carry out the instructions
provided to conform such accounts, if necessary, to the Firm's policies.
Under no circumstance are you permitted to open or maintain any Employee Related
Account that is undisclosed to the Compliance Department. Also, the policies,
procedures and rules described throughout this Guide apply to all of your
Employee Related Accounts.
2. Employee Related Accounts Defined
"Employee Related Accounts" include all accounts in which you have an ownership
or beneficial interest (or can exercise investment discretion or control) and
have the capability of holding securities, or in which securities transactions
may be executed, even if the accounts are inactive. Employee Related Accounts
include:
o your own accounts;
o your spouse's accounts and the accounts of your minor children
and other relatives (whether by marriage or otherwise) living
in your home;
o accounts in which you, your spouse, your minor children or
other relatives living in your home have a beneficial
interest; and
o accounts over which you or your spouse exercise investment
discretion or control.
Although they are securities in the technical sense, money market funds and
open-ended mutual funds held directly with the fund or its transfer agent are
not considered Employee Related Accounts for the purposes of applying the above
definition.
3. "Designated Broker" Rule
Depending on your Bankers Trust location, you may be required to open and
maintain your Employee Related Accounts with a "Designated Broker," which refers
to brokerage firms specifically identified by the Compliance Department for
employee use. Employee Related Accounts with the Designated Brokers must be
opened in accordance with local Compliance Department procedures.
Employees who wish to open and maintain an Employee Related Account in the U.S.
must do so with one of the following Designated Brokers:
o BT Alex. Brown Incorporated
o Quick & Reilly (Wall Street Office)
o Salomon Smith Barney (the Rasweiler Group, New York)
Information about opening such an account can be obtained from the Compliance
Department at (212) 250-5812.
Employees assigned to Bankers Trust offices outside the U.S. are provided local
guidelines regarding Designated Brokers (and instructions about opening and
maintaining Employee Related Accounts) by Regional Compliance Groups for Asia,
Australia/New Zealand, Europe/Middle East/Africa and Latin America. You should
contact your Regional Compliance Officer if you have questions.
4. Waivers to the Designated Broker Rule
In very limited situations, the Compliance Department may grant you permission
to open or maintain an Employee Related Account at a brokerage firm other than a
Designated Broker. Generally, such permission is limited to the following types
of situations:
o your spouse or close relative, by reason of employment, is
required by his or her employer to maintain their brokerage
accounts with a firm other than a Designated Broker; or
o your Employee Related Account is maintained on a
"discretionary" basis. This means that full investment
discretion has been granted to an outside bank, investment
manager or trustee, and neither you nor a close relative
participates in the investment decisions or is informed in
advance regarding transactions in the account.
An employee's request to the Compliance Department for an exemption to the
Designated Broker policy must be submitted in writing. If permission is granted,
duplicates of account statements and transaction confirmations must be provided
to the Compliance Department. Your continued eligibility for an exception to the
Designated Broker policy is periodically reviewed and evaluated and can be
revoked at any time.
NOTE -- Do not open an account with another brokerage firm until you receive
authorization to do so from the Compliance Department.
5. Monitoring Employee Related Accounts
To ensure adherence to Bankers Trust's policies, the Compliance Department
monitors transactions in Employee Related Accounts, whether they are maintained
with a Designated Broker or otherwise. If you violate the Firm's policies and
procedures as described herein, you may be required to cancel, reverse or freeze
any transaction or position in your Employee Related Account at your expense,
regardless of where the account is held. Such action may be required without
advance notice.
Pre-Clearing Transactions In Employee Related Accounts
- --------------------------------------------------------------------------------
1. The Basic Policy
You must contact the Compliance Department to pre-clear all transactions
involving securities or their derivatives in your Employee Related Accounts
(other than transactions involving only U.S. Treasury securities or open-ended
mutual funds) prior to placing an order with your broker. You are personally
responsible for ensuring that your proposed transaction does not violate the
Firm's policies or applicable securities laws and regulations by virtue of your
Bankers Trust responsibilities or information you may possess about the
securities or their issuer.
2. Pre-Clearance Procedures
Proposed transactions in your Employee Related Accounts must be personally
pre-cleared with the Compliance Department. After providing the requested
information about the transaction, you will be informed whether you have been
granted permission to place the order with your broker which is valid for the
day given and the next business day. If permission is denied to proceed with the
proposed transaction, such denial is confidential and should not be disclosed to
others.
For employees assigned to Bankers Trust offices in the U.S. and Canada,
securities transactions can be pre-cleared by contacting the Compliance
Department at (212) 250-5812.
Employees assigned to Bankers Trust offices outside of the U.S. and Canada are
provided local guidelines and contacts for pre-clearing securities transactions
by Regional Compliance Groups for Asia, Australia/New Zealand, Europe/Middle
East/Africa and Latin America. You should contact your Regional Compliance
Officer if you have questions.
3. Additional Supervisory Pre-Clearance
Depending on your area of assignment, you may be subject to additional
departmental policies that require you to first pre-clear your proposed
securities transaction with your supervisor prior to requesting pre-clearance
from the Compliance Department. If you are assigned to one of the Bankers Trust
departments in which employees are subject to this requirement, you will be
informed of this fact when you contact the Compliance Department for
pre-clearance.
4. Private Securities Transactions
Investment transactions in private securities, such as limited partnerships or
the securities of private companies, are likely to be made directly with the
sponsor and not executed in your Employee Related Account. Prior to engaging in
a private securities transaction, you must first obtain the approval of your
supervisor and then pre-clear the transaction with the Compliance Department.
Private securities transactions that give rise to actual or apparent conflicts
of interest are prohibited.
Restrictions Regarding Personal Securities Transactions
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1. The Basic Policy
You have a personal obligation to conduct your investing activities and related
securities transactions lawfully and in a manner that avoids actual or potential
conflicts between your own interests and the interests of Bankers Trust and its
customers. You must carefully consider the nature of your Bankers Trust
responsibilities - and the type of information you might be deemed to possess in
light of any particular securities transaction - before you engage in that
transaction.
2. Material Nonpublic Information
If you possess material nonpublic information about or affecting securities, or
their issuer, you are prohibited from buying or selling such securities, or
advising any other person to buy or sell such securities.
3. Corporate and Departmental Restricted Lists
You are not permitted to buy or sell any securities that are included on the
Corporate Restricted List and/or other applicable departmental restricted lists.
4. "Frontrunning"
You are prohibited from engaging in "frontrunning," which means that you may not
buy or sell securities or other instruments for your Employee Related Accounts
so as to benefit from your knowledge of the Firm's or a client's trading
positions, plans or strategies, or forthcoming research recommendations.
5. Employee Transactions in Bankers Trust Securities
Bankers Trust recognizes the special interest many employees have in investing
in the securities of Bankers Trust Corporation. Observe, however, that your
employment relationship with the Firm gives rise to special rules concerning
such transactions to avoid potential conflicts of interest.
a. Transactions Subject to Special Rules
Personal trading activity in Bankers Trust Corporation securities that are
subject to special rules are generally transactions that change your beneficial
ownership interest, such as:
o purchases, sales or other transactions in Employee Related
Accounts;
o employee investment elections in Bankers Trust benefit plans,
such as investment elections affecting the Bankers Trust Common
Stock Fund in the PartnerShare Plan;
o exercise of Bankers Trust stock options granted as part of an
employee's compensation;
o optional cash purchases of common stock through Bankers Trust's
Dividend Reinvestment and Common Stock Purchase Plan; and
o gifts or donations of Bankers Trust Corporation stock to
charitable organizations, relatives or others.
b. Special Rules
The following special rules apply to all transactions that change your
beneficial ownership interest in the securities of Bankers Trust Corporation:
o all employees must pre-clear transactions involving Bankers Trust
Corporation securities with Corporate Compliance in New York
(212) 250-5812, even if assigned to an office outside the U.S. or
Canada;
o Bankers Trust Corporation securities may not be pledged or used
as collateral for any loan except for a margin loan associated
with an Employee Related Account;
o any short sale of Bankers Trust Corporation securities is
prohibited;
o any transaction that involves options or warrants referenced to
Bankers Trust Corporation securities, other than exercising stock
options granted under a Bankers Trust incentive compensation
plan, is prohibited; and
o over-the-counter derivative transactions that are referenced to
the value of Bankers Trust Corporation securities are prohibited.
c. "Blackout" Periods
During certain times of the year, you are prohibited from conducting
transactions in Bankers Trust Corporation securities which affect your
beneficial interest in the Firm. These "blackout" periods surround the end of
each fiscal quarter or year and begin on the first day of each calendar quarter
and end 48 hours after public release of the financial reports for the quarter
or year.
Additional restricted periods may be required for certain individuals and
events, and you will be informed of whether such a restricted period is in
effect when you request pre-clearance of your proposed transaction involving
Bankers Trust Corporation securities. Any questions concerning whether you are
subject to additional restrictions should be directed to the Compliance
Department.
6. Avoiding Conflicts with Your Bankers Trust Job Responsibilities
You are prohibited from buying, selling or holding positions in securities and
other instruments for your Employee Related Accounts that give rise to a
conflict of interest, or the appearance of conflict, between your personal
financial interests and your Bankers Trust job responsibilities.
Following is a summary of the Firm's basic rules and procedures that are
designed to prevent actual or apparent conflicts of interest. If you believe a
proposed personal securities transaction may give rise to a potential conflict
of interest, or may not comply with the following rules and procedures, you
should resolve the matter with your Compliance Officer before placing the order.
a. Securities in Companies With Which You Have Significant Dealings
You are prohibited from buying or selling, for your Employee Related Accounts,
securities of companies with which you have significant dealings on behalf of
Bankers Trust, or for which you have ongoing relationship management
responsibilities on behalf of the Firm. This rule applies to all employees who
have significant dealings with the Firm's customers, counterparties, suppliers
or vendors. Also, you are generally prohibited from acquiring an interest in any
private equity investment vehicle sponsored by such companies.
b. Securities In Which You Have Trading or Trading-Related Responsibilities
To prevent actual or apparent conflicts of interest, employees with "trading or
trading-related responsibilities" with respect to particular types of securities
or instruments may be limited or prohibited from buying or selling the same
types of securities or instruments for their Employee Related Accounts.
Employees have trading or trading-related responsibilities with respect to
particular types of securities or instruments if their duties:
o involve the Firm's proprietary dealing or investing activities
(e.g., where committing the Firm's capital may be involved);
and
o are associated with the origination, structuring, trading,
market making, positioning, bookrunning, distribution, sales,
research or analysis of particular types of securities or
instruments.
If you have trading or trading-related responsibilities for equity securities,
investment grade debt securities or U.S. Government, Government Agency or
municipal securities (including derivatives thereof), you are permitted to buy
or sell such securities for your Employee Related Accounts subject to compliance
with certain departmental guidelines that may require supervisory approval and
minimum holding periods.
If you have trading or trading-related responsibilities for non-investment grade
debt securities, commodities, futures, FX or other instruments (including
derivatives thereof), you are prohibited from buying or selling the same type of
securities or instruments for your Employee Related Accounts.
c. Portfolio Managers, Investment Advisory Professionals and "Access Persons"
If you are a portfolio manager, investment advisory professional or "access
person" associated with the Firm's asset or funds management businesses, you may
be subject to certain rules designed to prevent conflicts of interest. You can
obtain more information about these rules from your supervisor or the Compliance
Department.
d. Transactions Subject to Minimum Holding Periods
Securities bought or sold for your Employee Related Accounts may be subject to a
minimum holding period to address potential conflicts of interest. Examples of
the type of job functions and transactions that typically require a minimum
holding period include:
o equity securities bought or sold by an employee with
proprietary equity trading or trading-related responsibilities
(60-day holding period);
o certain debt securities bought or sold by an employee with
proprietary trading or trading-related responsibilities for
U.S. Government, Government Agency, municipal or
investment-grade corporate debt securities (60-day holding
period);
o securities bought or sold by an equity research analyst,
falling within the research analyst's assigned industry group
(up to a six-month holding period); and
o securities bought or sold by employees assigned to most
Bankers Trust offices outside the U.S. (holding period varies
by region).
e. Additional International Procedures
Regional Compliance Groups for Asia, Australia/New Zealand, Europe/Middle
East/Africa and Latin America may modify the procedures described in this
section to reflect local market practices and regulatory requirements. You
should contact your Regional Compliance Officer to obtain information about
local modifications, if any, to these requirements.
7. Initial Public Offerings and New Issues
For regulatory reasons, you are prohibited from purchasing or subscribing for
securities connected with an initial public offering or a new issue where a
U.S.-registered broker-dealer is involved in the distribution, or where any part
of the distribution is offered in the U.S. This prohibition applies even if
Bankers Trust has no role or involvement in the distribution.
For initial public offerings and new issues of securities of non-U.S. companies
distributed entirely outside of the U.S., employees assigned to international
offices of Bankers Trust may be permitted to purchase or subscribe for such
securities, provided that the appropriate Regional Compliance Group of the
Compliance Department approves such proposed transaction in advance. You should
contact your Regional Compliance Officer for local guidelines that apply.
Other Matters
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1. Waivers and Exceptions
Bankers Trust policies regarding personal securities transactions by employees
as described in this booklet is necessarily a general summary. In practice, some
situations may arise to warrant making exceptions to some general rules set
forth herein, and you must obtain approval from the Compliance Department before
taking action regarding such an exception.
2. Confirming Your Compliance with Policies
Annually, you are required to sign a statement as a Bankers Trust employee
acknowledging that you have received this supplement to the policy statement
Confidential Information, Insider Trading and Related Matters and confirm your
adherence to Bankers Trust's standards of conduct.
3. If You Have Questions
You should refer all questions concerning the interpretation or application of
these policies, the propriety of any particular conduct, or other
compliance-related matters to the Compliance Department.
NOTE -- Adhering to the policies and standards of conduct discussed in this
Guide is one of the conditions of employment with Bankers Trust. Failure to
comply with them may subject you to disciplinary action, including possible
dismissal. In addition, violation of the rules described in this Guide may also
subject you to possible civil or criminal penalties in accordance with the
securities laws or regulatory rules applicable in various jurisdictions.
