-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DOlQkgaFUc970osP2h22BhpxwPFQ6l3ETBjS6aXFEfyHm1Y5+2NQlHmDeUoAoOeM o0mVC+GOM2XYh5shDQ6uyg== 0000088053-02-000235.txt : 20020414 0000088053-02-000235.hdr.sgml : 20020414 ACCESSION NUMBER: 0000088053-02-000235 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20020228 EFFECTIVENESS DATE: 20020301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCUDDER BLUE CHIP FUND CENTRAL INDEX KEY: 0000823342 IRS NUMBER: 363542349 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-17777 FILM NUMBER: 02561755 BUSINESS ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125371569 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: KEMPER BLUE CHIP FUND DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCUDDER BLUE CHIP FUND CENTRAL INDEX KEY: 0000823342 IRS NUMBER: 363542349 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05357 FILM NUMBER: 02561756 BUSINESS ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125371569 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: KEMPER BLUE CHIP FUND DATE OF NAME CHANGE: 19920703 485BPOS 1 ptc-bcf.txt B-FILING Filed electronically with the Securities and Exchange Commission on February 28, 2002 File No. 33-17777 File No. 811-5357 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. 21 /X/ And/or -- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / / Amendment No. 21 /X/ -- SCUDDER BLUE CHIP FUND ---------------------- (Exact Name of Registrant as Specified in Charter) 222 South Riverside Plaza, Chicago, IL 60606 -------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: 312-537-7000 ------------ John Millette, Vice President and Secretary Scudder Blue Chip Fund 2 International Place, Boston, MA 02110 --------------------------------------- (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box): / / Immediately upon filing pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a) (1) / / 75 days after filing pursuant to paragraph (a) (2) /X/ On March 1, 2002 pursuant to paragraph (b) / / On __________________ pursuant to paragraph (a) (1) / / On __________________ pursuant to paragraph (a) (2) of Rule 485 / / 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 SCUDDER INVESTMENTS Core/Large Cap Funds Scudder Blue Chip Fund Scudder Total Return Fund Scudder Focus Value+Growth Fund Supplement to Prospectus Dated March 1, 2002 CLASS I SHARES - -------------------------------------------------------------------------------- The above funds currently offer four classes of shares to provide investors with different purchasing options. These are Class A, Class B and Class C shares, which are described in the funds' prospectus, and Class I shares, which are described in the prospectus as supplemented hereby. When placing purchase orders, investors must specify for which class of shares they are ordering. Class I shares are available for purchase exclusively by the following categories of institutional investors: (1) tax-exempt retirement plans (Profit Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Zurich Scudder Investments, Inc. ("Zurich Scudder") and its affiliates and rollover accounts from those plans; (2) the following investment advisory clients of Zurich Scudder and its investment advisory affiliates that invest at least $1 million in a fund: unaffiliated benefit plans, such as qualified retirement plans (other than individual retirement accounts and self-directed retirement plans); unaffiliated banks and insurance companies purchasing for their own accounts; and endowment funds of unaffiliated non-profit organizations; (3) investment-only accounts for large qualified plans, with at least $50 million in total plan assets or at least 1000 participants; (4) trust and fiduciary accounts of trust companies and bank trust departments providing fee-based advisory services that invest at least $1 million in a fund on behalf of each trust; (5) policy holders under Zurich-American Insurance Group's collateral investment program investing at least $200,000 in a fund; and (6) investment companies managed by Zurich Scudder that invest primarily in other investment companies. Class I shares currently are available for purchase only from Scudder Distributors, Inc. ("SDI"), principal underwriter for the funds, and, in the case of category 4 above, selected dealers authorized by SDI. The following information supplements the indicated sections of the prospectus. Performance The table shows how the returns of each fund's Class I shares, on a before tax basis, compare with broad-based market indices (which, unlike the funds, do not have any fees or expenses). The performance of both the funds and indices may vary over time. All figures on this page assume reinvestment of dividends and distributions. As always, past performance (before and after taxes) is no guarantee of future results. Because there are no Class I shares of Scudder Focus Value+Growth Fund issued as of the date of this supplement, there is no performance data for these shares. - -------------------------------------------------------------------------------- Average Annual Total Returns (%) as of 12/31/2001 - -------------------------------------------------------------------------------- Since 1 Year 5 Years Inception - -------------------------------------------------------------------------------- Scudder Blue Chip Fund -16.45 7.23 10.64* (Return Before Taxes) Index 1 (reflects no deduction for fees, expenses or taxes) -11.88 10.70 12.83** Index 2 (reflects no deduction for fees, expenses or taxes) -12.45 10.50 12.50** Scudder Total Return Fund (Return Before Taxes) -6.30 7.94 10.07*** Index 1 (reflects no deduction for fees, expenses or taxes) -11.88 10.70 13.97 Index 3 (reflects no deduction for fees, expenses or taxes) -20.42 8.27 12.00[ Index 4 (reflects no deduction for fees, expenses or taxes) 8.50 7.37 7.15[ - -------------------------------------------------------------------------------- * Since 11/22/1995. ** Index comparison begins 11/30/1995. *** Since 7/3/1995. + Index comparison begins 6/30/1995. Index 1: 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. Index 2: Russell 1000 Index, an unmanaged price-only index of the 1,000 largest capitalized companies that are domiciled in the United States and whose common stocks are traded there. Index 3: Russell 1000 Growth Index, an unmanaged capitalization-weighted index containing the growth stocks in the Russell 1000 Index. Index 4: Lehman Brothers Government/Corporate Bond Index, an unmanaged index of government and investment-grade corporate debt securities of intermediate- and long-term maturities. 2 How Much Investors Pay This table describes the fees and expenses that you may pay if you buy and hold shares of a fund. Shareholder Fees, paid directly from your investment.
Maximum Contingent Maximum Maximum Deferred Sales Sales Charge Sales Charge (Load) Charge (Load) Imposed on (Load) Imposed on Purchases (% (% of Reinvested of offering redemption Dividends/ Redemption Exchange price) proceeds) Distributions Fee Fee - ---------------------------------------------------------------------------------- Scudder Blue Chip None None None None None Fund - ---------------------------------------------------------------------------------- Scudder Total Return Fund None None None None None - ---------------------------------------------------------------------------------- Scudder Focus None None None None None Value+Growth Fund - ----------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets.
Total Annual Distribution/ Fund Management Service Other Operating Fee (12b-1) Fees Expenses* Expenses - ------------------------------------------------------------------------------- Scudder Blue Chip Fund 0.56% None 0.10% 0.66% - ------------------------------------------------------------------------------- Scudder Total Return Fund 0.53 None 0.10 0.63 - ------------------------------------------------------------------------------- Scudder Focus Value+Growth 0.72 None 0.10 0.82 Fund** - -------------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.10%. ** Estimated for Scudder Focus Value+Growth Fund since no Class I shares of this fund were issued as of its fiscal year end. Information in the table has been restated to reflect a new fixed rate administrative fee. Example Based on the costs above, this example helps you compare the expenses of a fund to those of other mutual funds. This example assumes the expenses above remain the same. It also assumes that you invested $10,000, earned 5% annual returns, reinvested all dividends and distributions and sold your shares at the end of each period. This is only an example; actual expenses will be different. 1 Year 3 Years 5 Years 10 Years ---------------------------------------------------------------------------- Scudder Blue Chip Fund $67 $211 $368 $822 ---------------------------------------------------------------------------- Scudder Total Return Fund 64 202 351 786 ---------------------------------------------------------------------------- Scudder Focus Value+Growth Fund 84 262 455 1,014 ---------------------------------------------------------------------------- 3 Financial Highlights Because there are no Class I shares of Scudder Focus Value+Growth Fund issued as of the date of this supplement, there is no financial data for these shares. Scudder Blue Chip Fund -- Class I - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of $22.11 $20.99 $16.68 $17.72 $17.18 period - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)^a .07 .08 .13 .21 .32 - -------------------------------------------------------------------------------- Net realized and unrealized (6.22) 1.79 4.60 1.19 3.58 gain (loss) on investment transactions - -------------------------------------------------------------------------------- Total from investment operations(6.15) 1.87 4.73 1.40 3.90 - -------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.25) (.23) - -------------------------------------------------------------------------------- Net realized gains on (.60) (.75) (.42) (2.19) (3.13) investment transactions - -------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.44) (3.36) - -------------------------------------------------------------------------------- Net asset value, end of period $15.36 $22.11 $20.99 $16.68 $17.72 - -------------------------------------------------------------------------------- Total Return (%) (28.34) 9.01 28.81 8.53 26.89 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period 6 10 10 6 5 ($ millions) - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) .70^b .69 .72 .68 .70 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) .70^b .68 .72 .68 .70 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) .39 .34 .60 1.23 1.56 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 124 89 75 157 183 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b The ratios of operating expenses excluding costs incurred with the reorganization before and after expense reductions were .69% and .69%, respectively. 4 Scudder Total Return Fund -- Class I - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of $11.36 $11.38 $10.54 $11.33 $11.27 period - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) .27^a .29^a .34^a .34 .36 - -------------------------------------------------------------------------------- Net realized and unrealized (1.69) .47 1.53 .77 1.55 gain (loss) on investment transactions - -------------------------------------------------------------------------------- Total from investment operations (1.42) .76 1.87 1.11 1.91 - -------------------------------------------------------------------------------- Less distributions from: Net investment income (.27) (.32) (.35) (.35) (.36) - -------------------------------------------------------------------------------- Net realized gains on (.85) (.46) (.68) (1.55) (1.49) investment transactions - -------------------------------------------------------------------------------- Total distributions (1.12) (.78) (1.03) (1.90) (1.85) - -------------------------------------------------------------------------------- Net asset value, end of period $ 8.82 $11.36 $11.38 $10.54 $11.33 - -------------------------------------------------------------------------------- Total Return (%) (13.14) 6.80 18.65 10.98 19.40 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period 9 11 10 12 12 ($ millions) - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) .66^b .63 .67 .64 .71 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) .65^b .62 .67 .64 .71 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) 2.82 2.68 3.06 3.12 3.22 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 105 95 64 80 122 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b The ratios of operating expenses excluding costs incurred in connection with the reorganization before and after expense reductions were .64% and .64%, respectively. 5 Special Features Shareholders of a fund's Class I shares may exchange their shares for (i) shares of Zurich Money Funds -- Zurich Money Market Fund if the shareholders of Class I shares have purchased shares because they are participants in tax-exempt retirement plans of Zurich Scudder and its affiliates and (ii) Class I shares of any other mutual fund listed in the Statement of Additional Information. Conversely, shareholders of Zurich Money Funds -- Zurich Money Market Fund who have purchased shares because they are participants in tax-exempt retirement plans of Zurich Scudder and its affiliates may exchange their shares for Class I shares of any other mutual fund to the extent that they are available through their plan. Exchanges will be made at the relative net asset values of the shares. Exchanges are subject to the limitations set forth in the prospectus. As a result of the relatively lower expenses for Class I shares, the level of income dividends per share (as a percentage of net asset value) and, therefore, the overall investment return, typically will be higher for Class I shares than for Class A, Class B and Class C shares. March 1, 2002 SCUDDER INVESTMENTS Core/Large Cap Funds Advisor Classes A, B and C Prospectus - -------------------------------------------------------------------------------- Scudder Blue Chip Fund March 1, 2002 Scudder Focus Value+Growth Fund March 1, 2002 Scudder Growth and Income Fund January 1, 2002, as revised March 1, 2002 Scudder Total Return Fund March 1, 2002 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. Contents - -------------------------------------------------------------------------------- How the Funds Work How to Invest in the Funds 4 Scudder Blue Chip Fund 44 Choosing a Share Class 9 Scudder Focus Value+Growth 49 How to Buy Shares Fund 50 How to Exchange or Sell Shares 15 Scudder Growth and Income Fund 51 Policies You Should Know About 20 Scudder Total Return Fund 58 Understanding Distributions 26 Other Policies and Risks and Taxes 28 Who Manages and Oversees the Funds 31 Financial Highlights How the Funds Work On the next few pages, you'll find information about each fund's investment goal, the main strategies each uses to pursue that goal and the main risks that could affect performance. Whether you are considering investing in a 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 and you could lose money by investing in them. - -------------------------------------------------------------------------------- Class A | Class B Class C ticker symbol KBCAX | KBCBX KBCCX fund number 031 | 231 331 Scudder Blue Chip Fund - -------------------------------------------------------------------------------- The Fund's Main Investment Strategy The fund seeks growth of capital and of income. Under normal circumstances, the fund invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in common stocks of large U.S. companies that are similar in size to the companies in the S&P 500 Index (as of 12/31/01, the S&P 500 Index had a median market capitalization of $8 billion) and that the portfolio managers consider to be blue chip companies. Blue chip companies are large, well known companies that typically have an established earnings and dividends history, easy access to credit, solid positions in their industries and strong management. As of December 31, 2001, companies in which the fund invests had a median market capitalization of approximately $32 billion. In choosing stocks, the portfolio managers look for "blue chip" companies whose stock price is attractive relative to potential growth. For the most part, these tend to generally be growth stocks. The managers look for factors that could signal future growth, such as new management, products or business strategies. 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. The fund normally will sell a stock when the managers believe its price is unlikely to go much higher, its fundamental qualities have deteriorated or other investments offer better opportunities. - -------------------------------------------------------------------------------- OTHER INVESTMENTS While the fund invests mainly in U.S. common stocks, it could invest up to 20% of net assets in foreign securities. Also, while 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. 4 The Main Risks of Investing in the Fund There are several risk factors that could hurt the fund's performance, cause you to lose money or make the fund perform less well than other investments. As with most stock funds, the most important factor with this fund is how stock markets perform -- in this case, the large company portion of the U.S. stock market. When prices of these stocks fall, you should expect the value of your investment to fall as well. Large company stocks at times may not perform as well as stocks of smaller or mid-size companies. 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 market sector, any factors affecting that sector could affect portfolio securities. For example, a rise in unemployment could hurt consumer goods makers, or the emergence of new technologies could hurt computer software or hardware companies. Other factors that could affect performance include: o the managers could be wrong in their analysis of companies, industries, economic trends or other matters o growth stocks may be out of favor for certain periods o foreign securities may be more volatile than their U.S. counterparts, for reasons such as currency fluctuations and political and economic uncertainty o derivatives could produce disproportionate losses o at times, market conditions might make it hard to value some investments or to get an attractive price for them THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. This fund is designed for investors with long-term goals who are interested in a core stock investment. 5 The Fund's Performance History While a fund's past performance (before and after taxes) isn't necessarily a sign of how it will do in the future, it can be valuable for an investor to know. The bar chart shows how the performance for the fund's Class A shares has varied from year to year, which may give some idea of risk. The bar chart does not reflect sales loads; if it did, total returns would be lower. The table shows how fund performance compares with two broad-based market indices (which, unlike the fund, do not have any fees or expenses). The table includes the effects of maximum sales loads. The performance of both the fund and the indices varies over time. All figures assume reinvestment of dividends and distributions (in the case of after-tax returns, reinvested net of assumed tax rates). The table shows returns on a before-tax and after-tax basis. After-tax returns are shown for Class A only and will vary for Class B and C. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown in the table. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The inception date for Class B and C shares is May 31, 1994. Performance figures before that date are based on the historical performance of the fund's original share class (Class A), adjusted to reflect the higher gross total annual operating expenses of Class B or Class C and the current applicable sales charge of Class B. Scudder Blue Chip Fund - -------------------------------------------------------------------------------- Annual Total Returns (%) as of 12/31 each year Class A - -------------------------------------------------------------------------------- THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE BAR CHART DATA: 1992 -1.20 1993 3.82 1994 -5.16 1995 31.72 1996 27.70 1997 26.21 1998 14.40 1999 26.08 2000 -8.67 2001 -16.89 For the periods included in the bar chart: Best Quarter: 19.21%, Q4 1998 Worst Quarter: -17.98%, Q3 2001 6 - -------------------------------------------------------------------------------- Average Annual Total Returns (%) as of 12/31/2001 - -------------------------------------------------------------------------------- 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------- Return before Taxes -21.67 5.43 7.86 - -------------------------------------------------------------------------------- Return after Taxes on Distributions -21.67 4.04 5.78 - -------------------------------------------------------------------------------- Return after Taxes on Distributions and Sale of Fund Shares -13.20 4.02 5.65 - -------------------------------------------------------------------------------- Class B (Return before Taxes) -19.98 5.65 7.61 - -------------------------------------------------------------------------------- Class C (Return before Taxes) -17.45 5.90 7.70 - -------------------------------------------------------------------------------- Index 1 (reflects no deductions for fees, expenses or taxes) -11.88 10.70 12.93 - -------------------------------------------------------------------------------- Index 2 (reflects no deductions for fees, expenses or taxes) -12.45 10.50 12.84 - -------------------------------------------------------------------------------- Index 1: 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. Index 2: Russell 1000 Index, an unmanaged price-only index of the 1,000 largest capitalized companies that are domiciled in the United States and whose common stocks are traded there. For more recent performance information, call your financial representative or (800) 621-1048 or visit our Web site at www.scudder.com. 7 How Much Investors Pay This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. - -------------------------------------------------------------------------------- Fee Table Class A Class B Class C - -------------------------------------------------------------------------------- Shareholder Fees, paid directly from your investment - -------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed On Purchases (% of offering price) 5.75% None None - -------------------------------------------------------------------------------- Maximum Contingent Deferred Sales Charge (Load) (% of redemption proceeds) None* 4.00% 1.00% - -------------------------------------------------------------------------------- Annual Operating Expenses, deducted from fund assets - -------------------------------------------------------------------------------- Management Fee 0.56% 0.56% 0.56% - -------------------------------------------------------------------------------- Distribution/Service (12b-1) Fee 0.25 1.00 1.00 - -------------------------------------------------------------------------------- Other Expenses** 0.33 0.38 0.35 - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.14 1.94 1.91 - -------------------------------------------------------------------------------- * The redemption of shares purchased at net asset value under the Large Order NAV Purchase Privilege (see "Policies You Should Know About -- Policies about transactions") may be subject to a contingent deferred sales charge of 1.00% if redeemed within one year of purchase and 0.50% if redeemed during the second year following purchase. ** Includes a fixed rate administrative fee of 0.325%, 0.375% and 0.350% for Class A, Class B and Class C shares, respectively. Information in the table has been restated to reflect a new fixed rate administrative fee. Based on the costs above, this example helps you compare the expenses of each share class to those of other mutual funds. The example assumes operating expenses remain the same. It also assumes that you invested $10,000, earned 5% annual returns and reinvested all dividends and distributions. This is only an example; actual expenses will be different. - -------------------------------------------------------------------------------- Example 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------- Expenses, assuming you sold your shares at the end of each period - -------------------------------------------------------------------------------- Class A shares $685 $916 $1,167 $1,881 - -------------------------------------------------------------------------------- Class B shares 597 909 1,247 1,866 - -------------------------------------------------------------------------------- Class C shares 294 600 1,032 2,233 - -------------------------------------------------------------------------------- Expenses, assuming you kept your shares - -------------------------------------------------------------------------------- Class A shares $685 $916 $1,167 $1,881 - -------------------------------------------------------------------------------- Class B shares 197 609 1,047 1,866 - -------------------------------------------------------------------------------- Class C shares 194 600 1,032 2,233 - -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- | Class A Class B Class C ticker symbol | KVGAX KVGBX KVGCX fund number | 85 285 385 Scudder Focus Value+Growth Fund - -------------------------------------------------------------------------------- The Fund's Main Investment Strategy The fund seeks growth of capital through a portfolio of growth and value stocks. The fund normally invests at least 65% of total assets in U.S. common stocks. Although the fund can invest in stocks of any size, it mainly chooses stocks from among the 1,000 largest (as measured by market capitalization). The fund manages risk by investing in both growth and value stocks. The fund seeks to maintain an approximately equal allocation of assets between growth securities and value securities and will periodically rebalance its assets to maintain a 50% allocation of invested assets to each discipline. The fund retains two portfolio management teams dedicated to managing the growth and value portions of the fund, respectively. Each team focuses its investment on a core number of common stocks. Currently, it is anticipated that each team will invest in approximately 15-30 stocks. In choosing growth stocks, the managers look for companies with a history of above-average growth, attractive prices relative to potential growth and sound financial strength, among other factors. With value stocks, the managers look for companies whose stock prices are low in light of earnings, cash flow and other valuation measures, while also considering such factors as improving fundamentals and management strategy. - -------------------------------------------------------------------------------- OTHER INVESTMENTS While the fund invests mainly in U.S. common stocks, it could invest up to 25% of total assets in foreign securities. Also, while 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. 9 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. The fund will normally sell a stock when the managers believe its price is unlikely to go much higher, its fundamental qualities have deteriorated or to adjust the proportions of growth and value stocks. The Main Risks of Investing in the Fund There are several risk factors that could hurt the fund's performance, cause you to lose money or make the fund perform less well than other investments. As with most stock funds, the most important factor with this fund is how stock markets perform -- in this case, the large company portion of the U.S. stock market. When large company stock prices fall, you should expect the value of your investment to fall as well. Large company stocks at times may not perform as well as stocks of small or mid-size companies. 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. Similarly, because the fund isn't diversified and can invest a larger percentage of assets in a given company than a diversified fund, factors affecting that company could affect fund performance. Also, because each portfolio management team invests independently, it is possible that each team may hold the same security or both teams may favor the same industry. It is also possible that one team may buy a security at the same time that the other team is selling it, resulting in no significant change in the overall fund but creating additional costs for the fund. Because the managers periodically rebalance the fund to maintain an approximately even allocation between growth and value securities, the fund may also incur additional costs since sales of fund securities may result in higher portfolio turnover. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. This fund is designed for investors with long-term goals interested in exposure to both growth and value stocks in a single fund. 10 If, during a given period, either growth or value stocks lag the other, the fund is likely to lag any fund that focuses on the type of stock that outperforms during that period because the fund invests in both types of stocks. Other factors that could affect performance include: o the managers could be wrong in their analysis of industries, companies, the relative attractiveness of growth stocks and value stocks or other matters o foreign securities may be more volatile than their U.S. counterparts, for reasons such as currency fluctuations and political and economic uncertainty 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 11 The Fund's Performance History While a fund's past performance (before and after taxes) isn't necessarily a sign of how it will do in the future, it can be valuable for an investor to know. Prior to June 11, 2001, the fund was named Kemper Value+Growth Fund and operated with a different investment strategy and a different advisor managed the growth portion of the fund. Performance would have been different if the fund's current policies and subadvisor/multi-manager arrangement had been in effect. The bar chart shows how the performance for the fund's Class A shares has varied from year to year, which may give some idea of risk. The bar chart does not reflect sales loads; if it did total returns would be lower. The table shows how fund performance compares with two broad-based market indices (which, unlike the fund, do not have any fees or expenses). The table includes the effects of maximum sales loads. The performance of both the fund and the indices varies over time. All figures assume reinvestment of dividends and distributions (in the case of after-tax returns, reinvested net of assumed tax rates). The table shows returns on a before-tax and after-tax basis. After-tax returns are shown for Class A only and will vary for Class B and C. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown in the table. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Scudder Focus Value+Growth Fund - -------------------------------------------------------------------------------- Annual Total Returns (%) as of 12/31 each year Class A - -------------------------------------------------------------------------------- THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE BAR CHART DATA: 1996 25.56 1997 24.52 1998 18.88 1999 16.69 2000 -5.56 2001 -14.91 For the periods included in the bar chart: Best Quarter: 20.65%, Q4 1998 Worst Quarter: -21.09%, Q3 2001 12 - -------------------------------------------------------------------------------- Average Annual Total Returns (%) as of 12/31/2001 - -------------------------------------------------------------------------------- 1 Year 5 Years Since Inception* - -------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------- Return before Taxes -19.81 5.52 9.41 - -------------------------------------------------------------------------------- Return after Taxes on Distributions -19.87 4.17 7.84 - -------------------------------------------------------------------------------- Return after Taxes on Distributions and Sale of Fund Shares -11.99 4.45 7.53 - -------------------------------------------------------------------------------- Class B (Return before Taxes) -18.17 5.76 9.57 - -------------------------------------------------------------------------------- Class C (Return before Taxes) -15.63 5.85 9.53 - -------------------------------------------------------------------------------- Index 1 (reflects no deductions for fees, expenses or taxes) -11.88 10.70 13.43 - -------------------------------------------------------------------------------- Index 2 (reflects no deductions for fees, expenses or taxes) -12.45 10.50 13.12 - -------------------------------------------------------------------------------- Index 1: 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. Index 2: Russell 1000 Index, an unmanaged price-only index of the largest 1,000 capitalized companies that are domiciled in the United States and whose common stocks are traded there. In 1995, 1996, 1998 and 1999, for Class A shares, and in 1995 through 1999, for Class B and C shares, total returns would have been lower in the table and the bar chart if operating expenses hadn't been reduced. * Since 10/16/1995. Index comparisons begin 10/31/1995. For more recent performance information, call your financial representative or (800) 621-1048 or visit our Web site at www.scudder.com. 13 How Much Investors Pay This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. - -------------------------------------------------------------------------------- Fee Table Class A Class B Class C - -------------------------------------------------------------------------------- Shareholder Fees, paid directly from your investment - -------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed On Purchases (% of offering price) 5.75% None None - -------------------------------------------------------------------------------- Maximum Contingent Deferred Sales Charge (Load) (% of redemption proceeds) None* 4.00% 1.00% - -------------------------------------------------------------------------------- Annual Operating Expenses, deducted from fund assets - -------------------------------------------------------------------------------- Management Fee 0.72% 0.72% 0.72% - -------------------------------------------------------------------------------- Distribution/Service (12b-1) Fee 0.24 1.00 1.00 - -------------------------------------------------------------------------------- Other Expenses** 0.33 0.38 0.36 - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.29 2.10 2.08 - -------------------------------------------------------------------------------- * The redemption of shares purchased at net asset value under the Large Order NAV Purchase Privilege (see "Policies You Should Know About -- Policies about transactions") may be subject to a contingent deferred sales charge of 1.00% if redeemed within one year of purchase and 0.50% if redeemed during the second year following purchase. ** Includes a fixed rate administrative fee of 0.325%, 0.375% and 0.350% for Class A, Class B and Class C shares, respectively. Information in the table has been restated to reflect a new fixed rate administrative fee. Based on the costs above, this example helps you compare the expenses of each share class to those of other mutual funds. The example assumes operating expenses remain the same. It also assumes that you invested $10,000, earned 5% annual returns and reinvested all dividends and distributions. This is only an example; actual expenses will be different. - -------------------------------------------------------------------------------- Example 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------- Expenses, assuming you sold your shares at the end of each period - -------------------------------------------------------------------------------- Class A shares $699 $960 $1,242 $2,042 - -------------------------------------------------------------------------------- Class B shares 613 958 1,329 2,034 - -------------------------------------------------------------------------------- Class C shares 311 652 1,119 2,410 - -------------------------------------------------------------------------------- Expenses, assuming you kept your shares - -------------------------------------------------------------------------------- Class A shares $699 $960 $1,242 $2,042 - -------------------------------------------------------------------------------- Class B shares 213 658 1,129 2,034 - -------------------------------------------------------------------------------- Class C shares 211 652 1,119 2,410 - -------------------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- | Class A Class B Class C ticker symbol | SUWAX SUWBX SUWCX fund number | 464 664 764 Scudder Growth and Income Fund - -------------------------------------------------------------------------------- The Fund's Main Investment Strategy The fund seeks long-term growth of capital, current income and growth of income while actively seeking to reduce downside risk as compared with other growth and income funds. The fund invests 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. The fund does not invest in securities issued by tobacco-producing 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 managers use analytical tools to actively monitor the risk profile of the portfolio as compared to comparable funds and appropriate benchmarks and peer groups. - -------------------------------------------------------------------------------- OTHER INVESTMENTS 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. 15 The managers use several strategies in seeking to reduce risk, including: (i) managing risk associated with investment in specific companies by using fundamental analysis, valuation, and by adjusting position sizes; (ii) portfolio construction emphasizing diversification, blending stocks with a variety of different attributes, including value and growth stocks; and (iii) diversifying across many sectors and industries. 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 Main Risks of Investing in the Fund There are several risk factors that could hurt the fund's performance, cause you to lose money or make the fund perform less well than other investments. As with most stock funds, the most important factor with this fund is how stock markets perform. 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 focuses on a given industry or a particular size of a company, factors affecting that industry or size of a company could affect the value of 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. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. This fund is designed for investors interested in a relatively conservative fund to provide growth and some current income. 16 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 the fund's risk management strategies could make long-term performance somewhat lower than it would have been without these strategies o at times, market conditions might make it hard to value some investments or to get an attractive price for them 17 The Fund's Performance History While a fund's past performance isn't necessarily a sign of how it will do in the future, it can be valuable for an investor to know. The bar chart shows how fund performance for Class A has varied from year to year, which may give some idea of risk. The bar chart does not reflect sales loads, if it did, total returns would be lower. The table shows how fund performance compares with a broad-based market index (which, unlike the fund, does not have any fees or expenses). The performance of both the fund and the index varies over time. All figures on this page assume reinvestment of dividends and distributions. The inception date for Class A (formerly Class R) was August 2, 1999. In the bar chart, the performance figures for Class A shares for the period prior to inception are based on the historical performance of the fund's original share class (Class S), adjusted to reflect the higher gross total annual operating expenses of Class A. In the table, the performance figures for each share class for the periods prior to inception (August 2, 1999 for Class A and December 29, 2000 for Classes B and C) are based on the historical performance of Class S, adjusted to reflect both the higher gross total annual operating expenses of Class A, B or C and the current applicable sales charges of Class A and B. In addition, in the table, the performance figures for Class A from August 2, 1999 through December 31, 2000 have been adjusted to reflect the current applicable sales charge of Class A. Class S shares are offered in a different prospectus. Scudder Growth and Income Fund - -------------------------------------------------------------------------------- Annual Total Returns (%) as of 12/31 each year Class A - -------------------------------------------------------------------------------- 1992 27.81 1993 9.27 1994 15.27 1995 2.32 1996 30.82 1997 21.84 1998 29.95 1999 5.78 2000 5.18 2001 -3.18 2001 Total Return as of September 30: -20.59% For the periods included in the bar chart: Best Quarter: 15.19%, Q2 1997 Worst Quarter: -13.45%, Q3 1998 - -------------------------------------------------------------------------------- Annual Total Returns (%) as of 12/31/2000 - -------------------------------------------------------------------------------- 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Class A -8.75 10.09 13.29 - -------------------------------------------------------------------------------- Class B -6.17 10.50 13.12 - -------------------------------------------------------------------------------- Class C -3.46 10.66 13.15 - -------------------------------------------------------------------------------- Index -9.10 18.33 17.46 - -------------------------------------------------------------------------------- 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 both the chart and the table, total returns for 1992 would have been lower if operating expenses hadn't been reduced. For more recent performance information, call your financial representative or (800) 621-1048 or visit our Web site at www.scudder.com. 18 How Much Investors Pay This table describes the fees and expenses that you may pay if you buy and hold fund shares. - -------------------------------------------------------------------------------- Fee Table Class A Class B Class C - -------------------------------------------------------------------------------- Shareholder Fees, paid directly from your investment - -------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (% of offering price) 5.75% None None - -------------------------------------------------------------------------------- Maximum Contingent Deferred Sales Charge (Load) (% of redemption proceeds) None* 4.00% 1.00% - -------------------------------------------------------------------------------- Annual Operating Expenses, deducted from fund assets - -------------------------------------------------------------------------------- Management Fee 0.45% 0.45% 0.45% - -------------------------------------------------------------------------------- Distribution/Service (12b-1) Fee 0.25 1.00 1.00 - -------------------------------------------------------------------------------- Other Expenses** 0.33 0.38 0.35 - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.03 1.83 1.80 - -------------------------------------------------------------------------------- * The redemption of shares purchased at net asset value under the Large Order NAV Purchase Privilege (see "Policies You Should Know About -- Policies about transactions") may be subject to a contingent deferred sales charge of 1.00% if redeemed within one year of purchase and 0.50% if redeemed during the second year following purchase. ** Includes a fixed rate administrative fee of 0.325%, 0.375% and 0.350% for Class A, Class B and Class C shares, respectively. Information in the table has been restated to reflect a new fixed rate administrative fee. Based on the costs above, this example helps you compare the expenses of each share class to those of other mutual funds. This example assumes the expenses above remain the same. It also assumes that you invested $10,000, earned 5% annual returns, and reinvested all dividends and distributions. This is only an example; actual expenses will be different. - -------------------------------------------------------------------------------- Example 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------- Expenses, assuming you sold your shares at the end of each period - -------------------------------------------------------------------------------- Class A shares $674 $884 $1,111 $1,762 - -------------------------------------------------------------------------------- Class B shares 586 876 1,190 1,745 - -------------------------------------------------------------------------------- Class C shares 283 566 975 2,116 - -------------------------------------------------------------------------------- Expenses, assuming you kept your shares - -------------------------------------------------------------------------------- Class A shares $674 $884 $1,111 $1,762 - -------------------------------------------------------------------------------- Class B shares 186 576 990 1,745 - -------------------------------------------------------------------------------- Class C shares 183 566 975 2,116 - -------------------------------------------------------------------------------- 19 - -------------------------------------------------------------------------------- | Class A Class B Class C ticker symbol | KTRAX KTRBX KTRCX fund number | 002 202 302 Scudder Total Return Fund - -------------------------------------------------------------------------------- The Fund's Main Investment Strategy The fund seeks the highest total return, a combination of income and capital appreciation, consistent with reasonable risk. The fund follows a flexible investment program, investing in a mix of growth stocks and bonds. The fund can buy many types of securities, among them common stocks, convertible securities, corporate bonds, U.S. government bonds and mortgage- and asset-backed securities. In deciding which type of securities to buy, the managers consider the relative attractiveness of growth stocks and bonds and determine allocations for each. Their decisions are generally based on a number of factors, including interest rates and general market conditions. Generally, most securities are from U.S. issuers, but the fund may invest up to 25% of total assets in foreign securities. In choosing individual stocks, the managers favor large companies with a history of above-average growth, attractive prices relative to potential growth, sound financial strength and effective management, among other factors. The portfolio managers may shift the proportion of the fund's holdings, at different times favoring stocks or bonds (and within those asset classes, different types of securities), while still maintaining variety in terms of the securities, issuers and economic sectors represented. The fund will normally sell a stock when the managers believe its price is unlikely to go much higher, its fundamental qualities have deteriorated or other investments offer better opportunities. - -------------------------------------------------------------------------------- OTHER INVESTMENTS Normally, this fund's bond component consists mainly of investment-grade bonds (those in the top four grades of credit quality). However, the fund could invest up to 35% of total 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 on payments. While 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. 20 The fund will normally sell a stock when the managers believe its price is unlikely to go much higher, its fundamental qualities have deteriorated or other investments offer better opportunities. In deciding what types of bonds to buy and sell, the managers consider their relative potential for stability and attractive income, and other factors such as credit quality and market conditions. The fund may invest in bonds of any duration. The Main Risks of Investing in the Fund There are several risk factors that could hurt the fund's performance, cause you to lose money or make the fund perform less well than other investments. An important factor is how stock markets perform -- something that depends on many influences, including economic, political and demographic trends. When stock prices fall, the value of your investment is likely 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 fund is also affected by the performance of bonds, which depends primarily on interest rate risk and credit risk. A rise in interest rates generally means a fall in bond prices and, in turn, a fall in the value of your investment. Some bonds could be paid off earlier than expected, which would hurt the fund's performance; with mortgage- or asset-backed securities, any unexpected behavior in interest rates could increase the volatility of the fund's share price and yield. Corporate bonds could perform less well than other bonds in a weak economy. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. This fund is designed for investors interested in asset class diversification in a single fund that invests in a mix of stocks and bonds. 21 Other factors that could affect performance include: o the managers could be wrong in their analysis of industries, companies or other matters o foreign securities may be more volatile than their U.S. counterparts, for reasons such as currency fluctuations and political and economic uncertainty o growth stocks may be out of favor for certain periods o a bond could fall in credit quality or go into default 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 22 The Fund's Performance History While a fund's past performance (before and after taxes) isn't necessarily a sign of how it will do in the future, it can be valuable for an investor to know. The bar chart shows how the performance for the fund's Class A shares has varied from year to year, which may give some idea of risk. The bar chart does not reflect sales loads; if it did returns would be lower. The table shows how fund performance compares with three broad-based market indices (which, unlike the fund, do not have any fees or expenses). The table includes the effects of maximum sales loads. The performance of both the fund and the indices varies over time. All figures assume reinvestment of dividends and distributions (in the case of after-tax returns, reinvested net of assumed tax rates). The table shows returns on a before-tax and after-tax basis. After-tax returns are shown for Class A only and will vary for Class B and C. After-tax returns are calculated using the highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown in the table. After-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The inception date for Class B and C shares is May 31, 1994. Performance figures before that date are based on the historical performance of the fund's original share class (Class A), adjusted to reflect the higher gross total annual operating expenses of Class B or Class C and the current applicable sales charge of Class B. Scudder Total Return Fund - -------------------------------------------------------------------------------- Annual Total Returns (%) as of 12/31 each year Class A - -------------------------------------------------------------------------------- THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE BAR CHART DATA: 1992 2.49 1993 11.59 1994 -9.18 1995 25.80 1996 16.25 1997 19.14 1998 15.91 1999 14.60 2000 -2.78 2001 -6.78 For the periods included in the bar chart: Best Quarter: 13.07%, Q2 1997 Worst Quarter: -9.23%, Q3 2001 23 - -------------------------------------------------------------------------------- Average Annual Total Returns (%) as of 12/31/2001 - -------------------------------------------------------------------------------- 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------- Return before Taxes -12.14 6.21 7.46 - -------------------------------------------------------------------------------- Return after Taxes on Distributions -13.00 3.58 4.58 - -------------------------------------------------------------------------------- Return after Taxes on Distributions and Sale of Fund Shares -7.41 4.32 5.01 - -------------------------------------------------------------------------------- Class B (Return before Taxes) -10.35 6.30 7.07 - -------------------------------------------------------------------------------- Class C (Return before Taxes) -7.58 6.51 7.14 - -------------------------------------------------------------------------------- Index 1 (reflects no deductions for fees, expenses or taxes) -11.88 10.70 12.93 - -------------------------------------------------------------------------------- Index 2 (reflects no deductions for fees, expenses or taxes) 8.50 7.37 7.27 - -------------------------------------------------------------------------------- Index 3 (reflects no deductions for fees, expenses or taxes) -20.42 8.27 10.79 - -------------------------------------------------------------------------------- Index 1: 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. Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index of government and investment-grade corporate debt securities of intermediate- and long-term maturities. Index 3: Russell 1000 Growth Index, an unmanaged capitalization-weighted index containing the growth stocks in the Russell 1000 Index. For more recent performance information, call your financial representative or (800) 621-1048 or visit our Web site at www.scudder.com. 24 How Much Investors Pay This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. - -------------------------------------------------------------------------------- Fee Table Class A Class B Class C - -------------------------------------------------------------------------------- Shareholder Fees, paid directly from your investment - -------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed On Purchases (% of offering price) 5.75% None None - -------------------------------------------------------------------------------- Maximum Contingent Deferred Sales Charge (Load) (% of redemption proceeds) None* 4.00% 1.00% - -------------------------------------------------------------------------------- Annual Operating Expenses, deducted from fund assets - -------------------------------------------------------------------------------- Management Fee 0.53% 0.53% 0.53% - -------------------------------------------------------------------------------- Distribution/Service (12b-1) Fee 0.25 1.00 1.00 - -------------------------------------------------------------------------------- Other Expenses** 0.23 0.38 0.30 - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.01 1.91 1.83 - -------------------------------------------------------------------------------- * The redemption of shares purchased at net asset value under the Large Order NAV Purchase Privilege (see "Policies You Should Know About -- Policies about transactions") may be subject to a contingent deferred sales charge of 1.00% if redeemed within one year of purchase and 0.50% if redeemed during the second year following purchase. ** Includes a fixed rate administrative fee of 0.225%, 0.375% and 0.300% for Class A, Class B and Class C shares, respectively. Information in the table has been restated to reflect a new fixed rate administrative fee. Based on the costs above, this example helps you compare the expenses of each share class to those of other mutual funds. This example assumes operating expenses remain the same. It also assumes that you invested $10,000, earned 5% annual returns and reinvested all dividends and distributions. This is only an example; actual expenses will be different. - -------------------------------------------------------------------------------- Example 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------- Expenses, assuming you sold your shares at the end of each period - -------------------------------------------------------------------------------- Class A shares $672 $878 $1,101 $1,740 - -------------------------------------------------------------------------------- Class B shares 594 900 1,232 1,782 - -------------------------------------------------------------------------------- Class C shares 286 576 990 2,148 - -------------------------------------------------------------------------------- Expenses, assuming you kept your shares - -------------------------------------------------------------------------------- Class A shares $672 $878 $1,101 $1,740 - -------------------------------------------------------------------------------- Class B shares 194 600 1,032 1,782 - -------------------------------------------------------------------------------- Class C shares 186 576 990 2,148 - -------------------------------------------------------------------------------- 25 Other Policies and Risks While the previous pages describe the main points of each fund's strategy and risks, there are a few other issues to know about: o Although major changes tend to be infrequent, a fund's Board could change that fund's investment goal without seeking shareholder approval. For Scudder Blue Chip Fund, the Board will provide shareholders with at least 60 days' notice prior to making any changes to the fund's 80% investment policy as described herein. o As a temporary defensive measure, a fund could shift up to 100% of assets into investments such as money market securities. This could prevent losses, but would mean that a fund was not pursuing its goals. o The advisor measures credit quality at the time it buys securities, or, for unrated securities, its own credit analysis. If a security's credit quality changes, the advisor will decide what to do with the security, based on its assessment of what would benefit shareholders most. o Each fund's equity investments are mainly common stocks, but may also include other types of equities, such as preferred or convertible stocks. o Certain funds may trade securities actively. This could raise transaction costs (thus lowering return) and could mean higher taxable distributions. o The Board of each fund has the ability to terminate a fund at any time without shareholder approval. 26 Euro conversion Funds that invest in foreign securities could be affected by accounting differences, changes in tax treatment or other issues related to the conversion of certain European currencies into the euro, which is already well underway. The advisor is working to address euro-related issues as they occur and has been notified that other key service providers are taking similar steps. Still, there's some risk that this problem could materially affect a fund's operation (including its ability to calculate net asset value and to handle purchases and redemptions), its investments or securities markets in general. For more information This prospectus doesn't tell you about every policy or risk of investing in a fund. If you want more information on a 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. 27 Who Manages and Oversees the Funds The investment advisor The funds' investment advisor is Zurich Scudder Investments, Inc., 345 Park Avenue, New York, NY. The advisor has more than 80 years of experience managing mutual funds, and currently has more than $325 billion in assets under management. The advisor's asset management teams include investment professionals, economists, research analysts, traders and other investment specialists, located in offices across the United States and around the world. The advisor receives a management fee from each fund. Below are the actual rates paid by each fund for the most recent fiscal year, as a percentage of each fund's average daily net assets: Fund Name Fee Paid - --------------------------------------------------------------------- Scudder Blue Chip Fund 0.56% - --------------------------------------------------------------------- Scudder Focus Value+Growth Fund 0.72% - --------------------------------------------------------------------- Scudder Growth and Income Fund 0.45% - --------------------------------------------------------------------- Scudder Total Return Fund 0.53% - --------------------------------------------------------------------- 28 Subadvisor for Scudder Focus Value+Growth Fund Effective June 11, 2001, Jennison Associates LLC, 466 Lexington Avenue, New York, NY 10017, an indirect wholly-owned subsidiary of The Prudential Insurance Company of America, 751 Broad Street, Newark, New Jersey, is the subadvisor to the growth portion of Scudder Focus Value+Growth Fund. Jennison was founded in 1969 and has served as an investment advisor to registered investment companies since 1990. As of December 31, 2001, Jennison managed approximately $62 billion on behalf of its clients. Zurich Scudder Investments, Inc. pays a fee to Jennison Associates LLC for acting as subadvisor to the growth style portion of the fund and of SVS Focus Value+Growth Portfolio (another fund managed by the advisor for which Jennison serves as a subadvisor) at an annual rate applied to the portion of the average combined daily net assets of the fund and SVS Focus Value+Growth Portfolio. The combined fee is calculated as follows: Average Combined Daily Net Assets Fee Rate - --------------------------------------------------------------------- $0-$100 million 0.450% - --------------------------------------------------------------------- $100 million-$500 million 0.400% - --------------------------------------------------------------------- $500 million-$1 billion 0.350% - --------------------------------------------------------------------- $1 billion-$2 billion 0.300% - --------------------------------------------------------------------- Over $2 billion 0.250% - --------------------------------------------------------------------- 29 The portfolio managers The following people handle the day-to-day management of each fund. Scudder Blue Chip Fund Scudder Growth and Income Fund Kathleen Millard Kathleen T. Millard Co-Lead Portfolio Manager Lead Portfolio Manager o Began investment career in 1983 o Began investment career in 1983 o Joined the advisor in 1991 o Joined the advisor in 1991 o Joined the fund team in 2002 o Joined the fund team in 1991 Gregory S. Adams Gregory S. Adams Co-Lead Portfolio Manager o Began investment career in 1987 o Began investment career in 1987 o Joined the advisor in 1999 o Joined the advisor in 1999 o Joined the fund team in 1999 o Joined the fund team in 2002 Scudder Total Return Fund Scudder Focus Value+Growth Fund William Gadsden Lois Roman Lead Portfolio Manager Lead Portfolio Manager o Began investment career in 1981 o Began investment career in 1988 o Joined the advisor in 1983 o Joined the advisor in 1994 o Joined the fund team in 2002 o Joined the fund team in 2001 Jesse Stuart Jennison Associates LLC is the subadvisor o Began investment career in 1996 to the growth portion of the fund. The o Joined the advisor in 1996 following people handle the day-to-day o Joined the fund team in 2002 management: Robert Cessine Spiros Segalas o Began investment career in 1982 o Began investment career in 1960 o Joined the advisor in 1993 o Joined the subadvisor in 1969 o Joined the fund team in 1999 o Joined the fund team in 2001 Kathleen McCarragher o Began investment career in 1982 o Joined the subadvisor in 1998 o Joined the fund team in 2001 In the event that Zurich Scudder Investments, Inc. is acquired by Deutsche Bank, Deutsche Bank intends to change the portfolio managers of certain Scudder funds. Shareholders of a fund will be notified following a change in their fund's lead portfolio manager(s). 30 Financial Highlights These tables are designed to help you understand each fund's financial performance. The figures in the first part of each table are for a single share. The total return figures represent the percentage that an investor in a particular fund would have earned (or lost), assuming all dividends and distributions were reinvested. The information for Scudder Blue Chip Fund, Scudder Focus Value+Growth Fund and Scudder Total Return Fund has been audited by Ernst & Young LLP, independent auditors, and the information for Scudder Growth and Income Fund has been audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's financial statements, are included in that fund's annual report (see "Shareholder reports" on the back cover). Prior to June 11, 2001, Scudder Focus Value+Growth Fund was named Kemper Value+Growth Fund and operated with a different investment strategy and a different advisor managed the growth portion of the fund. Performance would have been different if the fund's current policies and subadvisor/multi-manager arrangement had been in effect. Scudder Blue Chip Fund -- Class A - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $21.76 $20.76 $16.61 $17.68 $17.14 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)^a (.03) (.03) .02 .11 .18 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (6.10) 1.78 4.55 1.17 3.70 - -------------------------------------------------------------------------------- Total from investment operations(6.13) 1.75 4.57 1.28 3.88 - -------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.16) (.21) - -------------------------------------------------------------------------------- Net realized gains on investment transactions (.60) (.75) (.42) (2.19) (3.13) - -------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.35) (3.34) - -------------------------------------------------------------------------------- Net asset value, end of period $15.03 $21.76 $20.76 $16.61 $17.68 - -------------------------------------------------------------------------------- Total Return (%)^b (28.71) 8.51 27.96 7.80 26.78 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 430 651 547 378 308 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.23^c 1.17 1.19 1.29 1.19 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 1.22^c 1.16 1.19 1.29 1.19 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.14) (.14) .13 .62 1.07 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 124 89 75 157 183 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return does not reflect the effect of sales charges. ^c The ratios of operating expenses excluding costs incurred with the reorganization before and after expense reductions were 1.20% and 1.20%, respectively. 31 Scudder Blue Chip Fund -- Class B - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $21.30 $20.50 $16.55 $17.61 $17.09 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)^a (.16) (.20) (.14) (.03) .04 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (5.96) 1.75 4.51 1.17 3.67 - -------------------------------------------------------------------------------- Total from investment operations(6.12) 1.55 4.37 1.14 3.71 - -------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.01) (.06) - -------------------------------------------------------------------------------- Net realized gains on investment transactions (.60) (.75) (.42) (2.19) (3.13) - -------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.20) (3.19) - -------------------------------------------------------------------------------- Net asset value, end of period $14.58 $21.30 $20.50 $16.55 $17.61 - -------------------------------------------------------------------------------- Total Return (%)^b (29.30) 7.62 26.83 6.96 25.62 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 293 454 314 174 123 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 2.04^c 1.98 2.07 2.10 2.06 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 2.02^c 1.97 2.07 2.10 2.06 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.93) (.95) (.75) (.19) .20 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 124 89 75 157 183 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return does not reflect the effect of sales charges. ^c The ratios of operating expenses excluding costs incurred with the reorganization before and after expense reductions were 1.99% and 1.99%, respectively. 32 Scudder Blue Chip Fund -- Class C - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $21.47 $20.64 $16.65 $17.69 $17.15 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)^a (.15) (.20) (.13) (.01) .03 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (6.00) 1.78 4.54 1.18 3.71 - -------------------------------------------------------------------------------- Total from investment operations(6.15) 1.58 4.41 1.17 3.74 - -------------------------------------------------------------------------------- Less distributions from: Net investment income -- -- -- (.02) (.07) - -------------------------------------------------------------------------------- Net realized gains on investment transactions (.60) (.75) (.42) (2.19) (3.13) - -------------------------------------------------------------------------------- Total distributions (.60) (.75) (.42) (2.21) (3.20) - -------------------------------------------------------------------------------- Net asset value, end of period $14.72 $21.47 $20.64 $16.65 $17.69 - -------------------------------------------------------------------------------- Total Return (%)^b (29.21) 7.72 26.91 7.08 25.71 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 59 75 44 23 11 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.95^c 1.93 1.98 2.03 2.00 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 1.92^c 1.93 1.97 2.03 2.00 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.84) (.91) (.65) (.12) .26 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 124 89 75 157 183 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return does not reflect the effect of sales charges. ^c The ratios of operating expenses excluding costs incurred with the reorganization before and after expense reductions were 1.92% and 1.92%, respectively. 33 Scudder Focus Value+Growth Fund -- Class A - -------------------------------------------------------------------------------- Years Ended November 30, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $16.07 $18.30 $15.82 $14.62 $12.95 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) --^a* (.03)^a .03^a .01 .02 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (2.10) .04 2.68 1.69 2.48 - -------------------------------------------------------------------------------- Total from investment operations(2.10) .01 2.71 1.70 2.50 - -------------------------------------------------------------------------------- Less distributions from: Net realized gains on investment transactions (1.52) (2.24) (.23) (.50) (.83) - -------------------------------------------------------------------------------- Total distributions (1.52) (2.24) (.23) (.50) (.83) - -------------------------------------------------------------------------------- Net asset value, end of period $12.45 $16.07 $18.30 $15.82 $14.62 - -------------------------------------------------------------------------------- Total Return (%)^c (14.22) (.96) 17.42^b 12.06 20.83 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 61 76 90 77 52 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.38 1.51^d 1.42 1.42 1.41 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 1.38 1.50^d 1.41 1.42 1.41 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.06) (.16) (.15) .22 .35 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 153 43 105 92 56 - -------------------------------------------------------------------------------- * Amount is less than one half of $.01. ^a Based on average shares outstanding during the period. ^b Total return would have been lower had certain expenses not been reduced. ^c Total return does not reflect the effect of any sales charges. ^d The ratios of operating expenses excluding costs incurred in connection with the reorganization before and after expense reductions were 1.48% and 1.47%, respectively. 34 Scudder Focus Value+Growth Fund -- Class B - -------------------------------------------------------------------------------- Years Ended November 30, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $15.33 $17.68 $15.40 $14.37 $12.83 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) (.11)^a (.16)^a (.10)^a (.07) (.07) - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (1.99) .05 2.61 1.60 2.44 - -------------------------------------------------------------------------------- Total from investment operations(2.10) (.11) 2.51 1.53 2.37 - -------------------------------------------------------------------------------- Less distributions from: Net realized gains on investment transactions (1.52) (2.24) (.23) (.50) (.83) - -------------------------------------------------------------------------------- Total distributions (1.52) (2.24) (.23) (.50) (.83) - -------------------------------------------------------------------------------- Net asset value, end of period $11.71 $15.33 $17.68 $15.40 $14.37 - -------------------------------------------------------------------------------- Total Return (%)^c (14.98) (1.75) 16.58b 11.06^b 19.96^b - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 51 68 74 62 43 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 2.20 2.35d 2.31 2.38 2.32 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 2.20 2.34d 2.19 2.27 2.27 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.88) (.99) (.93) (.63) (.51) - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 153 43 105 92 56 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return would have been lower had certain expenses not been reduced. ^c Total return does not reflect the effect of any sales charges. ^d The ratios of operating expenses excluding costs incurred in connection with the reorganization before and after expense reductions were 2.30% and 2.29%, respectively. 35 Scudder Focus Value+Growth Fund -- Class C - -------------------------------------------------------------------------------- Years Ended November 30, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $15.30 $17.68 $15.40 $14.37 $12.84 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) (.12)^a (.20)^a (.11)^a (.04) (.05) - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (1.98) .06 2.62 1.57 2.41 - -------------------------------------------------------------------------------- Total from investment operations(2.10) (.14) 2.51 1.53 2.36 - -------------------------------------------------------------------------------- Less distributions from: Net realized gains on investment transactions (1.52) (2.24) (.23) (.50) (.83) - -------------------------------------------------------------------------------- Total distributions (1.52) (2.24) (.23) (.50) (.83) - -------------------------------------------------------------------------------- Net asset value, end of period $11.68 $15.30 $17.68 $15.40 $14.37 - -------------------------------------------------------------------------------- Total Return (%)c (15.01) (1.94) 16.58^b 11.06^b 19.86^b - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 9 11 9 6 3 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 2.22 2.56d 2.68 2.16 2.15 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 2.22 2.55d 2.14 2.16 2.15 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.90) (1.17) (.88) (.52) (.39) - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 153 43 105 92 56 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return would have been lower had certain expenses not been reduced. ^c Total return does not reflect the effect of any sales charges. ^d The ratios of operating expenses excluding costs incurred in connection with the reorganization before and after expense reductions were 2.50% and 2.49%, respectively. 36 Scudder Growth and Income Fund -- Class A(a) - -------------------------------------------------------------------------------- Years Ended September 30, 2001^b 2000^c 1999^d - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $26.86 $26.65 $28.16 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)^e .11 (.03) .09 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (6.31) .46 (.76) - -------------------------------------------------------------------------------- Total from investment operations (6.20) .43 (.67) - -------------------------------------------------------------------------------- Less distributions from: Net investment income (.11) (.02) (.22) - -------------------------------------------------------------------------------- Net realized gains on investment transactions (1.56) (.20) (.62) - -------------------------------------------------------------------------------- Total distributions (1.67) (.22) (.84) - -------------------------------------------------------------------------------- Net asset value, end of period $18.99 $26.86 $26.65 - -------------------------------------------------------------------------------- Total Return (%)^f (24.34) 1.62** (2.31)** - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 23 8 6 - -------------------------------------------------------------------------------- Ratio of expenses (%) 1.02 1.62^g* 1.34* - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) .45 (.12)* .98* - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 57 55* 70 - -------------------------------------------------------------------------------- ^a On December 29, 2000, Class R Shares were redesignated as Class A. ^b For the year ended September 30, 2001. ^c For the nine months ended September 30, 2000. On February 7, 2000, the Fund changed its fiscal year end from December 31 to September 30. ^d For the period from August 2, 1999 (commencement of sales of Class R Shares) to December 31, 1999. ^e Based on average shares outstanding during the period. ^f Total return does not reflect the effect of sales charges. ^g The ratio of operating expenses excluding costs incurred in connection with the reorganization in fiscal 2000 was 1.60%. * Annualized ** Not annualized 37 Scudder Growth and Income Fund -- Class B - -------------------------------------------------------------------------------- Year Ended September 30, 2001^a - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $24.04 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)^b (.06) - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (5.00) - -------------------------------------------------------------------------------- Total from investment operations (5.06) - -------------------------------------------------------------------------------- Less distributions from: Net investment income (.02) - -------------------------------------------------------------------------------- Total distributions (.02) - -------------------------------------------------------------------------------- Net asset value, end of period $18.96 - -------------------------------------------------------------------------------- Total Return (%)^c (21.03)* - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 13 - -------------------------------------------------------------------------------- Ratio of expenses (%) 1.83* - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.39)* - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 57 - -------------------------------------------------------------------------------- ^a For the period from December 29, 2000 (commencement of sales of Class B shares) to September 30, 2001. ^b Based on average shares outstanding during the period. ^c Total return does not reflect the effect of sales charges. * Annualized ** Not annualized 38 Scudder Growth and Income Fund -- Class C - -------------------------------------------------------------------------------- Year Ended September 30, 2001^a - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $24.04 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)^b (.06) - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (4.99) - -------------------------------------------------------------------------------- Total from investment operations (5.05) - -------------------------------------------------------------------------------- Less distributions from: Net investment income (.02) - -------------------------------------------------------------------------------- Total distributions (.02) - -------------------------------------------------------------------------------- Net asset value, end of period $18.97 - -------------------------------------------------------------------------------- Total Return (%)^c (21.03)** - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 4 - -------------------------------------------------------------------------------- Ratio of expenses (%) 1.80* - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) (.36)* - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 57 - -------------------------------------------------------------------------------- ^a For the period from December 29, 2000 (commencement of sales of Class C shares) to September 30, 2001. ^b Based on average shares outstanding during the period. ^c Total return does not reflect the effect of sales charges. * Annualized ** Not annualized 39 Scudder Total Return Fund -- Class A - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $11.34 $11.35 $10.54 $11.34 $11.28 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) .24^a .26^a .30^a .29 .31 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (1.69) .47 1.50 .77 1.57 - -------------------------------------------------------------------------------- Total from investment operations(1.45) .73 1.80 1.06 1.88 - -------------------------------------------------------------------------------- Less distributions from: Net investment income (.24) (.28) (.31) (.31) (.33) - -------------------------------------------------------------------------------- Net realized gains on investment transactions (.85) (.46) (.68) (1.55) (1.49) - -------------------------------------------------------------------------------- Total distributions (1.09) (.74) (.99) (1.86) (1.82) - -------------------------------------------------------------------------------- Net asset value, end of period $ 8.80 $11.34 $11.35 $10.54 $11.34 - -------------------------------------------------------------------------------- Total Return (%)^b (13.50) 6.52 17.91 10.47 18.95 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 2,328 2,862 2,885 2,406 2,080 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.01^c 1.02 1.02 1.01 1.01 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) .99^c 1.01 1.02 1.01 1.01 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) 2.48 2.29 2.71 2.75 2.92 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 105 95 64 80 122 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return does not reflect the effect of sales charges. ^c The ratios of operating expenses excluding costs incurred in connection with the reorganization before and after expense reductions were .99% and .99%, respectively. 40 Scudder Total Return Fund -- Class B - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $11.34 $11.34 $10.52 $11.33 $11.27 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) .14^a .16^a .19^a .19 .22 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (1.69) .46 1.50 .75 1.55 - -------------------------------------------------------------------------------- Total from investment operations(1.55) .62 1.69 .94 1.77 - -------------------------------------------------------------------------------- Less distributions from: Net investment income (.15) (.16) (.19) (.20) (.22) - -------------------------------------------------------------------------------- Net realized gains on investment transactions (.85) (.46) (.68) (1.55) (1.49) - -------------------------------------------------------------------------------- Total distributions (1.00) (.62) (.87) (1.75) (1.71) - -------------------------------------------------------------------------------- Net asset value, end of period $ 8.79 $11.34 $11.34 $10.52 $11.33 - -------------------------------------------------------------------------------- Total Return (%)^b (14.38) 5.58 16.76 9.30 17.86 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 464 556 744 877 1,132 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.99^c 1.91 2.03 2.01 1.95 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 1.99^c 1.90 2.03 2.01 1.95 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) 1.48 1.40 1.70 1.75 1.98 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 105 95 64 80 122 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return does not reflect the effect of sales charges. ^c The ratios of operating expenses excluding costs incurred in connection with the reorganization before and after expense reductions were 1.95% and 1.95%, respectively. 41 Scudder Total Return Fund -- Class C - -------------------------------------------------------------------------------- Years Ended October 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Selected Per Share Data - -------------------------------------------------------------------------------- Net asset value, beginning of period $11.31 $11.32 $10.54 $11.34 $11.28 - -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) .15^a .16^a .20^a .20 .22 - -------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investment transactions (1.67) .47 1.48 .77 1.56 - -------------------------------------------------------------------------------- Total from investment operations(1.52) .63 1.68 .97 1.78 - -------------------------------------------------------------------------------- Less distributions from: Net investment income (.16) (.18) (.22) (.22) (.23) - -------------------------------------------------------------------------------- Net realized gains on investment transactions (.85) (.46) (.68) (1.55) (1.49) - -------------------------------------------------------------------------------- Total distributions (1.01) (.64) (.90) (1.77) (1.72) - -------------------------------------------------------------------------------- Net asset value, end of period $ 8.78 $11.31 $11.32 $10.54 $11.34 - -------------------------------------------------------------------------------- Total Return (%)^b (14.18) 5.63 16.64 9.50 17.92 - -------------------------------------------------------------------------------- Ratios to Average Net Assets and Supplemental Data - -------------------------------------------------------------------------------- Net assets, end of period ($ millions) 72 61 43 26 17 - -------------------------------------------------------------------------------- Ratio of expenses before expense reductions (%) 1.89^c 1.87 1.89 1.90 1.90 - -------------------------------------------------------------------------------- Ratio of expenses after expense reductions (%) 1.87^c 1.86 1.89 1.90 1.90 - -------------------------------------------------------------------------------- Ratio of net investment income (loss) (%) 1.59 1.44 1.84 1.86 2.03 - -------------------------------------------------------------------------------- Portfolio turnover rate (%) 105 95 64 80 122 - -------------------------------------------------------------------------------- ^a Based on average shares outstanding during the period. ^b Total return does not reflect the effect of sales charges. ^c The ratios of operating expenses excluding costs incurred in connection with the reorganization before and after expense reductions were 1.87% and 1.87%, respectively. 42 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. The following pages tell you about many of the services, choices and benefits of being a shareholder. You'll also find information on how to check the status of your account using the method that's most convenient for you. You can find out more about the topics covered here by speaking with your financial representative or a representative of your workplace retirement plan or other investment provider. Choosing a Share Class In this prospectus are three share classes for each fund. Each class has its own fees and expenses, offering you a choice of cost structures. Certain funds offer other classes of shares separately. Class A, Class B and Class C shares are intended for investors seeking the advice and assistance of a financial representative, who may receive compensation for those services through sales commissions, service fees and/or distribution fees. Before you invest, take a moment to look over the characteristics of each share class, so that you can be sure to choose the class that's right for you. You may want to ask your financial representative to help you with this decision. We describe each share class in detail on the following pages. But first, you may want to look at the table below, which gives you a brief comparison of the main features of each class. - -------------------------------------------------------------------------------- Classes and features Points to help you compare - -------------------------------------------------------------------------------- Class A o Sales charges of up to 5.75%, charged o Some investors may be able to reduce when you buy shares or eliminate their sales charges; see next page o In most cases, no charges when you sell shares o Total annual operating expenses are lower than those for Class B or o 0.25% service fee Class C - -------------------------------------------------------------------------------- Class B o No charges when you buy shares o The deferred sales charge rate falls to zero after six years o Deferred sales charge declining from 4.00%, charged when you sell shares o Shares automatically convert to you bought within the last six years Class A six years after purchase, which means lower annual expenses o 1.00% distribution/service fee going forward - -------------------------------------------------------------------------------- Class C o No charges when you buy shares o The deferred sales charge rate is lower, but your shares never convert o Deferred sales charge of 1.00%, to Class A, so annual expenses charged when you sell shares you remain higher bought within the last year o 1.00% distribution/service fee - -------------------------------------------------------------------------------- 44 Class A shares Class A shares have a 12b-1 plan, under which a service fee of up to 0.25% is deducted from class assets each year. Class A shares have a sales charge that varies with the amount you invest: Sales charge as a Sales charge as a % of Your investment % of offering price your net investment - --------------------------------------------------------------------- Up to $50,000 5.75 6.10 - --------------------------------------------------------------------- $50,000-$99,999 4.50 4.71 - --------------------------------------------------------------------- $100,000-$249,999 3.50 3.63 - --------------------------------------------------------------------- $250,000-$499,999 2.60 2.67 - --------------------------------------------------------------------- $500,000-$999,999 2.00 2.04 - --------------------------------------------------------------------- $1 million or more See below and next page - --------------------------------------------------------------------- The offering price includes the sales charge. You may be able to lower your Class A sales charges if: o you plan to invest at least $50,000 over the next 24 months ("letter of intent") o the amount of shares you already own (including shares in certain other funds) plus the amount you're investing now is at least $50,000 ("cumulative discount") o you are investing a total of $50,000 or more in several funds at once ("combined purchases") The point of these three features is to let you count investments made at other times for purposes of calculating your present sales charge. Any time you can use the privileges to "move" your investment into a lower sales charge category in the table above, it's generally beneficial for you to do so. You can take advantage of these methods by filling in the appropriate sections of your application or by speaking with your financial representative. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. Class A shares may make sense for long-term investors, especially those who are eligible for reduced or eliminated sales charges. 45 You may be able to buy Class A shares without sales charges when you are: o reinvesting dividends or distributions o investing through certain workplace retirement plans o participating in an investment advisory program under which you pay a fee to an investment advisor or other firm for portfolio management services There are a number of additional provisions that apply in order to be eligible for a sales charge waiver. Each fund may waive the sales charges for investors in other situations as well. Your financial representative or Shareholder Services can answer your questions and help you determine if you are eligible. If you're investing $1 million or more, either as a lump sum or through one of the sales charge reduction features described on the previous page, you may be eligible to buy Class A shares without sales charges. However, you may be charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you sell within the first year of owning them, and a similar charge of 0.50% on shares you sell within the second year of owning them ("Large Order NAV Purchase Privilege"). This CDSC is waived under certain circumstances (see "Policies You Should Know About"). Your financial representative or Shareholder Services can answer your questions and help you determine if you're eligible. 46 Class B shares With Class B shares, you pay no up-front sales charges to a fund. Class B shares have a 12b-1 plan, under which a distribution fee of 0.75% and a service fee of up to 0.25% are deducted from class assets each year. This means the annual expenses for Class B shares are somewhat higher (and their performance correspondingly lower) compared to Class A shares. After six years, Class B shares automatically convert to Class A shares, which has the net effect of lowering the annual expenses from the seventh year on. However, unlike Class A shares, your entire investment goes to work immediately. Class B shares have a CDSC. This charge declines over the years you own shares and disappears completely after six years of ownership. But for any shares you sell within those six years, you may be charged as follows: Year after you bought shares CDSC on shares you sell - --------------------------------------------------------------------- First year 4.00% - --------------------------------------------------------------------- Second or third year 3.00 - --------------------------------------------------------------------- Fourth or fifth year 2.00 - --------------------------------------------------------------------- Sixth year 1.00 - --------------------------------------------------------------------- Seventh year and later None (automatic conversion to Class A) - --------------------------------------------------------------------- This CDSC is waived under certain circumstances (see "Policies You Should Know About"). Your financial representative or Shareholder Services can answer your questions and help you determine if you're eligible. While Class B shares don't have any front-end sales charges, their higher annual expenses mean that over the years you could end up paying more than the equivalent of the maximum allowable front-end sales charge. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. Class B shares may make sense for long-term investors who prefer to see all of their investment go to work right away, and can accept somewhat higher annual expenses. 47 Class C shares Like Class B shares, Class C shares have no up-front sales charges and have a 12b-1 plan under which a distribution fee of 0.75% and a service fee of up to 0.25% are deducted from class assets each year. Because of these fees, the annual expenses for Class C shares are similar to those of Class B shares, but higher than those for Class A shares (and the performance of Class C shares is correspondingly lower than that of Class A shares). However, unlike Class A shares, your entire investment goes to work immediately. Unlike Class B shares, Class C shares do NOT automatically convert to Class A shares after six years, so they continue to have higher annual expenses. Class C shares have a CDSC, but only on shares you sell within one year of buying them: Year after you bought shares CDSC on shares you sell - --------------------------------------------------------------------- First year 1.00% - --------------------------------------------------------------------- Second year and later None - --------------------------------------------------------------------- This CDSC is waived under certain circumstances (see "Policies You Should Know About"). Your financial representative or Shareholder Services can answer your questions and help you determine if you're eligible. While Class C shares don't have any front-end sales charges, their higher annual expenses mean that over the years you could end up paying more than the equivalent of the maximum allowable front-end sales charge. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. Class C shares may appeal to investors who plan to sell some or all shares within six years of buying them, or who aren't certain of their investment time horizon. 48 How to Buy Shares Once you've chosen a share class, use these instructions to make investments. - -------------------------------------------------------------------------------- First investment Additional investments - -------------------------------------------------------------------------------- $1,000 or more for regular accounts $50 or more for regular accounts and IRA accounts $500 or more for IRAs $50 or more with an Automatic Investment Plan - -------------------------------------------------------------------------------- Through a financial representative o Contact your representative using the o Contact your representative using method that's most convenient for you the method that's most convenient for you - -------------------------------------------------------------------------------- By mail or express mail (see below) o Fill out and sign an application o Send a check made out to "Scudder Funds" and an investment slip to us o Send it to us at the appropriate at the appropriate address below address, along with an investment check o If you don't have an investment slip, simply include a letter with your name, account number, the full name of the fund and the share class and your investment instructions - -------------------------------------------------------------------------------- By wire o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions - -------------------------------------------------------------------------------- By phone - -- o Call (800) 621-1048 for instructions - -------------------------------------------------------------------------------- With an automatic investment plan - -- o To set up regular investments from a bank checking account, call (800) 621-1048 (minimum $50) - -------------------------------------------------------------------------------- On the Internet - -- o Go to www.scudder.com and register o Follow the instructions for buying shares with money from your bank account - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Regular mail: First Investment: Scudder Investments, PO Box 219669, Kansas City, MO 64121-9669 Additional Investments: Scudder Investments, PO Box 219664, Kansas City, MO 64121-9664 Express, registered or certified mail: Scudder Investments, 811 Main Street, Kansas City, MO 64105-2005 Fax number: (800) 821-6234 (for exchanging and selling only) 49 Use these instructions to exchange or sell shares in your account.
Use these instructions to exchange or sell shares in your account. - ---------------------------------------------------------------------------------- Exchanging into another fund Selling shares - ---------------------------------------------------------------------------------- $1,000 or more to open a new account Some transactions, including most for ($500 for IRAs) over $100,000, can only be ordered in writing with a signature guarantee; if $50 or more for exchanges between you're in doubt, see page 53 existing accounts - ---------------------------------------------------------------------------------- Through a financial representative o Contact your representative by the o Contact your representative by the method that's most convenient for you method that's most convenient for you - ---------------------------------------------------------------------------------- By phone or wire o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions - ---------------------------------------------------------------------------------- By mail, express mail or fax (see previous page) Write a letter that includes: Write a letter that includes: o the fund, class and account number o the fund, class and account number you're exchanging out of from which you want to sell shares o the dollar amount or number of shares o the dollar amount or number of you want to exchange shares you want to sell o the name and class of the fund you o your name(s), signature(s) and want to exchange into address, as they appear on your account o your name(s), signature(s) and address, as they appear on your o a daytime telephone number account o a daytime telephone number - ---------------------------------------------------------------------------------- With an automatic exchange plan o To set up regular exchanges from a -- fund account, call (800) 621-1048 - ---------------------------------------------------------------------------------- With an automatic withdrawal plan - -- o To set up regular cash payments from a fund account, call (800) 621-1048 - ---------------------------------------------------------------------------------- On the Internet o Go to www.scudder.com and register -- o Follow the instructions for making on-line exchanges - ----------------------------------------------------------------------------------
50 Policies You Should Know About Along with the instructions on the previous pages, the policies below may affect you as a shareholder. Some of this information, such as the section on dividends and taxes, applies to all investors, including those investing through investment providers. If you are investing through an investment provider, check the materials you received from them. As a general rule, you should follow the information in those materials wherever it contradicts the information given here. Please note that an investment provider may charge its own fees. In either case, keep in mind that the information in this prospectus applies only to each fund's Class A, Class B and Class C shares. Certain funds have other share classes, which are described in a separate prospectus and have different fees, requirements and services. In order to reduce the amount of mail you receive and to help reduce expenses, we generally send a single copy of any shareholder report and prospectus to each household. If you do not want the mailing of these documents to be combined with those for other members of your household, please call (800) 621-1048. Policies about transactions Each fund is 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 Investments Service Company, and they have determined that it is in "good order," it will be processed at the next share price calculated. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. 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. 51 Because orders placed through investment providers must be forwarded to Scudder Investments Service Company before they can be processed, you'll need to allow extra time. A representative of your investment provider should be able to tell you when your order will be processed. ScudderACCESS, the Scudder Automated Information Line, is available 24 hours a day by calling (800) 972-3060. You can use ScudderACCESS 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. Transactions take two to three days to be completed, and there is a $50 minimum. To set up QuickBuy or QuickSell on a new account, see the account application; to add it to an existing account, call (800) 621-1048. Since many transactions may be initiated by telephone or electronically, it's important to understand that as long as we take reasonable steps to ensure that an order to purchase or redeem shares is genuine, such as recording calls or requesting personalized security codes or other information, we are not responsible for any losses that may occur. For transactions conducted over the Internet, we recommend the use of a secure Internet browser. In addition, you should verify the accuracy of your confirmation statements immediately after you receive them. 52 When you ask us to send or receive a wire, please note that while we don't charge a fee to send or receive wires, it's possible that your bank may do so. Wire transactions are completed within 24 hours. The funds can only send wires of $1,000 or more and accept wires of $50 or more. Exchanges are a shareholder privilege, not a right: we may reject any exchange order, particularly when there appears to be a pattern of "market timing" or other frequent purchases and sales. We may also reject or limit purchase orders, for these or other reasons. When you want to sell more than $100,000 worth of shares or send proceeds to a third party or to a new address, 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. When you sell shares that have a CDSC, we calculate the CDSC as a percentage of what you paid for the shares or what you are selling them for -- whichever results in the lower charge to you. In processing orders to sell shares, we turn to the shares with the lowest CDSC first. Exchanges from one fund into another fund don't affect CDSCs: For each investment you make, the date you first bought shares is the date we use to calculate a CDSC on that particular investment. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. If you ever have difficulty placing an order by phone or fax, you can always send us your order in writing. 53 There are certain cases in which you may be exempt from a CDSC. These include: o the death or disability of an account owner (including a joint owner) o withdrawals made through an automatic withdrawal plan. Such withdrawals may be made at a maximum of 10% per year of the net asset value of the account o withdrawals related to certain retirement or benefit plans o redemptions for certain loan advances, hardship provisions or returns of excess contributions from retirement plans o for Class A shares purchased through the Large Order NAV Purchase Privilege, redemption of shares whose dealer of record at the time of the investment notifies Scudder Distributors that the dealer waives the applicable commission o for Class C shares, redemption of shares purchased through a dealer-sponsored asset allocation program maintained on an omnibus record-keeping system, provided the dealer of record has waived the advance of the first year distribution and service fees applicable to such shares and has agreed to receive such fees quarterly In each of these cases, there are a number of additional provisions that apply in order to be eligible for a CDSC waiver. Your financial representative or Shareholder Services can answer your questions and help you determine if you are eligible. 54 If you sell shares in a Scudder fund and then decide to invest with Scudder again within six months, you can take advantage of the "reinstatement feature." With this feature, you can put your money back into the same class of a Scudder fund at its current NAV and for purposes of sales charges it will be treated as if it had never left Scudder. You'll be reimbursed (in the form of fund shares) for any CDSC you paid when you sold. Future CDSC calculations will be based on your original investment date, rather than your reinstatement date. There is also an option that lets investors who sold Class B shares buy Class A shares with no sales charge, although they won't be reimbursed for any CDSC they paid. You can only use the reinstatement feature once for any given group of shares. To take advantage of this feature, contact Shareholder Services or your financial representative. Money from shares you sell is normally sent out within one business day of when your order is processed (not when it is received), although it could be delayed for up to seven days. There are also two circumstances when it could be longer: when you are selling shares you bought recently by check and that check hasn't cleared yet (maximum delay: 10 days) or when unusual circumstances prompt the SEC to allow further delays. Certain expedited redemption processes may also be delayed when you are selling recently purchased shares. 55 How the funds calculate share price For each share class, the price at which you buy shares is as follows: Class A shares -- net asset value per share, or NAV, adjusted to allow for any applicable sales charges (see "Choosing a Share Class") Class B and Class C shares-- net asset value per share, or NAV To calculate NAV, each share class uses the following equation: TOTAL ASSETS - TOTAL LIABILITIES ---------------------------------- = NAV TOTAL NUMBER OF SHARES OUTSTANDING For each share class, the price at which you sell shares is also the NAV, although for Class B and Class C investors a CDSC may be taken out of the proceeds (see "Choosing a Share Class"). We typically use market prices to value securities. However, when a market price isn't available, or when we have reason to believe it doesn't represent market realities, we may use fair value methods approved by a fund's Board. In such a case, the fund's value for a security is likely to be different from the last quoted market prices. To the extent that a fund invests in securities that are traded primarily in foreign markets, the value of its holdings could change at a time when you aren't able to buy or sell fund shares. This is because some foreign markets are open on days or at times when the fund doesn't price its shares. 56 Other rights we reserve You should be aware that we may do any of the following: o withhold 30% (in 2002 and 2003) of your distributions as federal income tax if we have been notified by the IRS that you are subject to backup withholding, or if you fail to provide us with a correct taxpayer ID number or certification that you are exempt from backup withholding o reject a new account application if you don't provide a correct Social Security or other tax ID number; if the account has already been opened, we may give you 30 days' notice to provide the correct number o charge you $9 each calendar quarter if your account balance is below $1,000 for the entire quarter; this policy doesn't apply to most retirement accounts if you have an automatic investment plan or in any case where a fall in share price created the low balance 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; Scudder Growth and Income Fund generally won't make a redemption in kind unless your requests over a 90-day period total more than $250,000 or 1% of the value of the fund's net assets, whichever is less o change, add or withdraw various services, fees and account policies (for example, we may change or terminate the exchange privilege at any time) 57 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. Each fund has a regular schedule for paying out any earnings to shareholders. Income for Scudder Growth and Income Fund and Scudder Total Return Fund is declared and paid quarterly in March, June, September and December. Long-term and short-term capital gains for Scudder Growth and Income Fund and Scudder Total Return Fund are paid in December. Scudder Blue Chip Fund and Scudder Focus Value+Growth Fund each intend to pay dividends and distributions to its shareholders in December. If necessary, all funds may distribute at other times as needed. You can choose how to receive your dividends and distributions. You can have them all automatically reinvested in fund shares (at NAV) or all sent to you by check, have one type reinvested and the other sent to you by check or have them invested in a different fund. Tell us your preference on your application. If you don't indicate a preference, your dividends and distributions will all be reinvested without sales charges. For retirement plans, reinvestment is the only option. Buying and selling fund shares will usually have tax consequences for you (except in an IRA or other tax-advantaged account). Your sales of shares may result in a capital gain or loss for you; whether long-term or short-term depends on how long you owned the shares. For tax purposes, an exchange is the same as a sale. THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS. Because each shareholder's tax situation is unique, ask your tax professional about the tax consequences of your investments, including any state and local tax consequences. 58 The tax status of the fund earnings you receive, and your own fund transactions, generally depends on their type: Generally taxed at ordinary income rates - --------------------------------------------------------------------- o short-term capital gains from selling fund shares - --------------------------------------------------------------------- o taxable income dividends you receive from a fund - --------------------------------------------------------------------- o short-term capital gains distributions you receive from a fund - --------------------------------------------------------------------- Generally taxed at capital gains rates - --------------------------------------------------------------------- o long-term capital gains from selling fund shares - --------------------------------------------------------------------- o long-term capital gains distributions you receive from a fund - --------------------------------------------------------------------- You may be able to claim a tax credit or deduction for your share of any foreign taxes your fund pays. Your fund will send you detailed tax information every January. These statements tell you the amount and the tax category of any dividends or distributions you received. They also have certain details on your purchases and sales of shares. The tax status of dividends and distributions is the same whether you reinvest them or not. Dividends or distributions declared in the last quarter of a given year are taxed in that year, even though you may not receive the money until the following January. If you invest right before a fund pays a dividend, you'll be getting some of your investment back as a taxable dividend. You can avoid this, if you want, by investing after the fund declares a dividend. In tax-advantaged retirement accounts you don't need to worry about this. Corporations may be able to take a dividends-received deduction for a portion of income dividends they receive. 59 Notes - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- To Get More Information Shareholder reports -- These include commentary from each fund's management team about recent market conditions and the effects of each fund's strategies on its performance. They also have detailed performance figures, a list of everything a fund owns, and its financial statements. Shareholders get these reports automatically. Statement of Additional Information (SAI) -- This tells you more about a 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). For a free copy of any of these documents or to request other information about a fund, call (800) 621-1048, or contact Scudder Investments at the address listed below. These documents and other information about a fund are available from the EDGAR Database on the SEC's Internet site at www.sec.gov. If you like, you may obtain copies of this information, after paying a copying fee, by e-mailing a request to publicinfo@sec.gov or by writing the SEC at the address listed below. You can also review and copy these documents and other information about a fund, including a fund's SAI, at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (202) 942-8090. - -------------------------------------------------------------------------------- Scudder Investments SEC ---------------------------------------------------------------- 222 South Riverside Plaza Public Reference Chicago, IL 60606-5808 Section www.scudder.com Washington, D.C. (800) 621-1048 20549-0102 www.sec.gov (202) 942-8090 SEC File Numbers ---------------------------------------------------------------- Scudder Blue Chip Fund 811-5357 Scudder Focus Value+Growth Fund 811-7331 Scudder Growth and Income 811-43 Scudder Total Return Fund 811-1236 Distributor Scudder Distributors, Inc. 222 South Riverside Plaza Chicago, IL 60606-5808 www.scudder.com e-mail info@scudder.com Tel (800) 621-1048 SCUDDER INVESTMENTS STATEMENT OF ADDITIONAL INFORMATION SCUDDER BLUE CHIP FUND Scudder Blue Chip Fund (Class A, B, C and I) March 1, 2002 SCUDDER INVESTORS TRUST Scudder Research Fund (Class A, B and C Shares) January 1, 2002, as revised March 1, 2002 INVESTMENT TRUST Scudder Growth and Income Fund (Class A, B and C Shares) January 1, 2002 as revised March 1, 2002 SCUDDER FOCUS VALUE+GROWTH FUND Scudder Focus Value+ Growth Fund (Class A, B, C and I Shares) March 1, 2002 SCUDDER TOTAL RETURN FUND Scudder Total Return Fund (Class A, B, C and I Shares) March 1, 2002 222 South Riverside Plaza, Chicago, Illinois 60606 1-800-621-1048 This combined Statement of Additional Information is not a prospectus and should be read in conjunction with the combined prospectus for Scudder Blue Chip Fund, Scudder Focus Value+Growth Fund and Scudder Total Return Fund dated March 1, 2002, as amended from time to time and Scudder Growth and Income Fund and Scudder Research Fund, dated January 1, 2002, as amended from time to time, a copy of which may be obtained without charge by contacting Scudder Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, 1-800-621-1048, or from the firm from which this Statement of Additional Information was obtained. The prospectus is also available along with other related materials on the Securities and Exchange Commission's internet website (http://www.sec.gov). The Annual Reports to Shareholders dated August 31, 2001 for Scudder Research Fund, September 30, 2001 for Scudder Growth and Income Fund, October 31, 2001 for Scudder Blue Chip Fund and Scudder Total Return Fund and November 30, 2001 for Scudder Focus Value+Growth Fund (each, a Fund and collectively, the "Funds"), accompany this Statement of Additional Information. Each is incorporated by reference and is hereby deemed to part of this Statement of Additional Information. This Statement of Additional Information is incorporated by reference into the combined prospectus. Zurich Scudder Investments, Inc. (the "Advisor") serves as each Fund's investment advisor. TABLE OF CONTENTS Page INVESTMENT RESTRICTIONS ................................................... 1 INVESTMENT POLICIES AND TECHNIQUES ........................................ 2 MANAGEMENT OF THE FUNDS ................................................... 21 Investment Advisor ..................................................... 21 Administrative Agreement ............................................... 26 Brokerage Commissions .................................................. 28 Underwriter ............................................................ 30 FUND SERVICE PROVIDERS .................................................... 35 Custodian, Transfer Agent and Shareholder Service Agent ................ 35 Auditors ............................................................... 35 Legal Counsel .......................................................... 36 Fund Accounting Agent .................................................. 36 PURCHASE AND REDEMPTION OF SHARES ......................................... 40 DIVIDENDS, CAPITAL GAINS AND TAXES ........................................ 54 NET ASSET VALUE ........................................................... 54 OFFICERS AND TRUSTEES ..................................................... 60 Beneficial Ownership ................................................... 75 FUND ORGANIZATION AND SHAREHOLDER RIGHTS .................................. 75 ADDITIONAL INFORMATION .................................................... 77 FINANCIAL STATEMENTS ...................................................... 78 APPENDIX .................................................................. 80 i INVESTMENT RESTRICTIONS Each Fund has adopted certain fundamental investment restrictions which cannot be changed without the approval of a majority of a Fund's outstanding voting shares. As used in this Statement of Additional Information, a "majority" of a Fund's outstanding shares as defined under the Investment Company Act of 1940, as amended (the "1940 Act"), means the lesser of (a) 67% or more of the voting securities of a Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of a Fund are present in person or represented by proxy or (b) more than 50% of the outstanding voting securities of a 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, each Fund. Each Fund (except Scudder Focus Value+Growth Fund) is classified as a diversified series of an open-end investment management company. Scudder Focus Value+Growth Fund is classified as a non-diversified open-end investment management company. Each Fund may not, as a fundamental policy: (1) borrow money, except as permitted under the 1940 Act, as amended, and as interpreted or modified by regulatory authority having jurisdiction from time to time; (2) issue senior securities, except as permitted under the 1940 Act, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time; (3) purchase physical commodities or contracts relating to physical commodities; (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) make loans except as permitted under the 1940 Act, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time; and (7) concentrate its investments in a particular industry, as that term is used in the 1940 Act, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. Other Investment Policies The Trustees of each Trust have voluntarily adopted certain policies and restrictions which are observed in the conduct of each Fund's affairs. These represent intentions of the Trustees based upon current circumstances. 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, each Fund currently does not intend to: (1) borrow money in an amount greater than 5% of its total assets (1/3 of total assets for Scudder Blue Chip Fund), except (i) for temporary or emergency purposes and (ii) by engaging in reverse repurchase agreements, dollar rolls or other investments or transactions described in a Fund's registration statement which may be deemed to be borrowings; (2) enter into either of reverse repurchase agreements or dollar rolls in an amount greater than 5% of its total assets; (3) purchase securities on margin or make short sales, except (i) short sales against the box, (ii) in connection with arbitrage transactions, (iii) for margin deposits in connection with futures contracts, options or other permitted investments, (iv) that transactions in futures contracts and options shall not be deemed to constitute selling securities short, and (v) that 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 1/3 of its total assets (5% for Growth and Income Fund). (8) All Funds except Scudder Growth and Income Fund: invest more than 15% of net assets in illiquid securities. INVESTMENT POLICIES AND TECHNIQUES Scudder Growth and Income Fund, a diversified series of Investment Trust, Scudder Research Fund, a diversified series of Scudder Investors Trust, Scudder Blue Chip Fund, Scudder Total Return Fund and Scudder Focus Value+Growth Fund are each open-end management investment companies which continuously offer and redeem shares at net asset value (each a trust and collectively the "Trust"). Each Fund is a company of the type commonly known as a mutual fund. General Investment Objectives and Policies Descriptions in this Statement of Additional Information of a particular investment practice or technique in which a Fund may engage (such as hedging, etc.) or a financial instrument which a Fund may purchase (such as options, forward foreign currency contracts, etc.) are meant to describe the spectrum of investments that the Advisor, in its discretion, might, but is not required to, use in managing a Fund's portfolio assets. The Advisor may, in its discretion, at any time employ such practice, technique or instrument for a Fund, but not for all funds advised by it. Furthermore, it is possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in all markets. Certain practices, techniques, or instruments may not be principal activities of a Fund, but, to the extent employed, could from time to time have a material impact on a Fund's performance. SCUDDER BLUE CHIP FUND Scudder Blue Chip Fund ("Blue Chip Fund") seeks growth of capital and of income. In seeking to achieve its objective, the Fund will invest primarily in common stocks of well capitalized, established companies that the Fund's Advisor believes to have the potential for growth of capital, earnings and dividends. Under normal circumstances, the Fund invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in common stocks of large U.S. companies that are similar in size to the companies in the S&P 500 Index (as of 12/31/01, the S&P 500 Index had a median market capitalization of $8 billion) and that the portfolio managers consider to be "blue chip" companies. "Blue chip" companies are large, well known companies that typically have an established earnings and dividends history, easy access to credit, solid positions in their industries and strong management. As of December 31, 2001, companies in which the fund invests have a median 2 market capitalization of approximately $32 billion. In choosing stocks, the portfolio managers look for "blue chip" companies whose stock price is attractive relative to potential growth. The characteristics of high quality and high liquidity of Blue Chip investments should make the market for such stocks attractive to investors both within and outside the United States. The Fund will generally attempt to avoid speculative securities or those with significant speculative characteristics. In general, the Fund will seek to invest in those established, high quality companies whose industries are experiencing favorable secular or cyclical change. Thus, the Fund in seeking its objective will endeavor to select its investments from among high quality companies operating in the more attractive industries. As indicated above, the Fund's investment portfolio will normally consist primarily of common stocks. The Fund may invest to a more limited extent in preferred stocks, debt securities and securities convertible into or exchangeable for common stocks, including warrants and rights, when they are believed to offer opportunities for growth of capital and of income. The Fund may also engage in Strategic Transactions (defined below), purchase foreign securities and lend its portfolio securities. The Fund may engage in short sales against-the-box, although it is the Fund's current intention that no more than 5% of its net assets will be at risk. The Fund will not purchase illiquid securities, including repurchase agreements maturing in more than seven days, if, as a result thereof, more than 15% of the Fund's net assets, valued at the time of the transaction, would be invested in such securities. The Fund does not generally make investments for short-term profits, but it is not restricted in policy with regard to portfolio turnover and will make changes in its investment portfolio from time to time as business and economic conditions and market prices may dictate and as its investment policy may require. SCUDDER RESEARCH FUND Scudder Research Fund ("Research Fund") seeks long-term growth of capital. The Fund normally invests at least 65% of total assets in large U.S. companies (those with market values of $1 billion or more). These investments are primarily common stocks, but may include preferred stocks and securities convertible into common stocks. The Fund invests in securities based on the top research recommendations of the Advisor's industry research analyst and other investment specialists. In making their recommendations, the analysts and specialists look for companies that have sound finances, effective management, strong product franchises, food business prospects and established competitive positions, among other factors. These may be companies that appear to offer the potential for sustainable above-average growth of earnings or revenues as well as companies whose stock prices appear low in light of other measures of worth, such as price-to-earnings ratios. 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. Typically, the Fund's sector weightings closely mirror those of the S&P 500 Index. The Fund will sell a stock when the managers believe its fundamental qualities have deteriorated, market conditions have changed, the company no longer qualifies as a large company or it has performed below expectations. SCUDDER FOCUS VALUE+GROWTH FUND Scudder Focus Value+Growth Fund ("Focus Value+Growth Fund") seeks growth of capital through a portfolio of growth and value stocks. These stocks include stocks of large established companies, as well as stocks of small companies. Growth stocks are stocks of companies whose earnings per share are expected by the Advisor to grow faster than the market average. Growth stocks tend to trade at higher price to earnings (P/E) ratios than the general market, but the Advisor believes that the potential of such stocks for above average earnings more than justifies their price. Value stocks are considered "bargain stocks" because they are perceived as undervalued, i.e., attractively priced in relation to their earnings potential (low P/E ratios). Value stocks typically have dividend yields higher than the average of the companies represented in the Standard & Poor's 500 Stock Index. 3 Although it is anticipated that the Fund will invest primarily in common stocks of domestic companies, the Fund may also purchase foreign securities, as well as convertible securities, such as bonds and preferred stocks (including warrants and rights). The Fund may also engage in Strategic Transactions and lend its portfolio securities. The Fund will not purchase illiquid securities, including repurchase agreements maturing in more than seven days, if, as a result thereof, more than 15% of the Fund's net assets, valued at the time of the transaction, would be invested in such securities. The Fund does not generally make investments for short-term profits, but it is not restricted in policy with regard to portfolio turnover and will make changes in its investment portfolio from time to time as business and economic conditions and market prices may dictate and as its investment policy may require. SCUDDER TOTAL RETURN FUND Scudder Total Return Fund ("Total Return Fund") seeks the highest total return, a combination of income and capital appreciation, consistent with reasonable risk. The Fund will emphasize liberal current income in seeking its objective. The Fund's investments will normally consist of domestic and foreign fixed income and equity securities. Fixed income securities will include bonds and other debt securities (such as U.S. and foreign Government securities and investment grade and high yield corporate obligations) and preferred stocks, some of which may have a call on common stocks through attached warrants or a conversion privilege. The percentage of assets invested in specific categories of fixed income and equity securities will vary from time to time depending upon the judgment of management as to general market and economic conditions, trends in yields and interest rates and changes in fiscal or monetary policies. The Fund may also engage in Strategic Transactions and lend its portfolio securities. The Fund may invest in high yield fixed income securities which are in the lower rating categories and those which are unrated. Thus, the Fund could invest in some instruments considered by the rating services to have predominantly speculative characteristics. Investments in lower rated or non-rated securities, while generally providing greater income and opportunity for gain than investments in higher rated securities, entail greater risk of loss of income and principal. The Fund may invest up to 35% of its total assets in high yield bonds. The Fund will not purchase illiquid securities, including repurchase agreements maturing in more than seven days, if, as a result thereof, more than 15% of the Fund's net assets, valued at the time of the transaction, would be invested in such securities. The Fund does not make investments for short-term profits, but it is not restricted in policy with regard to portfolio turnover and will make changes in its investment portfolio from time to time as business and economic conditions and market prices may dictate and as its investment policy may require. SCUDDER GROWTH AND INCOME FUND Scudder Growth and Income Fund ("Growth and Income Fund") seeks long-term growth of capital, current income and growth of income while actively seeking to reduce downside risk as compared with other growth and income funds. The managers use analytical tools to monitor actively the risk profile of the portfolio as compared to comparable funds and appropriate benchmarks and peer groups. The managers use several strategies in seeking to reduce risk, including: (i) managing risk associated with investment in specific companies by using fundamental analysis, valuation, and by adjusting position sizes; (ii) portfolio construction emphasizing diversification, blending stocks with a variety of different attributes, including value and growth stocks; and (iii) diversifying across many sectors and industries. The portfolio managers' attempts to manage downside risk may reduce performance in a strong market. In addition, Scudder Growth and Income Fund does not invest in securities issued by tobacco-producing companies. 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 and non-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 advisor 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 4 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. 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. Specialized Investment Techniques of the Funds Borrowing. As a matter of fundamental policy, each Fund will not borrow money, except as permitted under the 1940 Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. While each Fund's Board of Trustees does not currently intend to borrow for investment leveraging purposes, if such a strategy were implemented in the future it would increase the Funds' volatility and the risk of loss in a declining market. Borrowing by a Fund will involve special risk considerations. Although the principal of a Fund's borrowings will be fixed, a Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. Common Stocks. Common stock is issued by companies to raise cash for business purposes and represents a proportionate interest in the issuing companies. Therefore, a Fund participates in the success or failure of any company in which it holds stock. The market values of common stock can fluctuate significantly, reflecting the business performance of the issuing company, investor perception and general economic and financial market movements. Despite the risk of price volatility, however, common stocks have historically offered a greater potential for long-term gain on investment, compared to other classes of financial assets such as bonds or cash equivalents, although there can be no assurance that this will be true in the future. Convertible Securities. A Fund may invest in convertible securities, that is, bonds, notes, debentures, preferred stocks and other securities which are convertible into common stock. Investments in convertible securities can provide an opportunity for capital appreciation and/or income through interest and dividend payments by virtue of their conversion or exchange features. The convertible securities in which the Funds may invest are either fixed income or zero coupon debt securities which may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase, and conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying common stocks changes, and, therefore, also tends to follow movements in the general market for equity securities. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock, although typically not as much as the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. As debt securities, convertible securities are investments which provide for a stream of income (or in the case of zero coupon securities, accretion of income) with generally higher yields than common stocks. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. 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 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 5 bonds and convertible preferred stock typically have lower ratings than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income or as zero coupon notes and bonds, including Liquid Yield Option Notes ("LYONs"(TM)). Depositary Receipts (all Funds except Growth and Income Fund). A Fund may invest in sponsored or unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are hereinafter referred to as "Depositary Receipts"). Depositary receipts provide indirect investment in securities of foreign issuers. Prices of unsponsored Depositary Receipts may be more volatile than if they were sponsored by the issuer of the underlying securities. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. In addition, the issuers of the stock of unsponsored Depositary Receipts are not obligated to disclose material information in the United States and, therefore, there may not be a correlation between such information and the market value of the Depositary Receipts. ADRs are Depositary Receipts which are bought and sold in the United States and are typically issued by a U.S. bank or trust company which evidence ownership of underlying securities by a foreign corporation. GDRs, IDRs and other types of Depositary Receipts are typically issued by foreign banks or trust companies, although they may also be issued by United States banks or trust companies, and evidence ownership of underlying securities issued by either a foreign or a United States corporation. Generally, Depositary Receipts in registered form are designed for use in the United States securities markets and Depositary Receipts in bearer form are designed for use in securities markets outside the United States. For purposes of a Fund's investment policies, a Fund's investments in ADRs, GDRs and other types of Depositary Receipts will be deemed to be investments in the underlying securities. Depositary Receipts, including those denominated in U.S. dollars will be subject to foreign currency exchange rate risk. However, by investing in U.S. dollar-denominated ADRs rather than directly in foreign issuers' stock, a Fund avoids currency risks during the settlement period. In general, there is a large, liquid market in the United States for most ADRs. However, certain Depositary Receipts may not be listed on an exchange and therefore may be illiquid securities. Foreign Securities. 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 a Fund's performance. As foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to domestic companies, there may be less publicly available information about a foreign company than about a domestic company. Many foreign securities markets, while growing in volume of trading activity, have substantially less volume than the U.S. market, and securities of some foreign issuers are less liquid and more volatile than securities of domestic issuers. Similarly, volume and liquidity in most foreign bond markets is less than in the U.S. and, at times, volatility of price can be greater than in the U.S. Fixed commissions on some foreign securities exchanges and bid to asked spreads in foreign bond markets are generally higher than commissions or bid to asked spreads on U.S. markets, although the Advisor will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less governmental supervision and regulation of securities exchanges, brokers and listed companies in foreign countries than in the U.S. It may be more difficult for a Fund's agents to keep currently informed about corporate actions in foreign countries 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. Payment for securities without delivery may be required in certain foreign markets. In addition, with respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments which could affect U.S. investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. The management of each Fund seeks to mitigate the risks associated with the foregoing considerations through continuous professional management. Foreign Currencies. Because investments in foreign securities usually will involve currencies of foreign countries, and because the Fund may hold foreign currencies and forward contracts, futures contracts and options on foreign currencies and foreign currency futures contracts, the value of the assets of the Fund as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and a Fund may incur costs and experience conversion difficulties and uncertainties in connection with conversions between various currencies. Fluctuations in exchange rates may also affect the earning power and asset value of the foreign entity issuing the security. The strength or weakness of the U.S. dollar against these currencies is responsible for part of a Fund's investment performance. If the dollar falls in value relative to the Japanese yen, for example, the dollar value of a Japanese stock held in 6 the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the Japanese stock will fall. Many foreign currencies have experienced significant devaluation relative to the dollar. Although a Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. A Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into options or forward or futures contracts to purchase or sell foreign currencies. Foreign Fixed Income Securities. (Blue Chip Fund, Total Return Fund, Focus Value+Growth Fund) Since most foreign fixed income securities are not rated, a Fund will invest in foreign fixed income securities based on the Advisor's analysis without relying on published ratings. Since such investments will be based upon the Advisor's analysis rather than upon published ratings, achievement of a fund's goals may depend more upon the abilities of the Advisor than would otherwise be the case. The value of the foreign fixed income securities held by a fund, and thus the net asset value of a fund's shares, generally will fluctuate with (a) changes in the perceived creditworthiness of the issuers of those securities, (b) movements in interest rates, and (c) changes in the relative values of the currencies in which a fund's investments in fixed income securities are denominated with respect to the U.S. Dollar. The extent of the fluctuation will depend on various factors, such as the average maturity of a fund's investments in foreign fixed income securities, and the extent to which a fund hedges its interest rate, credit and currency exchange rate risks. A longer average maturity generally is associated with a higher level of volatility in the market value of such securities in response to changes in market conditions. Investments in sovereign debt, including Brady Bonds, involve special risks. Brady Bonds are debt securities issued under a plan implemented to allow debtor nations to restructure their outstanding commercial bank indebtedness. Foreign governmental issuers of debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or pay interest when due. In the event of default, there may be limited or no legal recourse in that, generally, remedies for defaults must be pursued in the courts of the defaulting party. Political conditions, especially a sovereign entity's willingness to meet the terms of its fixed income securities, are of considerable significance. Also, there can be no assurance that the holders of commercial bank loans to the same sovereign entity may not contest payments to the holders of sovereign debt in the event of default under commercial bank loan agreements. In addition, there is no bankruptcy proceeding with respect to sovereign debt on which a sovereign has defaulted, and a fund may be unable to collect all or any part of its investment in a particular issue. Foreign investment in certain sovereign debt is restricted or controlled to varying degrees, including requiring governmental approval for the repatriation of income, capital or proceed of sales by foreign investors. These restrictions or controls may at times limit or preclude foreign investment in certain sovereign debt or increase the costs and expenses of a fund. Sovereign debt may be issued as part of debt restructuring and such debt is to be considered speculative. There is a history of defaults with respect to commercial bank loans by public and private entities issuing Brady Bonds. All or a portion of the interest payments and/or principal repayment with respect to Brady Bonds may be uncollateralized. High Yield/High Risk Bonds. (Total Return Fund) Total Return Fund may purchase debt securities which are rated below investment-grade (commonly referred to as "junk bonds"), that is, rated below Baa by Moody's or below BBB by S&P and unrated securities judged to be of equivalent quality as determined by the Advisor. These securities usually entail greater risk (including the possibility of default or bankruptcy of the issuers of such securities), generally involve greater volatility of price and risk to principal and income, and may be less liquid, than securities in the higher rating categories. The lower the ratings of such debt securities, the more their risks render them like equity securities. Securities rated D may be in default with respect to payment of principal or interest. See the Appendix to this Statement of Additional Information for a more complete description of the ratings assigned by ratings organizations and their respective characteristics. Issuers of such high yielding securities often are highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, 7 highly leveraged issuers of high yield securities may experience financial stress. During such periods, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations may also be adversely affected by specific corporate developments, or the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss from default by the issuer is significantly greater for the holders of high yield securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect the Fund's net asset value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. The Fund may have difficulty disposing of certain high yield (high risk) securities because they may have a thin trading market. Because not all dealers maintain markets in all high yield securities, the Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. The lack of a liquid secondary market may have an adverse effect on the market price and the Fund's ability to dispose of particular issues and may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund's assets. Market quotations generally are available on many high yield issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Adverse publicity and investor perceptions may decrease the values and liquidity of high yield securities. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high-yield securities market can change suddenly and unexpectedly, and even recently-issued credit ratings may not fully reflect the actual risks posed by a particular high-yield security. For these reasons, it is generally the policy of the Advisor not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of a Fund's investment objective by investment in such securities may be more dependent on the Advisor's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, the Advisor will determine whether it is in the best interests of a Fund to retain or dispose of such security. Prices for below investment-grade securities may be affected by legislative and regulatory developments. Also, Congress has from time to time considered legislation which would restrict or eliminate the corporate tax deduction for interest payments in these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of outstanding securities of this type. Illiquid Securities and Restricted Securities. A Fund may purchase securities that are subject to legal or contractual restrictions on resale ("restricted securities"). 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 Securities Act of 1933, as amended. 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. Restricted securities are often illiquid, but they may also be liquid. For example, restricted securities that are eligible for resale under Rule 144A are often deemed to be liquid. Each Fund's Board has approved guidelines for use by the Advisor in determining whether a security is liquid or illiquid. Among the factors the Advisor 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 Issuers of restricted securities may not be subject to the disclosure and other investor protection requirement that would be applicable if their securities were publicly traded. Where a registration statement is required for the resale of restricted securities, each Fund may be required to bear all or part of the registration expenses. Each Fund may be deemed to be an "underwriter" for purposes of the Securities Act of 1933, as amended when selling restricted securities to the public and, in such event, each Fund may be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. 8 The Funds may also purchase securities that are not subject to legal or contractual restrictions on resale, but that are deemed illiquid. Such securities may be illiquid, for example, because there is a limited trading market for them. The Funds may be unable to sell a restricted or illiquid security. In addition, it may be more difficult to determine a market value for restricted or illiquid securities. Moreover, if adverse market conditions were to develop during the period between each Fund's decision to sell a restricted or illiquid security and the point at which each Fund is permitted or able to sell such security, each Fund might obtain a price less favorable than the price that prevailed when it decided to sell. This investment practice, therefore, could have the effect of increasing the level of illiquidity of each Fund. Indexed Securities. (Research Fund) The Fund may invest in indexed securities, the value of which is linked to currencies, interest rates, commodities, indices or other financial indicators ("reference instruments"). Most indexed securities have maturities of three years or less. Indexed securities differ from other types of debt securities in which a Fund may invest in several respects. First, the interest rate or, unlike other debt securities, the principal amount payable at maturity of an indexed security may vary based on changes in one or more specified reference instruments, such as an interest rate compared with a fixed interest rate or the currency exchange rates between two currencies (neither of which need be the currency in which the instrument is denominated). The reference instrument need not be related to the terms of the indexed security. For example, the principal amount of a U.S. dollar denominated indexed security may vary based on the exchange rate of two foreign currencies. An indexed security may be positively or negatively indexed; that is, its value may increase or decrease if the value of the reference instrument increases. Further, the change in the principal amount payable or the interest rate of an indexed security may be a multiple of the percentage change (positive or negative) in the value of the underlying reference instrument(s). Investment in indexed securities involves certain risks. In addition to the credit risk of the security's issuer and the normal risks of price changes in response to changes in interest rates, the principal amount of indexed securities may decrease as a result of changes in the value of reference instruments. Further, in the case of certain indexed securities in which the interest rate is linked to a reference instrument, the interest rate may be reduced to zero, and any further declines in the value of the security may then reduce the principal amount payable on maturity. Finally, indexed securities may be more volatile than the reference instruments underlying the indexed securities. Interfund Borrowing and Lending Program. Each Trust has received exemptive relief from the SEC which permits a Fund to participate in an interfund lending program among certain investment companies advised by the Advisor. The interfund lending program allows the participating funds to borrow money from and loan money to each other for temporary or emergency purposes. The program is subject to a number of conditions designed to ensure fair and equitable treatment of all participating funds, including the following: (1) no fund may borrow money through the program unless it receives a more favorable interest rate than a rate approximating the lowest interest rate at which bank loans would be available to any of the participating funds under a loan agreement; and (2) no fund may lend money through the program unless it receives a more favorable return than that available from an investment in repurchase agreements and, to the extent applicable, money market cash sweep arrangements. In addition, a fund may participate in the program only if and to the extent that such participation is consistent with the fund's investment objectives and policies (for instance, 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 a Fund is actually engaged in borrowing through the interfund lending program, a Fund will comply with its non-fundamental policy regarding borrowing. Investment-Grade Bonds. (Blue Chip Fund, Total Return Fund, Focus Value+Growth Fund) A Fund may purchase "investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged to be of equivalent quality as determined by the Advisor. Moody's considers bonds it rates Baa to have speculative elements as well as investment-grade characteristics. To the extent that a Fund invests in higher-grade securities, a Fund will not be able to avail itself of opportunities for higher income which may be available at lower grades. Investment of Uninvested Cash Balances. Each Fund may have cash balances that have not been invested in portfolio securities ("Uninvested Cash"). Uninvested Cash may result from a variety of sources, including dividends or interest received from portfolio securities, unsettled securities transactions, reserves held for investment strategy purposes, scheduled 9 maturity of investments, liquidation of investment securities to meet anticipated redemptions and dividend payments, and new cash received from investors. Uninvested Cash may be invested directly in money market instruments or other short-term debt obligations. Pursuant to an Exemptive Order issued by the SEC, each Fund may use Uninvested Cash to purchase shares of affiliated funds including money market funds, short-term bond funds and Scudder Cash Management Investment Trust, or one or more future entities for which the Advisor acts as trustee or investment advisor that operate as cash management investment vehicles and that are excluded from the definition of investment company pursuant to section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (collectively, the "Central Funds") in excess of the limitations of Section 12(d)(1) of the Investment Company Act. Investment by each Fund in shares of the Central Funds will be in accordance with the Fund's investment policies and restrictions as set forth in its registration statement. Certain of the Central Funds comply with rule 2a-7 under the Act. The other Central Funds are or will be short-term bond funds that invest in fixed-income securities and maintain a dollar weighted average maturity of three years or less. Each of the Central Funds will be managed specifically to maintain a highly liquid portfolio, and access to them will enhance each Fund's ability to manage Uninvested Cash. Each Fund will invest Uninvested Cash in Central Funds only to the extent that each Fund's aggregate investment in the Central Funds does not exceed 25% of its total assets in shares of the Central Funds. Purchase and sales of shares of Central Funds are made at net asset value. Investment Company Securities. A 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. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. For example, the Funds may invest in a variety of investment companies which seek to track the composition and performance of specific indexes or a specific portion of an index. These index-based investments hold substantially all of their assets in securities representing their specific index. Accordingly, the main risk of investing in index-based investments is the same as investing in a portfolio of equity securities comprising the index. The market prices of index-based investments will fluctuate in accordance with both changes in the market value of their underlying portfolio securities and due to supply and demand for the instruments on the exchanges on which they are traded (which may result in their trading at a discount or premium to their NAVs). Index-based investments may not replicate exactly the performance of their specified index because of transaction costs and because of the temporary unavailability of certain component securities of the index. Examples of index-based investments include: SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR Trust, a unit investment trust that holds shares of substantially all the companies in the S&P 500 in substantially the same weighting and seeks to closely track the price performance and dividend yield of the Index. MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio of securities consisting of substantially all of the common stocks in the S&P MidCap 400 Index in substantially the same weighting and seeks to closely track the price performance and dividend yield of the Index. Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or group of industries that are represented by a specified Select Sector Index within the Standard & Poor's Composite Stock Price Index. They are issued by The Select Sector SPDR Trust, an open-end management investment company with nine portfolios that each seeks to closely track the price performance and dividend yield of a particular Select Sector Index. DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio of all the component common stocks of the Dow Jones Industrial Average and seeks to closely track the price performance and dividend yield of the Dow. Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio consisting of substantially all of the securities, in substantially the same weighting, 10 as the component stocks of the Nasdaq-100 Index and seeks to closely track the price performance and dividend yield of the Index. WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17 country-specific Morgan Stanley Capital International Indexes. They are issued by the WEBs Index Fund, Inc., an open-end management investment company that seeks to generally correspond to the price and yield performance of a specific Morgan Stanley Capital International Index. Lending of Portfolio Securities. Each Fund may seek to increase its income by lending portfolio securities. 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 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 continues to receive the equivalent of any distributions paid by the issuer on the securities loaned and also receives 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 may be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, the consideration to be earned from such loans would justify the risk. Micro-Cap Company Risk. While, historically, micro-capitalization company stocks have outperformed the stocks of large companies, the former have customarily involved more investment risk as well. There can be no assurance that this will continue to be true in the future. Micro-capitalization companies may have limited product lines, markets or financial resources; may lack management depth or experience; and may be more vulnerable to adverse general market or economic developments than large companies. The prices of micro-capitalization company securities are often more volatile than prices associated with large company issues, and can display abrupt or erratic movements at times, due to limited trading volumes and less publicly available information. Also, because micro-capitalization companies normally have fewer shares outstanding and these shares trade less frequently than large companies, it may be more difficult for the Fund to buy and sell significant amounts of such shares without an unfavorable impact on prevailing market prices. Some of the companies in which the Fund may invest may distribute, sell or produce products which have recently been brought to market and may be dependent on key personnel. The securities of micro-capitalization companies are often traded over-the-counter and may not be traded in the volumes typical on a national securities exchange. Consequently, in order to sell this type of holding, the Fund may need to discount the securities from recent prices or dispose of the securities over a long period of time. Non-diversification. (Value+Growth Fund only) The Fund is classified as a non-diversified management investment company under the 1940 Act, which means that the Fund is not limited by the 1940 Act in the proportion of its assets that it may invest in the obligations of a single issuer. The investment of a large percentage of the Fund's assets in the securities of a small number of issuers may cause the Fund's share price to fluctuate more than that of a diversified fund. Portfolio Turnover. The Funds may sell portfolio securities to take advantage of investment opportunities arising from changing market levels or yield relationships. Although if such transactions involve additional costs in the form of spreads, they will be undertaken in an effort to improve the Funds' overall investment return, consistent with its objectives. Privatized Enterprises. (Blue Chip Fund, Total Return Fund, Focus Value+Growth Fund) Investments in foreign securities may include securities issued by enterprises that have undergone or are currently undergoing privatization. The governments of certain foreign countries have, to varying degrees, embarked on privatization programs contemplating the sale of all or part of their interests in state enterprises. A Fund's investments in the securities of privatized enterprises may include privately negotiated investments in a government or state-owned or controlled company or enterprise that has not yet conducted an initial equity offering, investments in the initial offering of equity securities of a state enterprise or former state enterprise and investments in the securities of a state enterprise following its initial equity offering. 11 In certain jurisdictions, the ability of foreign entities, such as a Fund, to participate in privatizations may be limited by local law, or the price or terms on which a Fund may be able to participate may be less advantageous than for local investors. Moreover, there can be no assurance that governments that have embarked on privatization programs will continue to divest their ownership of state enterprises, that proposed privatizations will be successful or that governments will not re-nationalize enterprises that have been privatized. In the case of the enterprises in which a Fund may invest, large blocks of the stock of those enterprises may be held by a small group of stockholders, even after the initial equity offerings by those enterprises. The sale of some portion or all of those blocks could have an adverse effect on the price of the stock of any such enterprise. Prior to making an initial equity offering, most state enterprises or former state enterprises go through an internal reorganization or management. Such reorganizations are made in an attempt to better enable these enterprises to compete in the private sector. However, certain reorganizations could result in a management team that does not function as well as an enterprise's prior management and may have a negative effect on such enterprise. In addition, the privatization of an enterprise by its government may occur over a number of years, with the government continuing to hold a controlling position in the enterprise even after the initial equity offering for the enterprise. Prior to privatization, most of the state enterprises in which a Fund may invest enjoy the protection of and receive preferential treatment from the respective sovereigns that own or control them. After making an initial equity offering, these enterprises may no longer have such protection or receive such preferential treatment and may become subject to market competition from which they were previously protected. Some of these enterprises may not be able to operate effectively in a competitive market and may suffer losses or experience bankruptcy due to such competition. Real Estate Investment Trusts ("REITs"). Each of the Funds may invest in REITs. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITs. Investment in REITs may subject a 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 a Fund's investment in REITs. For instance, during periods of declining interest rates, certain mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued by those REITs. Certain REITs have relatively small market capitalizations, which may tend to increase the volatility of the market price of their securities. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended, and to maintain exemption from the registration requirements of the 1940 Act. By investing in REITs indirectly through a Fund, a shareholder will bear not only his or her proportionate share of the expenses of a Fund's, but also, indirectly, similar expenses of the REITs. In addition, REITs depend generally on their ability to generate cash flow to make distributions to shareholders. Repurchase Agreements. Each Fund may invest in repurchase agreements pursuant to its investment guidelines. In a repurchase agreement, a Fund acquires ownership of a security and simultaneously commits to resell that security to the seller, typically a bank or broker/dealer. A repurchase agreement provides a means for a Fund to earn income on funds for periods as short as overnight. It is an arrangement under which the purchaser (i.e., a Fund) acquires a security ("Obligation") and the seller agrees, at the time of sale, to repurchase the Obligation at a specified time and price. Securities subject to a repurchase agreement are held in a segregated account and the value of such securities is 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 a Fund, or the purchase and repurchase prices may be the same, with interest at a stated rate due to a Fund together with the repurchase price upon repurchase. In either case, the income to a Fund is unrelated to the interest rate on the Obligation itself. Obligations will be held by the custodian or in the Federal Reserve Book Entry System. 12 It is not clear whether a court would consider the Obligation purchased by a Fund subject to a repurchase agreement as being owned by that Fund or as being collateral for a loan by that Fund to the seller. In the event of the commencement of bankruptcy or insolvency proceedings with respect to the seller of the Obligation before repurchase of the Obligation under a repurchase agreement, a Fund may encounter delay and incur costs before being able to sell the security. Delays may involve loss of interest or decline in price of the Obligation. If the court characterizes the transaction as a loan and a Fund has not perfected a security interest in the Obligation, that 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, a Fund would be at risk of losing some or all of the principal and income involved in the transaction. As with any unsecured debt Obligation purchased for a Fund, the Advisor seeks to minimize the risk of loss through repurchase agreements by analyzing the creditworthiness of the obligor, in this case the seller of the Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there is also the risk that the seller may fail to repurchase the Obligation, in which case a Fund may incur a loss if the proceeds to that Fund of the sale to a third party are less than the repurchase price. However, if the market value (including interest) of the Obligation subject to the repurchase agreement becomes less than the repurchase price (including interest), a 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. Reverse Repurchase Agreements. Each 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. Each Fund maintains a segregated account in connection with outstanding reverse repurchase agreements. A Fund will enter into reverse repurchase agreements only when the Advisor believes that the interest income to be earned from the investment of the proceeds of the transaction will be greater than the interest expense of the transaction. Small Company Risk. The Advisor believes that many small companies may have sales and earnings growth rates which exceed those of larger companies, and that such growth rates may in turn be reflected in more rapid share price appreciation over time. However, investing in smaller company stocks involves greater risk than is customarily associated with investing in larger, more established companies. For example, smaller companies can have limited product lines, markets, or financial and managerial resources. Smaller companies may also be dependent on one or a few key persons, and may be more susceptible to losses and risks of bankruptcy. Also, the securities of smaller companies may be thinly traded (and therefore have to be sold at a discount from current market prices or sold in small lots over an extended period of time). Transaction costs in smaller company stocks may be higher than those of larger companies. Warrants. The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of warrants do not necessarily move, however, in tandem with the prices of the underlying securities and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by a Fund were not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. Zero Coupon Securities. (Growth and Income Fund) 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 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 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 municipal securities, 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, 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., 13 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 understand that the staff of the SEC no longer considers such privately stripped obligations to be U.S. Government securities, as defined in the Investment Company Act of 1940; therefore, the Fund intend 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" herein). Strategic Transactions and Derivatives. The Funds may, but are 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 a 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 Funds 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 a Fund's portfolio resulting from securities markets or currency exchange rate fluctuations, to protect a 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 a 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 a 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 Funds to utilize these Strategic Transactions successfully will depend on the Advisor's ability to predict pertinent market movements, which cannot be assured. The Funds 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 Funds, and the Funds 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 Funds. Strategic Transactions, including derivative contracts, have risks associated with them including possible default by the other party to the transaction, illiquidity and, to the extent the Advisor's view as to certain market movements is incorrect, the risk that the use of such Strategic Transactions could result in losses greater than if they had not been used. Use of put and call options may result in losses to the Funds, 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 Funds can realize on its investments or cause the Funds to hold a security it might otherwise sell. The use of currency transactions can result in the Funds incurring losses as a result of a number of factors including the imposition of 14 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 a Fund creates the possibility that losses on the hedging instrument may be greater than gains in the value of a 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 Funds 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, a 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 Funds 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. A Fund's purchase of a call option on a security, financial future, index, currency or other instrument might be intended to protect the Funds 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 Funds is authorized to purchase and sell exchange listed options and over-the-counter options ("OTC options"). Exchange listed options are issued by a regulated intermediary such as the Options Clearing Corporation ("OCC"), which guarantees the performance of the obligations of the parties to such options. The discussion below uses the OCC as an example, but is also applicable to other financial intermediaries. With certain exceptions, OCC issued and exchange listed options generally settle by physical delivery of the underlying security or currency, although in the future cash settlement may become available. Index options and Eurodollar instruments are cash settled for the net amount, if any, by which the option is "in-the-money" (i.e., where the value of the underlying instrument exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into offsetting purchase or sale transactions that do not result in ownership of the new option. Each Fund's ability to close out its position as a purchaser or seller of an OCC or exchange listed put or call option is dependent, in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities including reaching daily price limits; (iv) interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist, 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. 15 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 Funds will only sell OTC options (other than OTC currency options) that are subject to a buy-back provision permitting the Funds to require the Counterparty to sell the option back to the Funds at a formula price within seven days. The Funds 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 Funds or fails to make a cash settlement payment due in accordance with the terms of that option, the Funds will lose any premium it paid for the option as well as any anticipated benefit of the transaction. Accordingly, the Advisor must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty's credit to determine the likelihood that the terms of the OTC option will be satisfied. The Funds will engage in OTC option transactions only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York as "primary dealers" or broker/dealers, domestic or foreign banks or other financial institutions which have received (or the guarantors of the obligation of which have received) a short-term credit rating of A-1 from S&P or P-1 from Moody's or an equivalent rating from any nationally recognized statistical rating organization ("NRSRO") or, in the case of OTC currency transactions, are determined to be of equivalent credit quality by the Advisor. The staff of the SEC currently takes the position that OTC options purchased by the Funds, and portfolio securities "covering" the amount of a 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 Funds' limitation on investing no more than 15% of its net assets in illiquid securities. If a 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 a Fund's income. The sale of put options can also provide income. The Funds 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 Funds must be "covered" (i.e., the Funds 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 Funds will receive the option premium to help protect it against loss, a call sold by the Funds exposes the Funds 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 Funds to hold a security or instrument which it might otherwise have sold. The Funds 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 Funds will not sell put options if, as a result, more than 50% of a 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 Funds may be required to buy the underlying security at a disadvantageous price above the market price. General Characteristics of Futures. The Funds 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 Funds, 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. 16 The Funds' 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 Funds 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 Funds. If the Funds exercise 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 Funds 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 a 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 Funds 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 Funds 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 Funds may enter into currency transactions with Counterparties which have received (or the guarantors of the obligations which have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or that have an equivalent rating from a NRSRO or (except for OTC currency options) are determined to be of equivalent credit quality by the Advisor. Each Fund's dealings in forward currency contracts and other currency transactions such as futures, options, options on futures and swaps generally will be limited to hedging involving either specific transactions or portfolio positions except as described below. Transaction hedging is entering into a currency transaction with respect to specific assets or liabilities of the Funds, 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 Funds 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. 17 The Funds 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 Funds have or in which the Funds expects to have portfolio exposure. To reduce the effect of currency fluctuations on the value of existing or anticipated holdings of portfolio securities, the Funds may also engage in proxy hedging. Proxy hedging is often used when the currency to which a 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 a Fund's portfolio securities are or are expected to be denominated, in exchange for U.S. dollars. The amount of the commitment or option would not exceed the value of the Fund's securities denominated in correlated currencies. For example, if the Advisor considers that the Austrian schilling is correlated to the German deutschemark (the "D-mark"), the Funds holds securities denominated in schillings and the Advisor believes that the value of schillings will decline against the U.S. dollar, the Advisor may enter into a commitment or option to sell D-marks and buy dollars. Currency hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to the Funds 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 Funds are engaging in proxy hedging. If a Fund enters into a currency hedging transaction, that 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 Funds 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 Funds may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts) and multiple interest rate transactions and any combination of futures, options, currency and interest rate transactions ("component" transactions), instead of a single Strategic Transaction, as part of a single or combined strategy when, in the opinion of the Advisor, it is in the best interests of the Funds to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions are normally entered into based on the Advisor's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the portfolio management objective. Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the Funds may enter are interest rate, currency, index and other swaps and the purchase or sale of related caps, floors and collars. The Funds expect 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 Funds anticipate purchasing at a later date. The Funds will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Funds may be obligated to pay. Interest rate swaps involve the exchange by the Funds 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. 18 The Funds 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 Funds receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as a Fund will segregate assets (or enter into offsetting positions) to cover its obligations under swaps, the Advisor and the Funds 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 Funds will not enter into any swap, cap, floor or collar transaction unless, at the time of entering into such transaction, the unsecured long-term debt of the Counterparty, combined with any credit enhancements, is rated at least A by S&P or Moody's or has an equivalent rating from a NRSRO or is determined to be of equivalent credit quality by the Advisor. If there is a default by the Counterparty, the Funds 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 Funds 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 Funds 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 a 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 Funds 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 Funds 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 Funds will require the Funds 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 Funds on an index will require the Funds 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 Funds requires the Funds to segregate cash or liquid assets equal to the exercise price. Except when the Funds 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 Funds to buy or sell currency will generally require the Funds to hold an amount of that currency or liquid assets denominated in that currency equal to a Fund's obligations or to segregate cash or liquid assets equal to the amount of a Fund's obligation. OTC options entered into by the Funds, 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 Funds sell 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 Funds, 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 Funds sell a call option on an index at a time when the in-the-money amount exceeds the exercise price, the Funds 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 19 options sold by the Funds other than those above generally settle with physical delivery, or with an election of either physical delivery or cash settlement and the Funds 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 Funds 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 Funds 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 Funds 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 Funds 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 Funds. Moreover, instead of segregating cash or liquid assets if the Funds 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. Equities as a result of workouts. The Fund may hold equity securities received in an exchange or workout of distressed lower-rated debt securities. A distressed security is a security that is in default or in risk of being in default. Temporary Defensive Policies There are risks inherent in the investment in any security, including shares of a Fund. The Advisor attempts to reduce risk through diversification of each Fund's portfolio and fundamental research; however, there is no guarantee that such efforts will be successful. Each Fund's shares are intended for long-term investment. When a defensive position is deemed advisable, all or a significant portion of each Fund's assets may be held temporarily in cash or defensive type securities, such as high-grade debt securities, securities of the U.S. government or its agencies and high quality money market instruments, including repurchase agreements. It is impossible to predict for how long such alternative strategies may be utilized. Trustees Powers to Change Objectives and Policies The objective and policies of each Fund described above may be changed, unless expressly stated to the contrary, by its respective Trustees without a vote of it shareholders. However, the board will provide shareholders of Scudder Blue Chip Fund with sixty days notice of any change in the Fund's policy to invest at least 80% of net assets in Blue Chip companies. Master/Feeder Fund Structure The Board of Trustees of each Fund has the discretion to retain the current distribution arrangement for the Fund while investing in a master fund in a master/feeder structure as described below. A master/feeder fund structure is one in which a fund (a "feeder fund"), instead of investing directly in a portfolio of securities, invests 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 in the master fund in an effort to achieve possible economies of scale and efficiencies in portfolio management, while preserving separate identities, management or distribution channels at the feeder fund level. 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 the realization of taxable gain or loss, or by contributing its assets to the master fund and avoiding transaction costs and the realization of taxable gain or loss. 20 MANAGEMENT OF THE FUNDS Investment Advisor The Advisor, an investment counseling firm, acts as investment advisor to each Fund. This organization, the predecessors of which are Scudder Kemper Investments, Inc. and Scudder, Stevens & Clark, Inc. is one of the most experienced investment counseling firms in the U.S. It was established as a partnership in 1919 and pioneered the practice of providing investment counsel to individual clients on a fee basis. In 1928 it introduced the first no-load mutual fund to the public. In 1953 the Advisor introduced Scudder International Fund, Inc., the first mutual fund available in the U.S. investing internationally in securities of issuers in several foreign countries. The predecessor firm reorganized from a partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder entered into an agreement with Zurich Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form an alliance. On December 31, 1997, Zurich acquired a majority interest in Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of Scudder. Scudder's name was changed to Scudder Kemper Investments, Inc. On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest in Scudder Kemper) and the financial services businesses of B.A.T Industries p.l.c. ("B.A.T") were combined to form a new global insurance and financial services company known as Zurich Financial Services Group. By way of a dual holding company structure, former Zurich shareholders initially owned approximately 57% of Zurich Financial Services Group, with the balance initially owned by former B.A.T shareholders. On October 17, 2000, the dual holding company structure of Zurich Financial Services Group, comprised of Allied Zurich p.l.c. in the United Kingdom and Zurich Allied A.G. in Switzerland, was unified into a single Swiss holding company, Zurich Financial Services. On January 1, 2001, the Advisor changed its name from Scudder Kemper Investments, Inc. to Zurich Scudder Investments, Inc. The Advisor manages each Fund's daily investment and business affairs subject to the policies established by the applicable Trust's Board of Trustees. Founded in 1872, Zurich is a multinational, public corporation organized under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have resulted from its operations as an insurer as well as from its ownership of its subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich Insurance Group provide an extensive range of insurance products and services and have branch offices and subsidiaries in more than 40 countries throughout the world. Pursuant to an investment management agreement with each Fund, the Advisor acts as each Fund's investment advisor, manages its investments, administers its business affairs, furnishes office facilities and equipment, provides clerical and administrative services and permits any of its officers or employees to serve without compensation as trustees or officers of the Funds if elected to such positions. The Advisor maintains a large research department, which conducts continuous studies of the factors that affect the position of various industries, companies and individual securities. The Advisor receives published reports and statistical compilations from issuers and other sources, as well as analyses from brokers and dealers who may execute portfolio transactions for the Advisor's clients. However, the Advisor regards this information and material as an adjunct to its own research activities. In selecting securities in which each Fund may invest, the conclusions and investment decisions of the Advisor with respect to each Fund are based primarily on the analyses of its own research department. In certain cases, the investments for a Fund are managed by the same individuals who manage one or more other mutual funds advised by the Advisor, that have similar names, objectives and investment styles. You should be aware that a Fund is likely to differ from these other mutual funds in size, cash flow pattern and tax matters. Accordingly, the holdings and performance of a Fund can be expected to vary from those of these other mutual funds. Certain investments may be appropriate for a Fund and also for other clients advised by the Advisor. 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 Advisor to be equitable to each. In some cases, this procedure could have an adverse effect on the price or amount of the securities purchased or sold by a Fund. Purchase and sale orders for a Fund may be combined with those of other clients of the Advisor in the interest of achieving the most favorable net results to a Fund. 21 The present investment management agreements for Blue Chip Fund, Total Return Fund, Focus Value+Growth Fund and Research Fund dated September 7, 1998, were last approved by the Trustees of each Fund on September 25, 2001 and the present investment management agreement for Growth and Income Fund (each, an "Agreement" and collectively, the "Agreements") was last approved by the Trustees of the Fund on August 13, 2001. The Agreements for each Fund will continue in effect until September 30, 2002 and from year to year thereafter only if its continuance is approved annually by the vote of a majority of those Trustees who are not parties to such Agreement or interested persons of the Advisor or the applicable Trust, cast in person at a meeting called for the purpose of voting on such approval, and either by a vote of the applicable Trust's Trustees or of a majority of the outstanding voting securities of the applicable Fund. The Agreement may be terminated at any time without payment of penalty by either party on sixty days' written notice and automatically terminates in the event of its assignment. Under each Agreement, the Advisor regularly provides the applicable Fund with continuing investment management for the Fund's portfolio consistent with the Fund's investment objective, policies and restrictions and determines which securities shall be purchased, held or sold and which portion of the applicable Fund's assets shall be held uninvested, subject to the applicable Trust's Articles of Declaration of Trust, By-Laws, the 1940 Act, the Internal Revenue Code and to a Fund's investment objective, policies and restrictions, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish. The Advisor also advises and assists the officers of each Trust in taking such steps as are necessary or appropriate to carry out the decisions of its Trustees and the appropriate committees of the Trustees regarding the conduct of the business of a Fund. The Board of each Fund approved the renewal of such Fund's advisory contract on September 25, 2001. As part of the annual contract review process, commencing in July 2001, the Board, as a whole, the Independent Trustees, separately, and the Funds' Oversight Committees met on several occasions to consider the renewal of each Fund's investment management agreement and, for Scudder Focus Value+Growth Fund, subadvisory agreement. The Oversight Committees initially analyzed and reviewed extensive materials, received responses from the Advisor and received advice from counsel. The Committees presented their findings and recommendations to the Independent Trustees as a group. The Independent Trustees then reviewed the Committees' findings and recommendations and presented their recommendations to the full Board. At a meeting on September 25, 2001, the Board concluded that the terms of the investment management agreement between the Advisor and each Fund are fair and reasonable and the continuance of each agreement is in the best interest of each Fund. In connection with their meetings, the Committees and Board received comprehensive materials from the Advisor and from independent sources relating to the management fees charged and services provided, including (i) information about the nature and quality of services provided by the Advisor under the investment management agreements; (ii) information about the management fees, expense ratios and asset sizes of the Funds relative to peer groups; (iii) information about the level of the Advisor's profits with respect to the management of the Funds, including the methodology used to allocate costs among funds advised by the Advisor; and (iv) information about the short-term and long-term performance of the Funds relative to appropriate peer groups and one or a combination of market indices. Investment Performance. The Board reviewed the Funds' investment performance as well as the performance of a peer group of funds, and the performance of an appropriate index or combination of indices. The Board considered short-term and long-term performance, as well as the factors contributing to underperformance of certain funds advised by the Advisor and steps taken by the Advisor to improve such underperformance. In particular, the Board has requested the Advisor to identify Scudder funds whose performance rank in the lowest quartile of their peer group ("Focus Funds") and to provide more frequent reports of steps to monitor and improve performance of the Focus Funds. Fees and Expenses. The Board considered each Fund's management fee rates, expense ratios and asset sizes relative to an appropriate peer group of funds, including information about the effect of the unitary fee structure under the administration agreement and expense limitation commitments from the Advisor. Profitability. The Board considered the level of the Advisor's profits with respect to the management of the Funds, including a review of the Advisor's methodology in allocating its costs to the management of the Funds. The Board considered the profits realized by the Advisor in connection with the operation of the Funds and whether the amount of profit is a fair entrepreneurial profit for the management of the Funds. The Board also considered the Advisor's profit margins in comparison with available industry data. 22 Economies of Scale. The Board considered whether there have been economies of scale with respect to the management of the Funds and whether the Funds have appropriately benefited from any economies of scale. The Board considered whether the management fee rate is reasonable in relation to the asset size of the Funds. Adviser Personnel and Methods. The Board considered the size, education and experience of the Advisor's staff, its use of technology and its approach to recruiting, training and retaining portfolio managers and other research and management personnel. Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of administrative and shareholder services performed by the Advisor and its affiliated companies. Other Benefits to the Advisor. The Board also considered the character and amount of other incidental benefits received by the Advisor and its affiliates, including the receipt of research through the use of soft dollars. Under each Agreement, the Advisor also renders significant administrative services (not otherwise provided by third parties) necessary for a Fund's operations as an open-end investment company including, but not limited to, preparing reports and notices to the applicable Trustees and shareholders; supervising, negotiating contractual arrangements with, and monitoring various third-party service providers to a Fund (such as a 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 a Fund's federal, state and local tax returns; preparing and filing a 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 a Fund under applicable federal and state securities laws; maintaining a 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 a Fund's operating budget; processing the payment of a Fund's bills; assisting a Fund in, and otherwise arranging for, the payment of distributions and dividends; and otherwise assisting a Fund in the conduct of its business, subject to the direction and control of the applicable Trustees. The Advisor pays the compensation and expenses of all Trustees, officers and executive of a Fund affiliated with the Advisor and makes available, without expense to a Fund, the services of such Trustees, officers and employees of the Advisor as may duly be elected officers or Trustees of the Trust, subject to their individual consent to serve and to any limitations imposed by law, and provides a Fund's office space and facilities. Under its Agreement, each Fund is responsible for all of its other expenses including: organizational costs, fees and expenses incurred in connection with membership in investment company organizations; brokers' commissions; legal, auditing and accounting expenses; taxes and governmental fees; the fees and expenses of the transfer agent; any other expenses of issue, sale, underwriting, distribution, redemption or repurchase of shares; the expenses of and the fees for registering or qualifying securities for sale; the fees and expenses of Trustees, officers and employees of the Fund who are not affiliated with the Advisor; the cost of printing and distributing reports and notices to stockholders; and the fees and disbursements of custodians. Each Fund may arrange to have third parties assume all or part of the expenses of sale, underwriting and distribution of shares of each Fund. Unless otherwise agreed to, each Fund is also responsible for its expenses from shareholders' meetings, the cost of responding to shareholders' inquiries, and its expenses incurred in connection with litigation, proceedings and claims and the legal obligation it may have to indemnify its officers and Trustees of the applicable Fund with respect thereto. The Funds (other than the Research Fund and Growth and Income Fund) pay the Advisor investment management fees, payable monthly, at 1/12 of the annual rates, as a percentage of average daily net assets, shown below:
Average Daily Net Assets Blue Chip Fund and Total Return Fund Focus Value+ Growth Fund - ------------------------ ------------------------------------ ------------------------ $0 - $250 million 0.58% 0.72% $250 million - $1 billion 0.55 0.69 $1 billion - $2.5 billion 0.53 0.66 $2.5 billion - $5 billion 0.51 0.64 $5 billion - $7.5 billion 0.48 0.60 $7.5 billion - $10 billion 0.46 0.58 $10 billion - $12.5 billion 0.44 0.56 Over $12.5 billion 0.42 0.54
23 Blue Chip Fund. For the fiscal period ended October 31, 2001, the Fund incurred aggregate fees of $5,470,223. For the fiscal period ended October 31, 2000, the Fund incurred aggregate fees of $6,221,014. For the fiscal year ended October 31, 1999, the Fund incurred a management fee of $4,172,000. Total Return Fund. For the fiscal period ended October 31, 2001, the Fund incurred aggregate fees of $116,859,518. For the fiscal period ended October 31, 2000, the Fund incurred aggregate fees $19,297,715. For the fiscal year ended October 31, 1999, the Fund incurred a management fee of $19,069,000. Focus Value+Growth Fund. For the fiscal period ended November 30, 2001, the Fund incurred aggregate fees of $1,004,398. For the fiscal period ended November 30, 2000, the Fund incurred aggregate fees of $1,235,968. For the fiscal year ended November 30, 1999, the Fund incurred a management fee of $1,172,000. Jennison Associates LLC ("JA"), 466 Lexington Avenue, New York, New York 10017, is the sub-advisor for the Fund. JA acts as sub-advisor pursuant to the terms of a sub-advisory agreement between it and the Advisor for Focus Value+Growth Fund. Under the terms of the Sub-Advisory Agreement for Focus Value+Growth Fund, JA manages the investment and reinvestment of the Fund's assets and will provide such investment advice, research and assistance as the investment advisor may, from time to time, reasonably request. For its services, JA will receive from the Advisor a monthly fee at 1/12 of the following annual rates applied to the portion of the average daily net assets of the Fund allocated by the Advisor to JA for management: Net Assets* Annualized Rate ----------- --------------- $0 - $100 million 0.45 of 1% $100 - 500 million 0.40 of 1% $500 - 1 billion 0.35 of 1% $1 - 2 billion 0.30 of 1% $2 billion_+ 0.25 of 1% * Combined net assets of the Fund and SVS Focus Value+Growth Portfolio, a series of Scudder Variable Series II. The Sub-Advisory Agreement provides that JA will 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 Sub-Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of JA in the performance of its duties or from reckless disregard by JA of its obligations and duties under the Sub-Advisory Agreement. The Sub-Advisory Agreement for Focus Value+Growth Fund will remain in effect until September 30, 2002, unless sooner terminated or not annually approved as described below. Notwithstanding the foregoing, the Sub-Advisory Agreement shall continue in effect through September 30, 2002 and year to year thereafter, but only as long as such continuance is specifically approved at least annually (a) by a majority of the trustees who are not parties to such agreement or interested persons of any such party except in their capacity as trustees of the Fund, or (b) by a majority of the outstanding voting securities of the Fund. The Sub-Advisory Agreement may be terminated at any time upon 60 days' notice by the Advisor or by the Board of the Fund or by a majority vote of the outstanding shares of the Fund, and will terminate automatically upon assignment or upon termination of the Fund's investment management agreement. Thereafter, JA may terminate the Sub-Advisory Agreement upon 60 days written notice to the Advisor. 24 The Board of Trustees of Scudder Focus Value+Growth Fund (the "fund") unanimously approved, subject to shareholder approval, a new subadvisory agreement between Zurich Scudder Investments, Inc. and Dreman Value Management, L.L.C. ("DVM"). If the subadvisory agreement with DVM is approved by shareholders, DVM will subadvise the value style portion of the fund. Shareholders will be asked to approve the proposed subadvisory agreement at a special meeting scheduled to be held on or about March 28, 2002, and will receive a proxy statement that will contain additional information about DVM and the proposed subadvisory agreement. Research Fund. Under the Investment Management Agreement between Scudder Research Fund and the Advisor, the Fund pays the Advisor a fee equal to 0.70% of the first $250,000,000 of average daily net assets, 0.67% for the next $750,000,000 of average daily net assets, 0.65% of such net assets for the next $1,500,000,000 of average daily net assets and 0.63% in excess of $2,500,000,000, computed and accrued daily and payable monthly, provided that the Fund will make such interim payments as may be requested by the Advisor not to exceed 75% of the amount of the fee then accrued on the books of the Fund and unpaid. For the fiscal year ended August 31, 1999, the Fund incurred aggregate fees pursuant to its then effective investment advisory agreement of $14,509. The Advisor agreed to absorb temporarily certain operating expenses of the Fund for the eight month period ended August 31, 1999. The absorbed fees amounted $17,712. For the fiscal year ended August 31, 2000, fees were $0. The Advisor agreed to absorb temporarily certain operating expenses of the Fund. Under this arrangement, the Advisor absorbed expenses of $58,373 for the period ended August 31, 2000. For the fiscal year ended August 30, 2001, the Fund incurred a management fee of $25,004, of which $21,099 was not imposed. Growth and Income Fund. Under the Investment Management Agreement between Growth and Income Fund and the Advisor, the Fund paid the Advisor a fee equal to 0.450% of the first $14 billion of average daily net assets, 0.425% for the next $2 billion of average daily net assets, 0.400% of such net assets for the next $2 billion of average daily net assets and 0.385% in excess of $18 billion, computed and accrued daily and payable monthly. For fiscal period ended September 30, 2001, the Fund incurred aggregate fees pursuant to its then effective investment advisory agreement of $41,076,392. For the fiscal year ended September 30, 2000, the Fund incurred a management fee of $24,109,868. For the fiscal period ended September 30, 1999, the Fund incurred a management fee of $32,454,854. Each investment management agreement identifies the Advisor as the exclusive licensee of the rights to use and sublicense the names "Scudder," "Zurich Scudder Investments, Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks"). Under this license, the applicable Trust, with respect to a Fund, has the non-exclusive right to use and sublicense the Scudder name and marks as part of its name, and to use a Scudder Marks in the Trust's investment products and services. In reviewing the terms of each investment management agreement and in discussions with the Advisor concerning such agreements, the Trustees of the Trust who are not "interested persons" of the Advisor are represented by independent counsel at the applicable Fund's expense. Each investment management agreement provides that the Advisor shall not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with matters to which the agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Advisor in the performance of its duties or from reckless disregard by the Advisor of its obligations and duties under the agreement. Officers and employees of the Advisor from time to time may have transactions with various banks, including a Fund's custodian bank. It is the Advisor's opinion that the terms and conditions of those transactions which have occurred were not influenced by existing or potential custodial or other Fund relationships. The Advisor may serve as advisor to other funds with investment objectives and policies similar to those of a Fund that may have different distribution arrangements or expenses, which may affect performance. None of the officers or Trustees of a Trust may have dealings with a Fund as principals in the purchase or sale of securities, except as individual subscribers to or holders of shares of the Fund. 25 The term Scudder Investments is the designation given to the services provided by Zurich Scudder Investments, Inc. and its affiliates to the Scudder Family of Funds. AMA InvestmentLink(SM) Program (Growth and Income Fund Only) Pursuant to an agreement between the Advisor and AMA Solutions, Inc., a subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997, the Advisor has agreed, subject to applicable state regulations, to pay AMA Solutions, Inc. royalties in an amount equal to 5% of the management fee received by the Advisor with respect to assets invested by AMA members in Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Advisor will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of providing investment advice and neither is registered as an investment advisor or broker/dealer under federal securities laws. Any person who participates in the AMA InvestmentLink(SM) Program will be a customer of the Advisor (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLink(SM) is a service mark of AMA Solutions, Inc. Code of Ethics The Funds, the Advisor and principal underwriter have each adopted codes of ethics under rule 17j-1 of the Investment Company Act. Board members, officers of the Trust and employees of the Advisor and principal underwriter are permitted to make personal securities transactions, including transactions in securities that may be purchased or held by the Funds, subject to requirements and restrictions set forth in the applicable Code of Ethics. The Advisor's Code of Ethics contains provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of the Funds. Among other things, the Advisor's Code of Ethics prohibits certain types of transactions absent prior approval, imposes time periods during which personal transactions may not be made in certain securities, and requires the submission of duplicate broker confirmations and quarterly reporting of securities transactions. Additional restrictions apply to portfolio managers, traders, research analysts and others involved in the investment advisory process. Exceptions to these and other provisions of the Advisor's Code of Ethics may be granted in particular circumstances after review by appropriate personnel. Administrative Agreement Effective June 11, 2001 for Research Fund, Blue Chip Fund, Total Return Fund and Focus Value+Growth Fund and October 2, 2000 for Class A shares of Growth and Income Fund and December 29, 2000 for Class B and Class C Shares of Growth and Income Fund, each Fund has entered into an administrative services agreement with the Advisor (the "Administrative Agreement") pursuant to which the Advisor provides or pays others to provide substantially all of the administrative services required by each Fund (other than those provided by the Advisor under its investment management agreement with each Fund, as described above) in exchange for the payment by each Fund of an administrative services fee (the "Administrative Fee") of, except for Total Return Fund, 0.325% for Class A (0.300% for the period October 1, 2000 to March 31, 2001 for Class A shares of Growth and Income Fund), 0.375% for Class B, 0.350% for Class C and 0.10% for Class I (for Blue Chip Fund and Focus Value+Growth Fund) of the average daily net assets of the applicable class. Scudder Total Return Fund will pay the advisor an Administrative Fee of .225%, .375%, .300% and .100% of the average daily net assets for Classes A, B, C and I shares, respectively. One effect of this arrangement is to make each Fund's future expense ratio more predictable. However, the Funds will not benefit from economies of scale derived from increases in assets. Blue Chip Fund. Prior to June 11, 2001, the amount charged to Class A, B, C and I shares by SISC aggregated $954,669, $628,068, $56,002 and $4,536, respectively. The Fund incurred administrative services fees of $2,714,425 for the fiscal year ended October 31, 2000, of which $243,655 was unpaid as of October 31, 2000. The Fund incurred administrative services fees of $1,830,000 for the fiscal year ended October 31, 1999. In accordance with the new Administrative Agreement, for the period June 11, 2001 (commencement of Administrative Agreement) through October 31, 2001, the administrative expense charged to the Fund was as follows:
Unpaid at Unpaid at Unpaid at Unpaid at Fiscal 10/31/01 10/31/01 10/31/01 10/31/01 Fund Year Class A Class B Class C Class I Class A Class B Class C Class I - ---- ---- ------- ------- ------- ------- ------- ------- ------- ------- Blue Chip Fund 2001 $615,376 $492,062 $86,800 $2,649 $124,118 $97,432 $18,219 $500
26 Total Return Fund. Prior to June 11, 2001, the amount charged to Class A, B, C and I shares by SISC aggregated $2,719,594, $1,033,352, $68,404 and $5,263, respectively. The Fund incurred administrative services fees of $9,052,817 for the fiscal year ended October 31, 2000, of which, $726,229 was unpaid as of October 31, 2000. The Fund incurred administrative services fees of $8,765,000 for the fiscal year ended October 31, 1999. In accordance with the new Administrative Agreement, for the period June 11, 2001 (commencement of Administrative Agreement) through October 31, 2001 the administrative expense charged to the Fund was as follows:
Unpaid at Unpaid at Unpaid at Unpaid at Fiscal 10/31/01 10/31/01 10/31/01 10/31/01 Fund Year Class A Class B Class C Class I Class A Class B Class C Class I - ---- ---- ------- ------- ------- ------- ------- ------- ------- ------- Total Return Fund 2001 $2,171,561 $732,046 $86,414 $3,772 $281,274 $166,255 $17,553 $834
Focus Value+Growth Fund. Prior to June 11, 2001, the amount charged to Class A, B, and C shares by SISC aggregated $110,421, $118,724 and $29,924, respectively. The Fund incurred administrative services fees of $429,090 for the fiscal year ended November 30, 2000 after an expense waiver of $1,238. As of November 30, 2000, $50,445 was unpaid. The Fund incurred administrative services fees of $393,000 for the fiscal year ended November 30, 1999. In accordance with the new Administrative Agreement, for the period June 11, 2001 (commencement of Administrative Agreement) through November 30, 2001 the administrative expense charged to the Fund was as follows:
Unpaid at Unpaid at Unpaid at Fiscal 11/30/01 11/30/01 11/30/01 Fund Year Class A Class B Class C Class A Class B Class C - ---- ---- ------- ------- ------- ------- ------- ------- Focus Value+Growth Fund 2001 $97,744 $96,013 $15,987 $17,710 $17,244 $2,995
Research Fund. The Fund incurred administrative services fees of $9,475 for the year ended August 31, 2000, which were not imposed after an expense absorption by the Advisor. The Fund incurred administrative services fees of $5,000 for the eight month period ended August 31, 1999, which were not imposed after an expense absorption by the Advisor. In accordance with the new Administrative Agreement, for the period June 11, 2001 (commencement of Administrative Agreement) through August 31, 2001 the administrative expense charged to the Fund was as follows:
Unpaid at Unpaid at Unpaid at 8/31/01 8/31/01 8/31/01 Fund Fiscal Year Class A Class B Class C Class A Class B Class C - ---- ----------- ------- ------- ------- ------- ------- ------- Research Fund 2001 $889 $945 $808 $331 $350 $300
Growth and Income Fund. The Fund incurred administrative services fees of $4,500,933 for the fiscal year ended September 30, 2000. The Fund incurred administrative services fees of $3,482 for the fiscal year ended September 30, 1999. In accordance with the new Administrative Agreement, for the fiscal year ended September 30, 2001 the Administrative expense charged to the Fund was as follows:
Unpaid at Unpaid at Unpaid at Fiscal 9/30/01 9/30/01 9/30/01 Fund Year Class A Class B Class C Class A Class B Class C - ---- ---- ------- ------- ------- ------- ------- ------- Growth and Income Fund 2001 $44,948 $17,205 $4,857 $10,064 $4,443 $1,189
Various third-party service providers (the "Service Providers"), some of which are affiliated with the Advisor, provide certain services to the Fund pursuant to separate agreements with each Fund. 27 The Advisor will pay the Service Providers for the provision of their services to each Fund and will pay most other fund expenses, including insurance, registration, printing and postage fees. In return, each Fund will pay the Advisor an Administrative Fee. The Administrative Agreement has an initial term of three years, subject to earlier termination by each Fund's Board. The Administrative Agreement will continue in effect on an annual basis thereafter, provided that such continuance is approved at least annually by a majority of the Trustees, including the independent Trustees. The fee payable by each Fund to the Advisor pursuant to the Administrative Agreement is reduced by the amount of any credit received from each Fund's custodian for cash balances. Certain expenses of each Fund will not be borne by the Advisor under the Administrative Agreement, such as taxes, brokerage, interest and extraordinary expenses; and the fees and expenses of the Independent Trustees (including the fees and expenses of their independent counsel). In addition, each Fund will continue to pay the fees required by its investment management agreement with the Advisor. Brokerage Commissions Allocation of brokerage is supervised by the Advisor. The primary objective of the Advisor and Subadvisor (for Focus Value+Growth Fund) in placing orders for the purchase and sale of securities for a Fund is to obtain the most favorable net results, taking into account such factors as price, commission where applicable, size of order, difficulty of execution and skill required of the executing broker/dealer. The Advisor and Subadvisor (for Focus Value+Growth Fund) seek to evaluate the overall reasonableness of brokerage commissions paid (to the extent applicable) with commissions charged on comparable transactions, as well as by comparing commissions paid by a Fund to reported commissions paid by others. The Advisor routinely reviews commission rates, execution and settlement services performed and makes internal and external comparisons. The Funds' purchases and sales of fixed-income securities are generally placed by the Advisor with primary market makers for these securities on a net basis, without any brokerage commission being paid by a Fund. Trading does, however, involve transaction costs. Transactions with dealers serving as primary market makers reflect the spread between the bid and asked prices. Purchases of underwritten issues may be made, which will include an underwriting fee paid to the underwriter. When it can be done consistently with the policy of obtaining the most favorable net results, it is the Advisor's practice to place such orders with broker/dealers who supply brokerage and research services to the Advisor or a Fund. The term "research services" includes advice as to the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or purchasers or sellers of securities; and analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. The Advisor is authorized when placing portfolio transactions, if applicable, for a Fund to pay a brokerage commission in excess of that which another broker might charge for executing the same transaction on account of execution services and the receipt of research services. The Advisor has negotiated arrangements, which are not applicable to most fixed-income transactions, with certain broker/dealers pursuant to which a broker/dealer will provide research services, to the Advisor or a Fund in exchange for the direction by the Advisor of brokerage transactions to the broker/dealer. These arrangements regarding receipt of research services generally apply to equity security transactions. The Advisor may place orders with a broker/dealer on the basis that the broker/dealer has or has not sold shares of a Fund. In effecting transactions in over-the-counter securities, orders are placed with the principal market makers for the security being traded unless, after exercising care, it appears that more favorable results are available elsewhere. Although certain research services from broker/dealers may be useful to a Fund and to the Advisor, it is the opinion of the Advisor that such information only supplements the Advisor's own research effort since the information must still be analyzed, weighed, and reviewed by the Advisor's staff. Such information may be useful to the Advisor in providing services to clients other than a Fund, and not all such information is used by the Advisor in connection with a Fund. Conversely, such information provided to the Advisor by broker/dealers through whom other clients of the Advisor effect securities transactions may be useful to the Advisor in providing services to a Fund. 28 Blue Chip Fund. For the fiscal years ended October 31, 2001, 2000 and 1999 the Fund paid total brokerage commissions of $2,232,178, $103,936 and $88,561. For the period November 1, 2000 through October 31, 2001, the Fund paid total brokerage commissions of $2,232,178. For that period, the Fund paid brokerage commissions of $917,475 (41.10% 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 Advisor. The total amount of brokerage transactions aggregated $3,070,444,227, of which $1,073,096,499 (34.95% of all brokerage transactions) were transactions which included research commissions. Total Return Fund. For the fiscal years ended October 31, 2001, 2000 and 1999 the Fund paid total brokerage commissions of $4,233,310, $3,107,944 and $3,325,979. For the period November 1, 2000 through October 31, 2001, the Fund paid total brokerage commissions of $4,233,310. In the period, the Fund paid brokerage commissions of $1,724,154 (40.73% 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 Advisor. The total amount of brokerage transactions aggregated $8,699,700,203, of which $2,802,013,939 (32.21% of all brokerage transactions) were transactions which included research commissions. Focus Value+Growth Fund. For the fiscal years ended November 30, 2001, 2000 and 1999 the Fund paid total brokerage commissions of $60,060, $136,556 and $257,259. For the period December 1, 2000 through November 30, 2001 the Fund paid total brokerage commissions of $60,060. For that period, the Fund paid brokerage commissions of $28,332 (47.17% 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 Advisor. The total amount of brokerage transactions aggregated $65,769,185, of which $29,459,666 (44.79% of all brokerage transactions) were transactions which included research commissions. Growth and Income Fund. For the fiscal year ended September 30, 2001, the Fund paid total brokerage commissions of $11,388,673. For the fiscal years ended December 31, 2000 and 1999 the Fund paid total brokerage commissions of $11,548,038 and $9,542,259, respectively. In the fiscal year ended September 30, 2001, the Fund paid brokerage commissions of $4,962,649 (43.58% 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 Advisor. The total amount of brokerage transactions aggregated $13,803,807,726, of which $5,313,053,836 (38.49% of all brokerage transactions) were transactions which included research commissions. Research Fund. For the fiscal years ended August 31, 2001, 2000 and 1999, the Fund paid total brokerage commissions of $8,430, $4,858 and $3,735. For the fiscal period ended August 31, 2001, Research Fund paid brokerage commissions of $4,267 (50.61% of the total brokerage commissions), resulting from orders placed, consistent with the policy of seeking to obtain the most favorable net results, for transactions placed with brokers and dealers who provided supplementary research services to the Trust or Advisor. The total amount of brokerage transactions aggregated, for the fiscal period ended August 31, 2001, was $10,121,422, of which $3,992,762(39.45%) of all brokerage transactions were transactions which included research commissions. Portfolio Turnover Portfolio turnover rate is defined by the SEC as the ratio of the lesser of sales or purchases to the monthly average value of such securities owned during the year, excluding all securities whose remaining maturities at the time of acquisition were one year or less. 29 The portfolio turnover rates for Blue Chip Fund and Total Return Fund for the fiscal year ended October 31, 2001 were 124% and 105%, respectively, and for fiscal year ended October 31, 2000 were 89% and 95%, respectively. The portfolio turnover rates for Focus Value+Growth Fund for the fiscal years ended November 30, 2001 and 2000 were 153% and 43%, respectively. The portfolio turnover rates for Research Fund for the fiscal years ended August 31, 2001 and 2000 were 100% and 101%, respectively. The portfolio turnover rates for Growth and Income Fund for the fiscal years ended September 30, 2001 and 2000 were 57% and 55%, respectively. A higher rate involves greater brokerage and 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. Underwriter Pursuant to separate Underwriting and Distribution Services Agreements ("Distribution Agreements"), and a separate Shareholder Services Agreement ("Services Agreement") Scudder Distributors, Inc. ("SDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the Advisor, is the principal underwriter and distributor for the Class A, B, C and Class I (if applicable) shares of the Funds and acts as agent of each Fund in the continuous offering of its Shares. SDI bears all of its expenses of providing services pursuant to the Distribution Agreement, including the payment of any commissions. Each Fund pays the cost for the prospectus and shareholder reports to be set in type and printed for existing shareholders, and SDI, as principal underwriter, pays for the printing and distribution of copies thereof used in connection with the offering of Shares to prospective investors. SDI also pays for supplementary sales literature and advertising costs. The Distribution Agreements for Blue Chip Fund, Focus Value+Growth Fund, Research Fund and Total Return Fund, dated October 1, 1999 were last approved by the Trustees on September 25, 2001 and the Distribution Agreement for Growth and Income Fund dated November 13, 2000 was last approved by the Trustees on August 31, 2001 and each Distribution Agreement continues in effect from year to year so long as such continuance is approved for each class at least annually by a vote of the Board of Trustees of a Fund, including the Trustees who are not interested persons of each Fund and who have no direct or indirect financial interest in the agreement. Each Distribution Agreement automatically terminates in the event of its assignment and may be terminated for a class at any time without penalty by each Fund or by SDI upon 60 days' notice. Termination by each Fund with respect to a class may be by vote of a majority of the Board of Trustees or a majority of the Trustees who are not interested persons of each Fund and who have no direct or indirect financial interest in each Distribution Agreement or a "majority of the outstanding voting securities" of the class of each Fund, as defined under the 1940 Act. The distribution agreement may not be amended for a class to increase the fee to be paid by a Fund with respect to such class without approval by a majority of the outstanding voting securities of such class of each Fund, and all material amendments must in any event be approved by the Board of Trustees in the manner described above with respect to the continuation of each Distribution Agreement. Each Services Agreement continues in effect from year to year so long as such continuance is approved for each Fund at least annually by a vote of the Board of Trustees for each Fund, including the Trustees who are not interested persons of each Fund and who have no direct or indirect financial interest in the Agreement. Each Agreement automatically terminates in the event of its assignment and may be terminated at any time without penalty by the Fund or by SDI upon 60 days' notice. Termination with respect to the Class A, B or C shares of a Fund may be by a vote of (i) the majority of the Board of Trustees of a Fund who are not interested persons of a Fund and who have no direct or indirect financial interest in each Services Agreement or a "majority of the outstanding voting securities" of the Class A, B or C shares, as defined under the 1940 Act. Each Services Agreement may not be amended for a class to increase materially the fee to be paid by the Fund without approval by a majority of the outstanding voting securities of such class of a Fund, and all material amendments must in any event be approved by the Board of Trustees in the manner described above with respect to the continuation of the Services Agreement. 30 Class A Shares. SDI receives no compensation from the Funds as principal underwriter for Class A shares and pays all expenses of distribution of a Fund's Class A shares under the Distribution Agreements not otherwise paid by dealers or other financial services firms. As indicated under "Purchase of Shares," SDI retains the sales charge upon the purchase of shares and pays or allows concessions or discounts to firms for the sale of a Fund's shares. The following information concerns the underwriting commissions paid in connection with the distribution of each Fund's Class A shares for the periods noted.
Fiscal Commissions Retained by Commissions Underwriter Commissions Paid to Fund Year Underwriter Paid to all Firms Affiliated Firms - ---- ---- ----------- ----------------- ---------------- Blue Chip Fund 2001 $80,056 2000 $190,000 $721,000 $0 1999 $159,000 $930,000 $0 Total Return Fund 2001 $137,699 2000 $256,000 $1,126,000 $0 1999 $257,000 $1,241,000 $0 Focus Value+Growth Fund 2001 $9,132 2000 $18,000 $103,000 $0 1999 $38,000 $262,000 $0 Research Fund 2001 $81 $183 $0 Growth and Income Fund 2001 $81 $0 $0
Rule 12b-1 Plan Distribution Services. Each Fund has adopted a plan under Rule 12b-1 (the "Rule 12b-1 Plan") that provides for fees payable as an expense of the Class B shares and Class C shares that are used by SDI to pay for distribution and services for those classes. Because 12b-1 fees are paid out of fund assets on an ongoing basis they will, over time, increase the cost of an investment and cost more than other types of sales charges. Since the Distribution Agreement provides for fees payable as an expense of the Class B shares and the Class C shares that are used by SDI to pay for distribution services for those classes, that Distribution Agreement is approved and reviewed separately for the Class B shares and the Class C shares in accordance with Rule 12b-1 under the 1940 Act, which regulates the manner in which an investment company may, directly or indirectly, bear the expenses of distributing its shares. If a Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms, the obligation of a Fund to make payments to SDI pursuant to the Rule 12b-1 Plan will cease and each Fund will not be required to make any payments past the termination date. Thus, there is no legal obligation for the Fund to pay any expenses incurred by SDI in excess of its fees under a Rule 12b-1 Plan, if for any reason the Rule 12b-1 Plan is terminated in accordance with its terms. Future fees under the Rule 12b-1 Plan may or may not be sufficient to reimburse SDI for its expenses incurred. The distribution agreement may not be amended for a class to increase the fee to be paid by a Fund with respect to such class without approval by a majority of the outstanding voting securities of such class of each Fund, and all material amendments must in any event be approved by the Board of Trustees in the manner described above with respect to the continuation of each Distribution Agreement. For its services under the Distribution Agreement, SDI receives a fee from each Fund under Rule 12b-1 Plan, payable monthly, at the annual rate of 0.75% of average daily net assets of the Fund attributable to Class B shares. This fee is accrued daily as an expense of Class B shares. SDI also receives any contingent deferred sales charges paid with respect to Class B shares. SDI currently compensates firms for sales of Class B shares at a commission rate of 3.75%. For its services under the Distribution Agreement, SDI receives a fee from each Fund under Rule 12b-1 Plan, payable monthly, at the annual rate of 0.75% of average daily net assets of the Fund attributable to Class C shares. This fee is accrued daily as an expense of Class C shares. SDI currently advances to firms the first year distribution fee at a rate of 0.75% of the purchase price of Class C shares. For periods after the first year, SDI currently pays firms for sales of Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net assets attributable to Class C shares maintained and 31 serviced by the firm and the fee continues until terminated by SDI or the Fund. SDI also receives any contingent deferred sales charges paid with respect to Class C shares. Shareholder Services. Pursuant to the Rule 12b-1 Plan, shareholder or administrative services are provided to the Fund on behalf of Class A, B and C shareholders under a Services Agreement with SDI. SDI bears all its expenses of providing services pursuant to the shareholder agreement between SDI and the Fund, including the payment of service fees. The Fund pays SDI a shareholder services fee, payable monthly, at an annual rate of up to 0.25% of the average daily net assets of each class. SDI enters into related arrangements with various broker-dealer firms and other service or administrative firms ("firms") that provide services and facilities for their customers or clients who are investors in the Fund. The firms provide such office space and equipment, telephone facilities and personnel as is necessary or beneficial for providing information and services to their clients. Such services and assistance may include, but are not limited to, establishing and maintaining accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding the Fund, assistance to clients in changing dividend and investment options, account designations and addresses and such other administrative services as may be agreed upon from time to time and permitted by applicable statute, rule or regulation. With respect to Class A Shares, SDI pays each firm a service fee, payable quarterly, at an annual rate of up to 0.25% of the net assets in Fund accounts that it maintains and services attributable to Class A Shares, commencing with the month after investment. With respect to Class B and Class C Shares, SDI currently advances to firms the first-year service fee at a rate of up to 0.25% of the purchase price of such Shares. For periods after the first year, SDI currently intends to pay firms a service fee at a rate of up to 0.25% (calculated monthly and paid quarterly) of the net assets attributable to Class B and Class C Shares maintained and serviced by the firm. After the first year, a firm becomes eligible for the quarterly service fee and the fee continues until terminated by SDI or the Fund. Firms to which service fees may be paid include affiliates of SDI. In addition SDI may, from time to time, from its own resources pay certain firms additional amounts for ongoing administrative services and assistance provided to their customers and clients who are shareholders of the Fund. SDI also may provide some of the above services and may retain any portion of the fee under the shareholder agreement not paid to firms to compensate itself for administrative functions performed for the Fund. Currently, the shareholder services fee payable to SDI is payable at an annual rate of 0.25% based upon Fund assets in accounts for which a firm provides administrative services and at the annual rate of 0.15% based upon Fund assets in accounts for which there is no firm of record (other than SDI) listed on the Fund's records. The effective shareholder services fee rate to be charged against all assets of the Fund while this procedure is in effect will depend upon the proportion of Fund assets that is in accounts for which a firm of record provides shareholder services. The Board of Trustees of the Fund, in its discretion, may approve basing the fee to SDI at the annual rate of 0.25% on all Fund assets in the future. Certain trustees or officers of the Fund are also directors or officers of the Advisor or SDI, as indicated under "Officers and Directors/Trustees." Distribution expenses of the Funds in connection with the Rule 12b-1 Plans for each class of shares is set forth below. A portion of the marketing and sales and operating expenses shown of the marketing and sales and operating expenses show below could be considered overhead expenses. The administrative service fees paid by each Fund are set forth below. Prior to June 11, 2001, the fees were paid pursuant to an administrative agreement with SDI. Effective June 11, 2001, the fees are paid pursuant to a 12b-1 plan.
Administrative Service Fees Paid by Fund ---------------------------------------- Service Fees Paid by Service Fees Paid Administrator by Administrator Fund Fiscal Year Class A Class B Class C to Firms to Affiliated Firms - ---- ----------- ------- ------- ------- -------- ------------------- Blue Chip 2000 $1,490,000 $1,061,000 $163,000 $2,767,000 $4,000 1999 $1,166,000 $581,000 $83,000 $1,629,000 $0 Total Return 2000 $7,310,000 $1,607,000 $135,000 $8,754,000 $10,000 1999 $6,635,000 $2,043,000 $87,000 $8,476,000 $11,000
32
Administrative Service Fees Paid by Fund ---------------------------------------- Service Fees Paid by Service Fees Paid Administrator by Administrator Fund Fiscal Year Class A Class B Class C to Firms to Affiliated Firms - ---- ----------- ------- ------- ------- -------- ------------------- Focus Value+Growth 2000 $215,000 $186,000 $28,000 $429,000 $0 1999 $200,000 $174,000 $19,000 $391,000 $0
Class B Shares Total Distribution Fees Distribution Fees Contingent Deferred Paid by Paid by Fiscal Distribution Fees Sales Charge to Underwriter Underwriter to Fund Year Paid by Fund to Underwriter Underwriter to Firms Affiliated Firms ---- ---- --------------------------- ----------- -------- ---------------- Blue Chip Fund 2001 $2,793,432 $900,236 $1,794,086 $0 2000 $3,165,4655 $1,246,879 $4,412,344 $0 1999 $1,173,000 $643,000 $2,051,000 $0 Total Return Fund 2001 $3,438,211 $972,974 $1,948,913 $0 2000 $4841,952 $1,682,649 $6,524,600 $0 1999 $6,179,000 $1,406,000 $3,461,000 $0 Focus Value+Growth Fund 2001 $408,566 $109,892 $201,399 $0 2000 $562,234 $199,576 $761,810 $0 1999 $448,000 $173,000 $386,000 $0 Research Fund 2001 $8,219 $0 $3,222 $0 2000 $9,366 $0 $4,906 $4,906 1999* $5,160 $4,900 $2,374 $0 Growth and Income Fund 2001 $37,365 $13,778 $34,922 $0
Advertising Misc. Fiscal and Prospectus Marketing and Operating Interest Fund Year Literature Printing Sales Expenses Expenses Expense - ---- ---- ---------- -------- -------------- -------- ------- Blue Chip Fund 2001 $207,704 $48,621 $48,302 $26,459 $1,321,910 2000 $424,367 $45294 $310,398 $82,293 $1,436,699 1999 $177,922 $11,384 $474,444 $70,127 $817,908 Total Return Fund 2001 $210,659 $64,426 $123,319 $32,262 ($1,053,728) 2000 $457,720 $51,606 $361,529 $95,126 ($1,055,852) 1999 $337,430 $22,366 $901,664 $126,892 ($745,251) Focus Value+Growth Fund 2001 $16,679 $5,433 $8,402 $2,950 $254,754 2000 $47,582 $4,626 $27,329 $7,550 $302,787 1999 $38,592 $3,577 $104,968 $13,460 $241,870
33
Advertising Misc. Fiscal and Prospectus Marketing and Operating Interest Fund Year Literature Printing Sales Expenses Expenses Expense - ---- ---- ---------- -------- -------------- -------- ------- Research Fund 2001 $185 $123 $238 $35 $621 2000 $0 $0 $0 $0 $381 1999* $2,994 $289 $8,303 $4,751 $427 Growth and Income Fund 2001 $672 $187 $784 $229 $1,559
* For the period December 31, 1999 (commencement of operations) through August 31, 1999.
Class C Shares Contingent Total Distribution Distribution Fees Distribution Fees Deferred Sales Fees Paid by Paid by Fiscal Paid by Fund to Charge to Underwriter Underwriter to Fund Year Underwriter Underwriter to Firms Affiliated Firms - ---- ---- ----------- ----------- -------- ---------------- Blue Chip Fund 2001 $505,595 $8,375 $523,454 $0 2000 $483,989 $17,635 $501,624 $0 1999 $220,000 $6,000 $240,000 $0 Total Return Fund 2001 $490,066 $8,946 $529,392 $0 2000 $403,827 $19,043 $22,870 $0 1999 $269,000 $22,000 $289,000 $0 Focus Value+Growth Fund 2001 $69,786 $749 $70,926 $0 2000 $82,700 $4,827 $87,527 $0 1999 $16,000(a) $3,000 $0 $0 Research Fund 2001 $7,951 $0 $289 $0 2000 $9,366 $0 $4,906 $4,906 1999* $5,160 $0 $5,861 $0 Growth and Income Fund 2001 $11,184 $372 $12,553 $0
Misc. Fiscal Advertising and Prospectus Marketing and Operating Interest Fund Year Literature Printing Sales Expenses Expenses Expense - ---- ---- ---------- -------- -------------- -------- ------- Blue Chip Fund 2001 $86,889 $5,821 $22,805 $11,237 $84,047 2000 $144,492 $14,931 $98,677 $27,319 $72,842 1999 $41,606 $2,798 $113,295 $23,261 $42,205 Total Return Fund 2001 $72,678 $4,867 $17,326 $9,513 $115,895 2000 $137,633 $14,539 $100,692 $25,496 $107,255 1999 $49,088 $3,766 $140,116 $26,728 $66,561 Focus Value+Growth Fund 2001 $6,980 $616 $3,776 $1,290 $18,922 2000 $19,249 $1,778 $11,315 $2,891 $18,144 1999 $8,352 $823 $24,051 $2,659 $13,853
34
Misc. Fiscal Advertising and Prospectus Marketing and Operating Interest Fund Year Literature Printing Sales Expenses Expenses Expense - ---- ---- ---------- -------- -------------- -------- ------- Research Fund 2001 $ $ $ $ $ 2000 $0 $0 $0 $0 $408 1999* $3,037 $289 $8,303 $4,815 $870 Growth and Income Fund 2001 $ $ $ $ $ 2000 $ $ $ $ $ 1999 $ $ $ $ $ Research Fund 2001 $2 $0 $4 $1 $340 2000 $0 $0 $0 $0 $408 1999* $3,037 $289 $8,303 $4,815 $870 Growth and Income Fund 2001 $1,673 $138 $1,094 $359 $0
* For the period December 31, 1999 (commencement of operations) through August 31, 1999. FUND SERVICE PROVIDERS Custodian, Transfer Agent and Shareholder Service Agent All Funds except for Scudder Growth and Income Fund. State Street Bank and Trust Company, ("SSB") 225 Franklin Street, Boston, Massachusetts 02110, as custodian, has custody of all securities and cash of each Fund. It attends to the collection of principal and income, and payment for and collection of proceeds of securities bought and sold by each Fund. SSB is also each Fund's transfer agent and dividend-paying agent. Pursuant to a services agreement with SSB, Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, serves as "Shareholder Service Agent," of each Fund and, as such, performs all of SSB's duties as transfer agent and dividend paying agent. SSB receives as transfer agent, and pays to SISC as follows: annual account fees of $10.00 ($18.00 for retirement accounts) plus set up charges, annual fees associated with the contingent deferred sales charges (Class B only), an asset-based fee of 0.08% and out-of-pocket reimbursement. Effective June 11, 2001, these fees are paid by the Advisor pursuant to the Administrative Agreement. Scudder Growth and Income Fund. State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street, Boston, Massachusetts 02110, as custodian has custody of all securities and cash of the Fund. The Custodian attends to the collection of principal and income, and payment for and collection of proceeds of securities bought and sold by the Fund. Scudder Investments Service Company ("SISC"), formerly Kemper Service Company, 811 Main Street, Kansas City, Missouri 64105-2005, an affiliate of the Advisor, is the Fund's transfer agent, dividend-paying agent and shareholder service agent for the Funds' Class A, B, and C shares. Prior to the implementation of the Administration Agreement, SISC received as transfer agent, annual account fees of $5 per account, transaction and maintenance charges, annual fees associated with the contingent deferred sales charge (Class B shares only) and out-of-pocket expense reimbursement. Auditors The Funds' independent auditors, PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02116 (for Scudder Growth and Income Fund) and Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116 (for Scudder Blue Chip Fund, Scudder Total Return Fund, Scudder Focus Value+Growth Fund and Scudder Research Fund), audit and report on the Funds' annual financial statements, review certain regulatory reports and the Funds' federal income tax returns, and perform other professional accounting, auditing, tax and advisory services when engaged to do so by the Funds. Shareholders will receive annual audited financial statements and semi-annual unaudited financial statements. 35 Legal Counsel Dechert -- Ten Post Office Square -- South, Boston, Massachusetts 02109, serves as legal counsel to Scudder Growth and Income Fund. Vedder, Price, Kaufman and Kammholz -- 222 North LaSalle Street, Chicago, IL 60601, serves as legal counsel to Scudder Blue Chip Fund, Scudder Total Return Fund, Scudder Focus Value+Growth Fund and Scudder Research Fund. Fund Accounting Agent Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Advisor, is responsible for determining the daily net asset value per share of the Funds and maintaining all accounting records related thereto. SFAC receives an annual fee of 2.50 of 1% of average daily net assets for the first $150 million of fund net assets, 0.75 of 1% of average daily net assets for the next $850 million of fund net assets, and 0.45 of 1% of average daily net assets for the excess over $1 billion of fund net assets for its services to the Funds. Effective June 11, 2001 these fees are paid by the Advisor pursuant to the Administrative Agreement. Currently, SFAC receives no fee for its services to the Funds (except Research Fund and Growth and Income Fund); however, subject to Board approval, some time in the future, SFAC may seek payment for its services under this agreement. Research Fund. Prior to June 11, 2001, Scudder Research Fund, incurred accounting fees of $10,605, none of which was imposed as of August 31, 2001. Scudder Research Fund, incurred accounting fees of $0 for the fiscal year ended August 31, 2000. The Fund incurred accounting fees of $15,073, which were not imposed after an expense waiver by the Advisor. The Fund incurred accounting fees of $7,971 for the eight month period ended August 31, 1999. Effective June 11, 2001 the above fees are paid by the Advisor in accordance with the Administrative Agreement. Growth and Income. For the years ended December 31, 1999 and 1998 SFAC's fee amounted to $418,401 and $424,247, respectively. Prior to August 14, 2000, the amount charged to the Fund by SFAC aggregated $230,833. The above fees are now paid for by the Advisor in accordance with the Administrative Agreement. PERFORMANCE From time to time, quotations of a Fund's performance may be included in advertisements, sales literature or reports to shareholders or prospective investors. Performance information will be computed separately for each class. Performance figures for Class B and C shares for Blue Chip Fund and Total Return Fund, for the period May 31, 1994 through each Fund's most recent fiscal year end reflect the actual performance of these classes of shares. Returns for Class B and C shares for the period beginning with the inception date of each Fund's Class A shares to May 31, 1994 are derived from the historical performance of Class A shares, adjusted to reflect the higher operating expenses applicable to Class B and C shares. The performance figures are also adjusted to reflect the maximum sales charge of 5.75% for Class A shares and the maximum current contingent deferred sales charge of 4% for Class B shares that reduces to 0% after six years. Redemption of the Class C shares within the first year after purchase may be subject to a 1% contingent deferred sales charge. The adjustment is calculated by measuring the actual monthly return differential between the Class B and C shares and the Class A shares over a common three year period (June 30, 1996 to June 30, 1999). This relative performance comparison is then used to impute Class B and C shares performance from Class A shares returns for monthly periods prior to the inception of such Class B and C shares. Performance figures for Class A shares for Scudder Focus Value+Growth Fund and Scudder Research Fund shares are adjusted to reflect a maximum sales charge of 5.75%. Class B and Class C shares are sold at net asset value. Redemptions of Class B shares within the first six years after purchase may be subject to a contingent deferred sales charge that ranges from 4% during the first year to 0% after six years. Redemptions of the Class C shares within the first year after purchase may be subject to a 1% contingent deferred sales charge. Average annual total returns figures do, and total return figures may, include the effect of the contingent deferred sales charge for the Class B shares and Class C shares that may be imposed at the end of the period in question. Performance figures for the Class B and Class C shares not including the effect of the applicable contingent deferred sales charge would be reduced if it were included. 36 Performance figures for Class A, B, and C shares of Growth and Income Fund are derived from the historical performance of Class S shares, adjusted to reflect the higher gross total annual operating expenses applicable to Class A, B and C shares. The performance figures are also adjusted to reflect the maximum initial sales charge of 5.75% for Class A shares and the maximum current contingent deferred sales charge of 4% for Class B shares. Redemptions of the Class C shares within the first year after purchase may be subject to a 1% contingent deferred sales charge. Returns for the historical performance of the Class S shares include the effect of a temporary waiver of management fees and/or absorption of certain operating expenses by the investment advisor and certain subsidiaries. Without such a waiver or absorption, returns would have been lower and ratings or rankings may have been less favorable. The returns in the chart below assume reinvestment of distributions at net asset value and represent actual and adjusted performance figures of the Class A, B and C shares of a Fund as described above; they do not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Average Annual Total Return Average annual total return is the average annual compound rate of return for the periods of one year, five years and ten years (or such shorter periods as may be applicable dating from the commencement of a Fund's operations), all ended on the last day of a recent calendar quarter. Average annual total return quotations reflect changes in the price of a Fund's shares and assume that all dividends and capital gains distributions during the respective periods were reinvested in Fund shares. Average annual total return is calculated by computing the average annual compound rates of return of a hypothetical investment over such periods, according to the following formula (average annual total return is then expressed as a percentage): T = (ERV/P)^1/n - 1 Where: T = Average Annual Total Return P = a hypothetical initial investment of $1,000 n = number of years ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. Average Annual Total Returns (After Taxes on Distributions) P(1+T)^n = ATV(D) Where: P = a hypothetical initial investment of $1,000 T = average annual total return (after taxes on distributions) n = number of years ATV(D) = ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion), after taxes on fund distributions but not after taxes on redemptions Average Annual Total Returns (After Taxes on Distributions and Redemption) P(1+T)^n = ATV(D) Where: P = a hypothetical initial investment of $1,000 T = average annual total return (after taxes on distributions and redemption) n = number of years 37 ATV(D) = ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion), after taxes on fund distributions but not after taxes on redemptions Average Annual Total Returns for the Period Ended October 31, 2001 (Adjusted for Maximum Sales Charge) 1 Year 5 Years 10 Years Life of Class ------ ------- -------- ------------- Blue Chip Fund -- Class A -32.81% 4.98% 8.23% n/a Blue Chip Fund -- Class B* -31.36% 5.19% 7.97%* n/a Blue Chip Fund -- Class C* -29.21% 5.43% 8.06%* n/a Blue Chip Fund -- Class I -28.34% 6.74% n/a 9.51 Total Return Fund -- Class A -18.47% 6.12% 7.99% n/a Total Return Fund -- Class B* -16.70% 6.22% 7.60%* n/a Total Return Fund -- Class C* -14.18% 6.42% 7.67%* n/a Total Return Fund -- Class I -13.14% 7.84% n/a 9.65% * Because Class B and C shares were not introduced for each Fund until May 31, 1994, the total return for Class B and C shares for the periods prior to their introduction is based upon the performance of Class A shares from the inception date of each Fund's Class A shares through May 31, 1994. Actual performance of Class B and C shares is shown beginning May 31, 1994. Average Annual Total Returns for the Period Ended November 30, 2001 (Adjusted for Maximum Sales Charge) 1 Year 5 Years Life of Class(+) ------ ------- ------------- Focus Value+Growth Fund -- Class A -19.15% 4.95% 9.42% Focus Value+Growth Fund -- Class B -17.27% 5.20% 9.59% Focus Value+Growth Fund -- Class C -15.01% 5.28% 9.55% Focus Value+Growth Fund -- Class I* (+) Since October 16, 1995 for Classes A, B and C. * Because I shares have been offered for less than a full calendar year, there is no financial data available. Average Annual Total Returns for the Period Ended August 31, 2001 (Adjusted for Maximum Sales Charge) 1 Year Life of Class(+) ------ ------------- Research Fund -- Class A -34.43% -3.13% Research Fund -- Class B -32.87% -2.80% Research Fund -- Class C -30.90% -1.74% 38 (+) The table reflects the performance for the period during which the Fund was a "limited distribution" fund known as Kemper Research Fund (through 12/31/00). Because the Fund did not have significant inflows of capital when it open only to a limited group of investors, its performance during the period shown may not have been different than if it had operated with a wider distribution. Average Annual Total Returns for the Period Ended September 30, 2001 (Adjusted for Maximum Sales Charge) 1 Year 5 Years 10 Years(+)(++) ------ ------- -------- Growth and Income Fund -- Class A -28.69% 2.70% 8.90% Growth and Income Fund -- Class B -27.02% 3.07% 8.73% Growth and Income Fund -- Class C -24.91% 3.24% 8.76% (+) Class A, B and C were introduced on December 29, 2000. (++) Total returns would have been lower if expenses had not been reduced. In connection with communicating its average annual total return to current or prospective shareholders, each 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. Total Return Total return is the rate of return on an investment for a specified period of time calculated by computing the cumulative rate of return of a hypothetical investment over such periods, according to the following formula (total return is then expressed as a percentage): T = (ERV/P) - 1 Where: T = 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. From time to time, in advertisements, sales literature, and reports to shareholders or prospective investors, figures relating to the growth in the total net assets of a Fund apart from capital appreciation will be cited, as an update to the information in this section, including, but not limited to: net cash flow, net subscriptions, gross subscriptions, net asset growth, net account growth, and subscription rates. Capital appreciation generally will be covered by marketing literature as part of a Fund's and classes' performance data. Quotations of a Fund's performance are based on historical earnings, show the performance of a hypothetical investment, and are not intended to indicate future performance of a Fund. An investor's shares when redeemed may be worth more or less than their original cost. Performance of a Fund will vary based on changes in market conditions and the level of a Fund's and class' expenses. Comparison of Fund Performance A comparison of the quoted non-standard performance offered for various investments is valid only if performance is calculated in the same manner. Since there are different methods of calculating performance, investors should consider the effects of the methods used to calculate performance when comparing performance of a Fund with performance quoted with respect to other investment companies or types of investments. 39 In connection with communicating its performance to current or prospective shareholders, a Fund also may compare these figures to the performance of unmanaged indices which may assume reinvestment of dividends or interest but generally do not reflect deductions for administrative and management costs. Historical information on the value of the dollar versus foreign currencies may be used from time to time in advertisements concerning a Fund. Such historical information is not indicative of future fluctuations in the value of the U.S. dollar against these currencies. In addition, marketing materials may cite country and economic statistics and historical stock market performance for any of the countries in which a Fund invests. From time to time, in advertising and marketing literature, a Fund's performance may be compared to the performance of broad groups of mutual funds with similar investment goals, as tracked by independent organizations. From time to time, in marketing and other Fund literature, members of the Board and officers of a Fund, a Fund's portfolio manager, or members of the portfolio management team may be depicted and quoted to give prospective and current shareholders a better sense of the outlook and approach of those who manage a Fund. In addition, the amount of assets that the Advisor has under management in various geographical areas may be quoted in advertising and marketing materials. Marketing and other Fund literature may include a description of the potential risks and rewards associated with an investment in a Fund. The description may include a "risk/return spectrum" which compares a 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. 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 a Fund, including reprints of, or selections from, editorials or articles about a Fund. PURCHASE AND REDEMPTION OF SHARES Fund shares are sold at their public offering price, which is the net asset value per such shares next determined after an order is received in proper form plus, with respect to Class A Shares, an initial sales charge. The minimum initial investment for each of Class A, B and C of the Fund is $1,000 and the minimum subsequent investment is $50. The minimum initial investment for an Individual Retirement Account is $500 and the minimum subsequent investment is $50. Under an automatic investment plan, such as Direct Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum initial and subsequent investment is $50. These minimum amounts may be changed at any time in management's discretion. A Fund may waive the minimum for purchases by trustees, directors, officers or employees of the Fund or the Advisor and its affiliates. Purchase of Shares Alternative Purchase Arrangements. Class A shares are sold subject to an annual shareholder services fee (Rule 12b-1) of up to 0.25%. Class B and Class C shares are sold subject to an annual distribution/shareholder services fee of 1.00%. That portion of the shareholder services fee for each of Class A, Class B and Class C attributable to shareholder services is 0.25%.Class A shares of the Fund are sold to investors subject to an initial sales charge. Class B shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares, are subject to a contingent deferred sales charge payable upon certain redemptions within the first year following purchase, and do not 40 convert into another class. When placing purchase orders, investors must specify whether the order is for Class A, Class B or Class C shares. The primary distinctions among the classes of a Fund's shares lie in their initial and contingent deferred sales charge structures and in their ongoing expenses, including asset-based sales charges in the form of Rule 12b-1 distribution/services fees. These differences are summarized in the table below. Each class has distinct advantages and disadvantages for different investors, and investors may choose the class that best suits their circumstances and objectives.
Annual 12b-1 Distribution/Service Fees (as a % of average Sales Charge daily net assets) Other Information ------------ ----------------- ----------------- Class A Maximum initial sales charge of 0.25% Initial sales charge 5.75% of the public offering price. waived or reduced for certain purchases Class B Maximum contingent deferred sales 1.00% Shares convert to Class A charge of 4% of redemption shares six years after proceeds; declines to zero after issuance six years Class C Contingent deferred sales charge of 1.00% No conversion feature 1% of redemption proceeds for redemptions made during first year after purchase
Due to the desire of each Trust's management to afford ease of redemption, certificates will not be issued to indicate ownership in a 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. You cannot redeem shares by telephone or wire transfer or use the telephone exchange privilege if share certificates have been issued. A lost or destroyed certificate is difficult to replace and can be expensive to the shareholder (a bond worth 1.5% or more of the certificate value is normally required). Initial Sales Charge Alternative -- Class A Shares. The public offering price of Class A shares for purchasers choosing the initial sales charge alternative is the net asset value plus a sales charge, as set forth below.
Sales Charge ------------ Allowed to Dealers As a Percentage of As a Percentage of as a Percentage of Amount of Purchase Offering Price Net Asset Value* Offering Price - ------------------ -------------- --------------- -------------- Less than $50,000 5.75% 6.10% 5.20% $50,000 but less than $100,000 4.50 4.71 4.00 $100,000 but less than $250,000 3.50 3.63 3.00 $250,000 but less than $500,000 2.60 2.67 2.25 $500,000 but less than $1 million 2.00 2.04 1.75 $1 million and over .00** .00** ***
* Rounded to the nearest one-hundredth percent. ** Redemption of shares may be subject to a contingent deferred sales charge as discussed below. *** Commission is payable by SDI as discussed below. 41 Each Fund receives the entire net asset value of all its shares sold. SDI, the Funds' principal underwriter, retains the sales charge on sales of Class A shares from which it allows discounts from the applicable public offering price to investment dealers, which discounts are uniform for all dealers in the United States and its territories. The normal discount allowed to dealers is set forth in the above table. Upon notice to all dealers with whom it has sales agreements, SDI may re-allow to dealers up to the full applicable sales charge, as shown in the above table, during periods and for transactions specified in such notice and such re-allowances may be based upon attainment of minimum sales levels. During periods when 90% or more of the sales charge is re-allowed, such dealers may be deemed to be underwriters as that term is defined in the Securities Act of 1933. Class A shares of each Fund may be purchased at net asset value by: (a) any purchaser, provided that the amount invested in such Fund or other Scudder Fund listed under "Special Features -- Class A Shares -- Combined Purchases" totals at least $1,000,000 (the "Large Order NAV Purchase Privilege") including purchases of Class A shares pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative Discount" features described under "Special Features"; or (b) a participant-directed qualified retirement plan described in Code Section 401(a), a participant-directed non-qualified deferred compensation plan described in Code Section 457 or a participant-directed qualified retirement plan described in Code Section 403(b)(7) which is not sponsored by a K-12 school district, provided in each case that such plan has not less than 200 eligible employees. Redemption within two years of the purchase of shares purchased under the Large Order NAV Purchase Privilege may be subject to a contingent deferred sales charge. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge -- Large Order NAV Purchase Privilege." SDI may in its discretion compensate investment dealers or other financial services firms in connection with the sale of Class A shares of a Fund at net asset value in accordance with the Large Order NAV Purchase Privilege and one of the three following compensation schedules up to the following amounts:
Compensation Schedule #1(1) Compensation Schedule #2(2) Compensation Schedule #3(2) --------------------------- --------------------------- --------------------------- As a As a As a Amount of Percentage of Amount of Shares Percentage of Amount of Percentage of Shares Sold Net Asset Value Sold Net Asset Value Shares Sold Net Asset Value ----------- --------------- ---- --------------- ----------- --------------- $1 million to $5 million 1.00% Under $15 million 0.50% Over $15 million 0.25% Over $5 million to $50 million 0.50% -- -- -- -- Over $50 million 0.25% -- -- -- --
(1) The commission schedule will be reset on a calendar year basis for sales of shares pursuant to the Large Order NAV Purchase Privilege to employer-sponsored employee benefit plans using the proprietary subaccount recordkeeping system, made available through Scudder Investments Service Company. For purposes of determining the appropriate commission percentage to be applied to a particular sale under the foregoing schedule, SDI will consider the cumulative amount invested by the purchaser in a Fund and other Funds listed under "Special Features -- Class A Shares -- Combined Purchases," including purchases pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative Discount" features referred to herein. (2) Compensation Schedules 2 and 3 apply to employer sponsored employee benefit plans using the OmniPlus subaccount recordkeeping system. The Compensation Schedule will be determined based on the value of the conversion assets. Conversion from "Compensation Schedule #2" to "Compensation Schedule #3" is not an automatic process. When a plan's assets grow to exceed $15 million, the Plan Sponsor must contact their Client Relationship Manager to discuss a conversion to Compensation Schedule #3. The privilege of purchasing Class A shares of a Fund at net asset value under the Large Order NAV Purchase Privilege is not available if another net asset value purchase privilege also applies. Class A shares of each Fund or of any other Scudder Fund listed under "Special Features -- Class A Shares -- Combined Purchases" may be purchased at net asset value in any amount by members of the plaintiff class in the proceeding known as 42 Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. Ill). This privilege is generally non-transferable and continues for the lifetime of individual class members and for a ten year period for non-individual class members. To make a purchase at net asset value under this privilege, the investor must, at the time of purchase, submit a written request that the purchase be processed at net asset value pursuant to this privilege specifically identifying the purchaser as a member of the "Tabankin Class." Shares purchased under this privilege will be maintained in a separate account that includes only shares purchased under this privilege. For more details concerning this privilege, class members should refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in connection with the aforementioned court proceeding. For sales of Fund shares at net asset value pursuant to this privilege, SDI may in its discretion pay investment dealers and other financial services firms a concession, payable quarterly, at an annual rate of up to 0.25% of net assets attributable to such shares maintained and serviced by the firm. A firm becomes eligible for the concession based upon assets in accounts attributable to shares purchased under this privilege in the month after the month of purchase and the concession continues until terminated by SDI. The privilege of purchasing Class A shares of the Fund at net asset value under this privilege is not available if another net asset value purchase privilege also applies. Class A shares of a Fund may be purchased at net asset value in any amount by certain professionals who assist in the promotion of Scudder Funds pursuant to personal services contracts with SDI, for themselves or members of their families. SDI in its discretion may compensate financial services firms for sales of Class A shares under this privilege at a commission rate of 0.50% of the amount of Class A shares purchased. Class A shares may be sold at net asset value in any amount to: (a) officers, trustees, employees (including retirees) and sales representatives of a Fund, its investment manager, its principal underwriter or certain affiliated companies, for themselves or members of their families; (b) registered representatives and employees of broker-dealers having selling group agreements with SDI and officers, directors and employees of service agents of the Fund, for themselves or their spouses or dependent children; (c) any trust, pension, profit-sharing or other benefit plan for only such persons; (d) persons who purchase such shares through bank trust departments that process such trades through an automated, integrated mutual fund clearing program provided by a third party clearing firm; and (e) persons who purchase shares of the Fund through SDI as part of an automated billing and wage deduction program administered by RewardsPlus of America for the benefit of employees of participating employer groups. Class A shares may be sold at net asset value in any amount to selected employees (including their spouses and dependent children) of banks and other financial services firms that provide administrative services related to order placement and payment to facilitate transactions in shares of a Fund for their clients pursuant to an agreement with SDI or one of its affiliates. Only those employees of such banks and other firms who as part of their usual duties provide services related to transactions in Fund shares may purchase Fund Class A shares at net asset value hereunder. Class A shares may be sold at net asset value in any amount to unit investment trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may purchase a Fund's Class A shares at net asset value through reinvestment programs described in the prospectuses of such trusts that have such programs. Class A shares of a Fund may be sold at net asset value through certain investment advisors registered under the 1940 Act and other financial services firms acting solely as agent for their clients, that adhere to certain standards established by SDI, including a requirement that such shares be sold for the benefit of their clients participating in an investment advisory program or agency commission program under which such clients pay a fee to the investment advisor or other firm for portfolio management or agency brokerage services. Such shares are sold for investment purposes and on the condition that they will not be resold except through redemption or repurchase by the Fund. A Fund may also issue Class A shares at net asset value in connection with the acquisition of the assets of or merger or consolidation with another investment company, or to shareholders in connection with the investment or reinvestment of income and capital gain dividends. The sales charge scale is applicable to purchases made at one time by any "purchaser" which includes: an individual; or an individual, his or her spouse and children under the age of 21; or a trustee or other fiduciary of a single trust estate or single fiduciary account; or an organization exempt from federal income tax under Section 501(c)(3) or (13) of the Code; or a pension, profit-sharing or other employee benefit plan whether or not qualified under Section 401 of the Code; or other organized group of persons whether incorporated or not, provided the organization has been in existence for at least six months and has some purpose other than the purchase of redeemable securities of a registered investment company at a discount. In order to qualify for a lower sales charge, all orders from an organized group will have to be placed through a single investment dealer or other firm and identified as originating from a qualifying purchaser. Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the deferred sales charge alternative may purchase Class B shares at net asset value per share without any sales charge at the time of purchase. Since Class B shares are 43 being sold without an initial sales charge, the full amount of the investor's purchase payment will be invested in Class B shares for his or her account. A contingent deferred sales charge may be imposed upon redemption of Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge -- Class B Shares." SDI compensates firms for sales of Class B shares at the time of sale at a commission rate of up to 3.75% of the amount of Class B shares purchased. SDI is compensated by the Fund for services as distributor and principal underwriter for Class B shares. See "Management of the Funds." Class B shares of a Fund will automatically convert to Class A shares of a Fund six years after issuance on the basis of the relative net asset value per share of the Class B shares. The purpose of the conversion feature is to relieve holders of Class B shares from the distribution services fee when they have been outstanding long enough for SDI to have been compensated for distribution related expenses. For purposes of conversion to Class A shares, shares purchased through the reinvestment of dividends and other distributions paid with respect to Class B shares in a shareholder's Fund account will be converted to Class A shares on a pro rata basis. Purchase of Class C Shares. The public offering price of the Class C shares of a Fund is the next determined net asset value. No initial sales charge is imposed. Since Class C shares are sold without an initial sales charge, the full amount of the investor's purchase payment will be invested in Class C shares for his or her account. A contingent deferred sales charge may be imposed upon the redemption of Class C shares if they are redeemed within one year of purchase. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge -- Class C Shares." SDI currently advances to firms the first year distribution fee at a rate of 0.75% of the purchase price of such shares. For periods after the first year, SDI currently intends to pay firms for sales of Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net assets attributable to Class C shares maintained and serviced by the firm. SDI is compensated by the Fund for services as distributor and principal underwriter for Class C shares. See "Management of the Funds." Purchase of Class I Shares. Class I shares are offered at net asset value without an initial sales charge and are not subject to a contingent deferred sales charge or a Rule 12b-1 distribution/services fee. As a result of the relatively lower expenses for Class I shares, the level of income dividends per share (as a percentage of net asset value) and, therefore, the overall investment value, will typically be higher for Class I shares than for Class A, Class B, or Class C shares. Class I shares are available for purchase exclusively by the following categories of institutional investors: (1) tax-exempt retirement plans (Profit Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of the Advisor and its affiliates and rollover accounts from those plans; (2) the following investment advisory clients of the Advisor and its investment advisory affiliates that invest at least $1 million in a Fund: unaffiliated benefit plans, such as qualified retirement plans (other than individual retirement accounts and self-directed retirement plans); unaffiliated banks and insurance companies purchasing for their own accounts; and endowment funds of unaffiliated non-profit organizations; (3) investment-only accounts for large qualified plans, with at least $50 million in total plan assets or at least 1000 participants; (4) trust and fiduciary accounts of trust companies and bank trust departments providing fee based advisory services that invest at least $1 million in a Fund on behalf of each trust; (5) policy holders under Zurich-American Insurance Group's collateral investment program investing at least $200,000 in a Fund; and (6) investment companies managed by the Advisor that invest primarily in other investment companies. Class I shares currently are available for purchase only from SDI, principal underwriter for the Fund, and, in the case of category (4) above, selected dealers authorized by SDI. Which Arrangement is Better for You? Scudder Blue Chip Fund, Scudder Total Return Fund and Scudder Focus Value+Growth Fund offer the following classes of shares: Class A, Class B, Class C and Class I shares. Scudder Research Fund offers the following classes of shares: Class A, Class B and Class C shares. Scudder Growth and Income Fund offers the following classes of shares: Class AARP, Class S, Class A, Class B and Class C. Only Classes A, B, C and I shares of Scudder Blue Chip Fund, Scudder Total Return Fund and Scudder Focus Value+Growth Fund and Classes A, B and C shares of Scudder Research Fund and Scudder Growth and Income Fund are offered herein. The decision as to which class of shares provides a more suitable investment for an investor depends on a number of factors, including the amount and intended length of the investment. In making this decision, investors should review their particular circumstances carefully with their financial representative. Investors making investments that qualify for reduced sales charges might consider Class A Shares. Investors who prefer not to pay an initial sales charge and who plan to hold their investment for more than six years might consider Class B Shares. Investors who prefer not to pay an initial sales charge but who plan to redeem their shares within six years might consider Class C Shares. 44 SDI has established the following procedures regarding the purchase of Class A, Class B and Class C Shares. These procedures do not reflect in any way the suitability of a particular class of Shares for a particular investor and should not be relied upon as such. That determination must be made by investors with the assistance of their financial representative. Orders for Class B Shares or Class C Shares for $500,000 or more will be declined with the exception of orders received from employer sponsored employee benefit plans using the subaccount recordkeeping system available through the Shareholder Service Agent (KemFlex Plans). Orders for Class B Shares or Class C Shares for KemFlex Plans (not including plans under Code Section 403(b)(7) sponsored by a K-12 school district) will not be accepted in such classes but will instead be invested in Class A Shares at net asset value when the combined subaccount value in a Fund or other Scudder Funds or other plan investments listed under "Special Features - -- Class A Shares -- Combined Purchases" is in excess of $5 million including purchases pursuant to the "Combined Purchases," Letter of Intent" and "Cumulative Discount" features described under "Special Features." For purposes of redirecting contributions, KemFlex Plan values will be calculated annually. KemFlex Plans that satisfy each of the conditions described below may direct the Shareholder Service Agent to convert plan assets invested in Class B Shares to Class A Shares at net asset value without incurring a contingent deferred sales charge. In order to qualify for the preceding conversion privilege, a KemFlex Plan must satisfy each of the following conditions: (1) the plan must have an aggregate balance of $2 million in plan assets invested in Scudder Funds or other investments maintained on the subaccount recordkeeping system of the Shareholder Service Agent; (2) the plan must have elected to purchase Class A Shares of the Scudder Funds at net asset value for future contributions to be invested in Scudder Funds; and (3) the plan must have been using the subaccount recordkeeping system of the Shareholder Service Agent for at least four years. When eligible, KemFlex Plan sponsors must elect in writing to the Shareholder Service Agent in order to convert plan assets from Class B Shares to Class A Shares. For more information about these sales arrangements, consult your financial representative or the Shareholder Service Agent. In particular, for information concerning the eligibility of investors to purchase Class A Shares at net asset value, see "Purchase of Shares -- Initial Sales Charge Alternative" and for information on special rules for aggregating assets of KemFlex Plans for eligibility for the Combined Purchase and related features, see "Special Features -- Class A Shares -- Combined Purchases." Financial services firms may receive different compensation depending upon which class of shares they sell. Class I shares are available only to certain institutional investors. General. Banks and other financial services firms may provide administrative services related to order placement and payment to facilitate transactions in shares of the Fund for their clients, and SDI may pay them a transaction fee up to the level of the discount or commission allowable or payable to dealers, as described above. Banks or other financial services firms may be subject to various federal and state laws regarding the services described above and may be required to register as dealers pursuant to state law. If banking firms were prohibited from acting in any capacity or providing any of the described services, management would consider what action, if any, would be appropriate. SDI does not believe that termination of a relationship with a bank would result in any material adverse consequences to the Fund. SDI may, from time to time, pay or allow to firms a 1.00% commission on the amount of shares of a Fund sold under the following conditions: (i) the purchased shares are held in a Scudder IRA account, (ii) the shares are purchased as a direct "roll over" of a distribution from a qualified retirement plan account maintained on a participant subaccount record keeping system provided by Scudder Investments Service Company, (iii) the registered representative placing the trade is a member of Executive, a group of persons designated by SDI in acknowledgment of their dedication to the employee benefit plan area; and (iv) the purchase is not otherwise subject to a commission. In addition to the discounts or commissions described above, SDI will, from time to time, pay or allow additional discounts, commissions or promotional incentives, in the form of cash, to firms that sell shares of the Fund. In some instances, such discounts, commissions or other incentives will be offered only to certain firms that sell or are expected to sell during specified time periods certain minimum amounts of shares of a Fund, or other Funds underwritten by SDI. Orders for the purchase of shares of a Fund will be confirmed at a price based on the net asset value of the Fund next determined after receipt in good order by SDI of the order accompanied by payment. However, orders received by dealers or other financial services firms prior to the determination of net asset value (see "Net Asset Value") and received in good order by SDI prior to the close of its business day will be confirmed at a price based on the net asset value effective on that day ("trade date"). Each Fund reserves the right to determine the net asset value more frequently than once a day if deemed desirable. Dealers and other financial services firms are obligated to transmit orders promptly. Collection may take significantly longer for a check drawn on a foreign bank than for a check drawn on a domestic bank. Therefore, if an order is 45 accompanied by a check drawn on a foreign bank, funds must normally be collected before shares will be purchased. See "Purchase and Redemption of Shares." Investment dealers and other firms provide varying arrangements for their clients to purchase and redeem a Fund's shares. Some may establish higher minimum investment requirements than set forth above. Firms may arrange with their clients for other investment or administrative services. Such firms may independently establish and charge additional amounts to their clients for such services, which charges would reduce the clients' return. Firms also may hold a Fund's shares in nominee or street name as agent for and on behalf of their customers. In such instances, a Fund's transfer agent will have no information with respect to or control over the accounts of specific shareholders. Such shareholders may obtain access to their accounts and information about their accounts only from their firm. Certain of these firms may receive compensation from a Fund through the Shareholder Service Agent for recordkeeping and other expenses relating to these nominee accounts. In addition, certain privileges with respect to the purchase and redemption of shares or the reinvestment of dividends may not be available through such firms. Some firms may participate in a program allowing them access to their clients' accounts for servicing including, without limitation, transfers of registration and dividend payee changes; and may perform functions such as generation of confirmation statements and disbursement of cash dividends. Such firms, including affiliates of SDI, may receive compensation from a Fund through the Shareholder Service Agent for these services. This prospectus should be read in connection with such firms' material regarding their fees and services. Each Fund reserves the right to withdraw all or any part of the offering made by this prospectus and to reject purchase orders for any reason. Also, from time to time, a Fund may temporarily suspend the offering of any class of its shares to new investors. During the period of such suspension, persons who are already shareholders of such class of such Fund normally are permitted to continue to purchase additional shares of such class and to have dividends reinvested. From January 1, 2002 to April 30, 2002 ("Special Offering Period"), Scudder Distributors, Inc. ("SDI"), the principal underwriter for the Class A, B and C shares, intends to (i) reallow to certain firms the full applicable sales charge with respect to Class A shares (not including Class A shares acquired at the net asset value), and (ii) pay an additional .50% in addition to the current commission structure to certain firms with respect to Class B and C shares, provided the shares are purchased for self-directed Individual Retirement Accounts ("IRA accounts") during the Special Offering Period. IRA accounts include Traditional, Roth and Education IRAs, Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE") IRA accounts and Simplified Employee Pension Plan ("SEP") IRA accounts. Firms entitled to the full reallowance and the additional compensation noted above, during the Special Offering Period are those firms which allow SDI to participate in a special promotion of self-directed IRA accounts, with other fund complexes, sponsored by the firms during the Special Offering Period. Tax Identification Number. Be sure to complete the Tax Identification Number section of a Fund's application when you open an account. Federal tax law requires a Fund to withhold 30% (for 2002 and 2003) of taxable dividends, capital gains distributions and redemption and exchange proceeds from accounts (other than those of certain exempt payees) without a correct certified Social Security or tax identification number and certain other certified information or upon notification from the IRS or a broker that withholding is required. Each Fund reserves the right to reject new account applications without a correct certified Social Security or tax identification number. Each Fund also reserves the right, following 30 days' notice, to redeem all shares in accounts without a correct certified Social Security or tax identification number. A shareholder may avoid involuntary redemption by providing the applicable Fund with a tax identification number during the 30-day notice period. Shareholders should direct their inquiries to Scudder Investments Service Company, 811 Main Street, Kansas City, Missouri 64105-2005 or to the firm from which they received this prospectus. Redemption or Repurchase of Shares General. Any shareholder may require the Fund to redeem his or her shares. When shares are held for the account of a shareholder by the Fund's transfer agent, the shareholder may redeem such shares by sending a written request with signatures guaranteed to Scudder Funds, Attention: Redemption Department, P.O. Box 219557, Kansas City, Missouri 64121-9557. When certificates for shares have been issued, they must be mailed to or deposited with the Shareholder Service Agent, along with a duly endorsed stock power and accompanied by a written request for redemption. Redemption requests and a stock power must be endorsed by the account holder with signatures guaranteed by a commercial bank, trust company, savings and loan association, federal savings bank, member firm of a national securities exchange or other eligible financial 46 institution. The redemption request and stock power must be signed exactly as the account is registered including any special capacity of the registered owner. Additional documentation may be requested, and a signature guarantee is normally required, from institutional and fiduciary account holders, such as corporations, custodians (e.g., under the Uniform Transfers to Minors Act), executors, administrators, trustees or guardians. The redemption price for shares of a class of the Fund will be the net asset value per share of that class of the Fund next determined following receipt by the Shareholder Service Agent of a properly executed request with any required documents as described above. Payment for shares redeemed will be made in cash as promptly as practicable but in no event later than seven days after receipt of a properly executed request accompanied by any outstanding share certificates in proper form for transfer. When the Fund is asked to redeem shares for which it may not have yet received good payment (i.e., purchases by check, QuickSell or Direct Deposit), it may delay transmittal of redemption proceeds until it has determined that collected funds have been received for the purchase of such shares, which will be up to 10 days from receipt by the Fund of the purchase amount. The redemption within two years of Class A shares purchased at net asset value under the Large Order NAV Purchase Privilege may be subject to a contingent deferred sales charge (see "Purchase of Shares -- Initial Sales Charge Alternative -- Class A Shares"), the redemption of Class B shares within six years may be subject to a contingent deferred sales charge (see "Contingent Deferred Sales Charge -- Class B Shares" below), and the redemption of Class C shares within the first year following purchase may be subject to a contingent deferred sales charge (see "Contingent Deferred Sales Charge -- Class C Shares" below). Because of the high cost of maintaining small accounts, the Fund may assess a quarterly fee of $9 on any account with a balance below $1,000 for the quarter. The fee will not apply to accounts enrolled in an automatic investment program, IRAs or employer-sponsored employee benefit plans using the subaccount record-keeping system made available through the Shareholder Service Agent. Shareholders can request the following telephone privileges: expedited wire transfer redemptions and QuickBuy/QuickSell transactions (see "Special Features") and exchange transactions for individual and institutional accounts and pre-authorized telephone redemption transactions for certain institutional accounts. Shareholders may choose these privileges on the account application or by contacting the Shareholder Service Agent for appropriate instructions. Please note that the telephone exchange privilege is automatic unless the shareholder refuses it on the account application. The Fund or its agents may be liable for any losses, expenses or costs arising out of fraudulent or unauthorized telephone requests pursuant to these privileges unless the Fund or its agents reasonably believe, based upon reasonable verification procedures, that the telephonic instructions are genuine. The shareholder will bear the risk of loss, including loss resulting from fraudulent or unauthorized transactions, so long as reasonable verification procedures are followed. Verification procedures include recording instructions, requiring certain identifying information before acting upon instructions and sending written confirmations. Telephone Redemptions. If the proceeds of the redemption (prior to the imposition of any contingent deferred sales charge) are $100,000 or less and the proceeds are payable to the shareholder of record at the address of record, normally a telephone request or a written request by any one account holder without a signature guarantee is sufficient for redemptions by individual or joint account holders, and trust, executor and guardian account holders (excluding custodial accounts for gifts and transfers to minors), provided the trustee, executor or guardian is named in the account registration. Other institutional account holders and guardian account holders of custodial accounts for gifts and transfers to minors may exercise this special privilege of redeeming shares by telephone request or written request without signature guarantee subject to the same conditions as individual account holders and subject to the limitations on liability described under "General" above, provided that this privilege has been pre-authorized by the institutional account holder or guardian account holder by written instruction to the Shareholder Service Agent with signatures guaranteed. Telephone requests may be made by calling 1-800-621-1048. Shares purchased by check or through QuickBuy or Direct Deposit may not be redeemed under this privilege of redeeming shares by telephone request until such shares have been owned for at least 10 days. This privilege of redeeming shares by telephone request or by written request without a signature guarantee may not be used to redeem shares held in certificated form and may not be used if the shareholder's account has had an address change within 15 days of the redemption request. During periods when it is difficult to contact the Shareholder Service Agent by telephone, it may be difficult to use the telephone redemption privilege, although investors can still redeem by mail. The Fund reserves the right to terminate or modify this privilege at any time. Repurchases (Confirmed Redemptions). A request for repurchase may be communicated by a shareholder through a securities dealer or other financial services firm to SDI, which the Fund has authorized to act as its agent. There is no charge by SDI with respect to repurchases; however, dealers or other firms may charge customary commissions for their services. 47 Dealers and other financial services firms are obligated to transmit orders promptly. The repurchase price will be the net asset value of the Fund next determined after receipt of a request by SDI. However, requests for repurchases received by dealers or other firms prior to the determination of net asset value (see "Net Asset Value") and received by SDI prior to the close of SDI's business day will be confirmed at the net asset value effective on that day. The offer to repurchase may be suspended at any time. Requirements as to stock powers, certificates, payments and delay of payments are the same as for redemptions. Expedited Wire Transfer Redemptions. If the account holder has given authorization for expedited wire redemption to the account holder's brokerage or bank account, shares of the Fund can be redeemed and proceeds sent by federal wire transfer to a single previously designated account. Requests received by the Shareholder Service Agent prior to the determination of net asset value will result in shares being redeemed that day at the net asset value per Share Fund effective on that day and normally the proceeds will be sent to the designated account the following business day. Delivery of the proceeds of a wire redemption of $250,000 or more may be delayed by the Fund for up to seven days if the Fund or the Shareholder Service Agent deems it appropriate under then-current market conditions. Once authorization is on file, the Shareholder Service Agent will honor requests by telephone at 1-800-621-1048 or in writing, subject to the limitations on liability described under "General" above. The Fund is not responsible for the efficiency of the federal wire system or the account holder's financial services firm or bank. The Fund currently does not charge the account holder for wire transfers. The account holder is responsible for any charges imposed by the account holder's firm or bank. There is a $1,000 wire redemption minimum (including any contingent deferred sales charge). To change the designated account to receive wire redemption proceeds, send a written request to the Shareholder Service Agent with signatures guaranteed as described above or contact the firm through which shares of the Fund were purchased. Shares purchased by check or through QuickBuy or Direct Deposit may not be redeemed by wire transfer until such shares have been owned for at least 10 days. Account holders may not use this privilege to redeem shares held in certificated form. During periods when it is difficult to contact the Shareholder Service Agent by telephone, it may be difficult to use the expedited wire transfer redemption privilege, although investors can still redeem by mail. The Fund reserves the right to terminate or modify this privilege at any time. Contingent Deferred Sales Charge -- Large Order NAV Purchase Privilege. A contingent deferred sales charge may be imposed upon redemption of Class A shares that are purchased under the Large Order NAV Purchase Privilege as follows: 1.00% if they are redeemed within one year of purchase and .050% if they are redeemed during the second year after purchase. The charge will not be imposed upon redemption of reinvested dividends or share appreciation. The charge is applied to the value of the shares redeemed, excluding amounts not subject to the charge. The contingent deferred sales charge will be waived in the event of: (a) redemptions by a participant-directed qualified retirement plan described in Code Section 401(a), a participant-directed non-qualified deferred compensation plan described in Code Section 457 or a participant-directed qualified retirement plan described in Code Section 403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by employer-sponsored employee benefit plans using the subaccount record keeping system made available through the Shareholder Service Agent; (c) redemption of shares of a shareholder (including a registered joint owner) who has died; (d) redemption of shares of a shareholder (including a registered joint owner) who after purchase of the shares being redeemed becomes totally disabled (as evidenced by a determination by the federal Social Security Administration); (e) redemptions under the Fund's Automatic Withdrawal Plan at a maximum of 10% per year of the net asset value of the account; and (f) redemptions of shares whose dealer of record at the time of the investment notifies SDI that the dealer waives the discretionary commission applicable to such Large Order NAV Purchase. Contingent Deferred Sales Charge -- Class B Shares. A contingent deferred sales charge may be imposed upon redemption of Class B shares. There is no such charge upon redemption of any share appreciation or reinvested dividends on Class B shares. The charge is computed at the following rates applied to the value of the shares redeemed, excluding amounts not subject to the charge. Year of Redemption Contingent Deferred After Purchase Sales Charge -------------- ------------ First 4% Second 3% Third 3% Fourth 2% Fifth 2% Sixth 1% 48 The contingent deferred sales charge will be waived: (a) in the event of the total disability (as evidenced by a determination by the federal Social Security Administration) of the shareholder (including a registered joint owner) occurring after the purchase of the shares being redeemed, (b) in the event of the death of the shareholder (including a registered joint owner), (c) for redemptions made pursuant to a automatic withdrawal plan (see "Special Features - -- Automatic Withdrawal Plan" below), (d) for redemptions made pursuant to any IRA automatic withdrawal based on the shareholder's life expectancy including, but not limited to, substantially equal periodic payments described in IRC Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to satisfy required minimum distributions after age 70 1/2 from an IRA account (with the maximum amount subject to this waiver being based only upon the shareholder's Scudder IRA accounts). The contingent deferred sales charge will also be waived in connection with the following redemptions of shares held by employer sponsored employee benefit plans maintained on the subaccount record keeping system made available by the Shareholder Service Agent: (a) redemptions to satisfy participant loan advances (note that loan repayments constitute new purchases for purposes of the contingent deferred sales charge and the conversion privilege), (b) redemptions in connection with retirement distributions (limited at any one time to 10% of the total value of plan assets invested in the Fund), (c) redemptions in connection with distributions qualifying under the hardship provisions of the IRC and (d) redemptions representing returns of excess contributions to such plans. Contingent Deferred Sales Charge -- Class C Shares. A contingent deferred sales charge of 1.00% may be imposed upon redemption of Class C shares if they are redeemed within one year of purchase. The charge will not be imposed upon redemption of reinvested dividends or share appreciation. The charge is applied to the value of the shares redeemed excluding amounts not subject to the charge. The contingent deferred sales charge will be waived: (a) in the event of the total disability (as evidenced by a determination by the federal Social Security Administration) of the shareholder (including a registered joint owner) occurring after the purchase of the shares being redeemed, (b) in the event of the death of the shareholder (including a registered joint owner), (c) for redemptions made pursuant to a automatic withdrawal plan (limited to 10% of the net asset value of the account during the first year, see "Special Features -- Automatic Withdrawal Plan"), (d) for redemptions made pursuant to any IRA automatic withdrawal based on the shareholder's life expectancy including, but not limited to, substantially equal periodic payments described in IRC Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to satisfy required minimum distributions after age 70 1/2 from an IRA account (with the maximum amount subject to this waiver being based only upon the shareholder's Scudder IRA accounts), (f) for any participant-directed redemption of shares held by employer sponsored employee benefit plans maintained on the subaccount record keeping system made available by the Shareholder Service Agent (g) redemption of shares by an employer sponsored employee benefit plan that offers funds in addition to Scudder Funds and whose dealer of record has waived the advance of the first year administrative service and distribution fees applicable to such shares and agrees to receive such fees quarterly, and (g) redemption of shares purchased through a dealer-sponsored asset allocation program maintained on an omnibus record-keeping system provided the dealer of record had waived the advance of the first year administrative services and distribution fees applicable to such shares and has agreed to receive such fees quarterly. Contingent Deferred Sales Charge -- General. The following example will illustrate the operation of the contingent deferred sales charge. Assume that an investor makes a single purchase of $10,000 of the Fund's Class B shares and that 16 months later the value of the shares has grown by $1,000 through reinvested dividends and by an additional $1,000 of share appreciation to a total of $12,000. If the investor were then to redeem the entire $12,000 in share value, the contingent deferred sales charge would be payable only with respect to $10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of share appreciation is subject to the charge. The charge would be at the rate of 3.00% ($300) because it was in the second year after the purchase was made. The rate of the contingent deferred sales charge is determined by the length of the period of ownership. Investments are tracked on a monthly basis. The period of ownership for this purpose begins the first day of the month in which the order for the investment is received. For example, an investment made in March 2001 will be eligible for the second year's charge if redeemed on or after March 1, 2002. In the event no specific order is requested when redeeming shares subject to a contingent deferred sales charge, the redemption will be made first from shares representing reinvested dividends and then from the earliest purchase of shares. SDI receives any contingent deferred sales charge directly. Reinstatement Privilege. A shareholder who has redeemed Class A shares of the Fund or any other Scudder Fund listed under "Special Features -- Class A Shares - -- Combined Purchases" (other than shares of the Scudder Cash Reserves Fund purchased directly at net asset value) may reinvest up to the full amount redeemed at net asset value at the time of the reinstatement in Class A shares of the Fund or of the other listed Scudder Funds. A shareholder of the Fund or other Scudder Funds who redeems Class A shares purchased under the Large Order NAV Purchase Privilege (see "Purchase of Shares -- 49 Initial Sales Charge Alternative -- Class A Shares") or Class B shares or Class C shares and incurs a contingent deferred sales charge may reinvest up to the full amount redeemed at net asset value at the time of the reinstatement, in the same class of shares as the case may be, of the Fund or of other Scudder Funds. The amount of any contingent deferred sales charge also will be reinvested. These reinvested shares will retain their original cost and purchase date for purposes of the contingent deferred sales charge schedule. Also, a holder of Class B shares who has redeemed shares may reinvest up to the full amount redeemed, less any applicable contingent deferred sales charge that may have been imposed upon the redemption of such shares, at net asset value in Class A shares of the Fund or of the other Scudder Funds listed under "Special Features - -- Class A Shares -- Combined Purchases." Purchases through the reinstatement privilege are subject to the minimum investment requirements applicable to the shares being purchased and may only be made for Scudder Funds available for sale in the shareholder's state of residence as listed under "Special Features -- Exchange Privilege." The reinstatement privilege can be used only once as to any specific shares and reinstatement must be effected within six months of the redemption. If a loss is realized on the redemption of shares of the Fund, the reinstatement in shares of the Fund may be subject to the "wash sale" rules if made within 30 days of the redemption, resulting in a postponement of the recognition of such loss for federal income tax purposes. The reinstatement privilege may be terminated or modified at any time. Redemption in Kind. Although it is the Funds' present policy to redeem in cash, a Fund may satisfy a redemption request in whole or in part by a distribution of portfolio securities in lieu of cash, taking such securities at the same value used to determine net asset value. If such a distribution occurred, shareholders receiving securities and selling them could receive less than the redemption value of such securities and in addition would incur certain transaction costs. Such a redemption would not be as liquid as a redemption entirely in cash. Growth and Income 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 a share at the beginning of the period. Special Features Class A Shares -- Combined Purchases. Each Fund's Class A shares (or the equivalent) may be purchased at the rate applicable to the discount bracket attained by combining concurrent investments in Class A shares of any of the following Funds: Scudder 21st Century Growth Fund, Scudder Aggressive Growth Fund, Scudder Blue Chip Fund, Scudder California Tax-Free Income Fund, Scudder Capital Growth Fund, Scudder Cash Reserves Fund (available only upon exchange or conversion from Class A shares of another Scudder Fund), Scudder Contrarian Fund, Scudder Dividend & Growth Fund, Scudder-Dreman Financial Services Fund, Scudder Global Discovery Fund, Scudder-Dreman High Return Equity Fund, Scudder Dynamic Growth Fund, Scudder Emerging Markets Income Fund, Scudder Florida Tax-Free Income Fund, Scudder Focus Growth Fund, Scudder Focus Value Plus Growth Fund, Scudder Global Fund, Scudder Global Bond Fund, Scudder Gold Fund, Scudder Growth Fund, Scudder Growth and Income Fund, Scudder Health Care Fund, Scudder High-Yield Fund, Scudder High-Yield Opportunity Fund, Scudder High-Yield Tax-Free Fund, Scudder Income Fund, Scudder International Fund, Scudder International Research Fund, Scudder Large Company Growth Fund, Scudder Large Company Value Fund, Scudder Managed Municipal Bonds, Scudder Massachusetts Tax-Free Fund, Scudder Medium-Term Tax-Free Fund, Scudder New Europe Fund, Inc., Scudder New York Tax-Free Income Fund, Scudder Pathway Series -- Conservative Portfolio, Scudder Pathway Series -- Growth Portfolio, Scudder Pathway Series -- Moderate Portfolio, Scudder Research Fund, Scudder S&P 500 Stock Fund, Scudder Small Cap Value Fund, Scudder Small Company Stock Fund, Scudder Strategic Income Fund, Scudder Target Equity Fund (series are subject to a limited offering period), Scudder Technology Fund, Scudder Technology Innovation Fund, Scudder Total Return Fund, Scudder U.S. Government Securities Fund, The Japan Fund, Inc. ("Scudder Funds"). Except as noted below, there is no combined purchase credit for direct purchases of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust, Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"), which are not considered a "Scudder Fund" for purposes hereof. For purposes of the Combined Purchases feature described above as well as for the Letter of Intent and Cumulative Discount features described below, employer sponsored employee benefit plans using the subaccount record keeping system made available through the Shareholder Service Agent may include: (a) Money Market Funds as "Eligible Funds," (b) all classes of shares of any Eligible Fund and (c) the value of any other plan investments, such as guaranteed investment contracts and employer stock, maintained on such subaccount record keeping system. Class A Shares -- Letter of Intent. The same reduced sales charges for Class A shares, as shown in the applicable prospectus, also apply to the aggregate amount of purchases of such Scudder Funds listed above made by any purchaser within a 24-month period under a written Letter of Intent ("Letter") provided by SDI. The Letter, which imposes no obligation to purchase or sell additional Class A shares, provides for a price adjustment depending upon the actual amount 50 purchased within such period. The Letter provides that the first purchase following execution of the Letter must be at least 5% of the amount of the intended purchase, and that 5% of the amount of the intended purchase normally will be held in escrow in the form of shares pending completion of the intended purchase. If the total investments under the Letter are less than the intended amount and thereby qualify only for a higher sales charge than actually paid, the appropriate number of escrowed shares are redeemed and the proceeds used toward satisfaction of the obligation to pay the increased sales charge. The Letter for an employer-sponsored employee benefit plan maintained on the subaccount record keeping system available through the Shareholder Service Agent may have special provisions regarding payment of any increased sales charge resulting from a failure to complete the intended purchase under the Letter. A shareholder may include the value (at the maximum offering price) of all shares of such Scudder Funds held of record as of the initial purchase date under the Letter as an "accumulation credit" toward the completion of the Letter, but no price adjustment will be made on such shares. Only investments in Class A shares are included for this privilege. Class A Shares -- Cumulative Discount. Class A shares of the Fund may also be purchased at the rate applicable to the discount bracket attained by adding to the cost of shares of the Fund being purchased, the value of all Class A shares of the above mentioned Scudder Funds (computed at the maximum offering price at the time of the purchase for which the discount is applicable) already owned by the investor. Class A Shares -- Availability of Quantity Discounts. An investor or the investor's dealer or other financial services firm must notify the Shareholder Service Agent or SDI whenever a quantity discount or reduced sales charge is applicable to a purchase. Upon such notification, the investor will receive the lowest applicable sales charge. Quantity discounts described above may be modified or terminated at any time. Exchange Privilege. Shareholders of Class A, Class B, Class C and Class I shares may exchange their shares for shares of the corresponding class of other Scudder Funds in accordance with the provisions below. Class A Shares. Class A shares of the Scudder Funds and shares of the Money Market Funds listed under "Special Features -- Class A Shares -- Combined Purchases" above may be exchanged for each other at their relative net asset values. Shares of Money Market Funds and the Scudder Cash Reserves Fund that were acquired by purchase (not including shares acquired by dividend reinvestment) are subject to the applicable sales charge on exchange. Series of Scudder Target Equity Fund are available on exchange only during the Offering Period for such series as described in the applicable prospectus. Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund and Investors Cash Trust are available on exchange but only through a financial services firm having a services agreement with SDI. Class A shares of the Fund purchased under the Large Order NAV Purchase Privilege may be exchanged for Class A shares of another Scudder Fund or a Money Market Fund under the exchange privilege described above without paying any contingent deferred sales charge at the time of exchange. If the Class A shares received on exchange are redeemed thereafter, a contingent deferred sales charge may be imposed in accordance with the foregoing requirements provided that the shares redeemed will retain their original cost and purchase date for purposes of calculating the contingent deferred sales charge. Class B Shares. Class B shares of the Fund and Class B shares of any other Scudder Fund listed under "Special Features -- Class A Shares -- Combined Purchases" may be exchanged for each other at their relative net asset values. Class B shares may be exchanged without a contingent deferred sales charge being imposed at the time of exchange. For purposes of calculating the contingent deferred sales charge that may be imposed upon the redemption of the Class B shares received on exchange, amounts exchanged retain their original cost and purchase date. Class C Shares. Class C shares of the Fund and Class C shares of any other Scudder Fund listed under "Special Features -- Class A Shares -- Combined Purchases" may be exchanged for each other at their relative net asset values. Class C shares may be exchanged without a contingent deferred sales charge being imposed at the time of exchange. For purposes of determining whether there is a contingent deferred sales charge that may be imposed upon the redemption of the Class C shares received by exchange, they retain the cost and purchase date of the shares that were originally purchased and exchanged. Class I Shares. Shareholders of a Fund's Class I shares may exchange their shares for (i) shares of Zurich Money Funds -- Zurich Money Market Fund if the shareholders of Class I shares have purchased shares because they are participants in tax-exempt retirement plans of the Advisor and its affiliates and (ii) Class I shares of any other mutual fund listed in the 51 Statement of Additional Information. Conversely, shareholders of Zurich Money Funds -- Zurich Money Market Fund who have purchased shares because they are participants in tax-exempt retirement plans of the Advisor and its affiliates may exchange their shares for Class I shares of any other mutual fund to the extent that they are available through their plan. Exchanges will be made at the relative net asset values of the shares. Exchanges are subject to the limitations set forth in the prospectus. General. Shares of a Scudder Fund with a value in excess of $1,000,000 (except Scudder Cash Reserves Fund) acquired by exchange through another Scudder Fund, or from a Money Market Fund, may not be exchanged thereafter until they have been owned for 15 days (the "15-Day Hold Policy"). In addition, shares of a Scudder Fund with a value of $1,000,000 or less (except Scudder Cash Reserves Fund) acquired by exchange from another Scudder Fund, or from a money market fund, may not be exchanged thereafter until they have been owned for 15 days, if, in the Advisor's judgment, the exchange activity may have an adverse effect on the fund. In particular, a pattern of exchanges that coincides with a "market timing" strategy may be disruptive to the Scudder Fund and therefore may be subject to the 15-Day Hold Policy. For purposes of determining whether the 15-Day Hold Policy applies to a particular exchange, the value of the shares to be exchanged shall be computed by aggregating the value of shares being exchanged for all accounts under common control, discretion or advice, including, without limitation, accounts administered by a financial services firm offering market timing, asset allocation or similar services. The total value of shares being exchanged must at least equal the minimum investment requirement of the Scudder Fund into which they are being exchanged. Exchanges are made based on relative dollar values of the shares involved in the exchange. There is no service fee for an exchange; however, dealers or other firms may charge for their services in effecting exchange transactions. Exchanges will be effected by redemption of shares of the fund held and purchase of shares of the other fund. For federal income tax purposes, any such exchange constitutes a sale upon which a gain or loss may be realized, depending upon whether the value of the shares being exchanged is more or less than the shareholder's adjusted cost basis of such shares. Shareholders interested in exercising the exchange privilege may obtain prospectuses of the other Funds from dealers, other firms or SDI. Exchanges may be accomplished by a written request to Scudder Investments Service Company, Attention: Exchange Department, P.O. Box 219557, Kansas City, Missouri 64121-6557, or by telephone if the shareholder has given authorization. Once the authorization is on file, the Shareholder Service Agent will honor requests by telephone at 1-800-621-1048, subject to the limitations on liability under "Redemption or Repurchase of Shares -- General." Any share certificates must be deposited prior to any exchange of such shares. During periods when it is difficult to contact the Shareholder Service Agent by telephone, it may be difficult to use the telephone exchange privilege. The exchange privilege is not a right and may be suspended, terminated or modified at any time. Exchanges may only be made for Funds that are available for sale in the shareholder's state of residence. Currently, Tax-Exempt California Money Market Fund is available for sale only in California and Investors Municipal Cash Fund is available for sale only in certain states. Except as otherwise permitted by applicable regulations, 60 days' prior written notice of any termination or material change will be provided. Systematic Exchange Privilege. The owner of $1,000 or more of any class of the shares of a Scudder Fund or Money Market Fund may authorize the automatic exchange of a specified amount ($50 minimum) of such shares for shares of the same class of another such Scudder Fund. If selected, exchanges will be made automatically until the shareholder or the Scudder Fund terminates the privilege. Exchanges are subject to the terms and conditions described above under "Exchange Privilege," except that the $1,000 minimum investment requirement for the Scudder Fund acquired on exchange is not applicable. This privilege may not be used for the exchange of shares held in certificated form. QuickBuy and QuickSell. QuickBuy and QuickSell permits the transfer of money via the Automated ClearingHouse System (minimum $50 and maximum $250,000) from a shareholder's bank, savings and loan, or credit union account to purchase shares in the Fund. Shareholders can also redeem Shares (minimum $50 and maximum $250,000) from their Fund account and transfer the proceeds to their bank, savings and loan, or credit union checking account. Shares purchased by check or through QuickBuy and QuickSell or Direct Deposit may not be redeemed under this privilege until such Shares have been owned for at least 10 days. By enrolling in QuickBuy and QuickSell, the shareholder authorizes the Shareholder Service Agent to rely upon telephone instructions from any person to transfer the specified amounts between the shareholder's Fund account and the predesignated bank, savings and loan or credit union account, subject to the limitations on liability under "Redemption or Repurchase of Shares -- General." Once enrolled in QuickBuy and QuickSell, a shareholder can initiate a transaction by calling Scudder Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00 a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by sending written notice to Scudder Investments Service Company, P.O. Box 219415, Kansas City, Missouri 64121-9415. Termination will become effective as soon as the 52 Shareholder Service Agent has had a reasonable amount of time to act upon the request. QuickBuy and QuickSell cannot be used with passbook savings accounts or for tax-deferred plans such as IRAs. Direct Deposit. A shareholder may purchase additional shares of the Fund through an automatic investment program. With the Direct Deposit Purchase Plan ("Direct Deposit"), investments are made automatically (minimum $50 and maximum $250,000) from the shareholder's account at a bank, savings and loan or credit union into the shareholder's Fund account. By enrolling in Direct Deposit, the shareholder authorizes the Fund and its agents to either draw checks or initiate Automated ClearingHouse debits against the designated account at a bank or other financial institution. This privilege may be selected by completing the appropriate section on the Account Application or by contacting the Shareholder Service Agent for appropriate forms. A shareholder may terminate his or her Plan by sending written notice to Scudder Investments Service Company, P.O. Box 219415, Kansas City, Missouri 64121-9415. Termination by a shareholder will become effective within thirty days after the Shareholder Service Agent has received the request. A Fund may immediately terminate a shareholder's Plan in the event that any item is unpaid by the shareholder's financial institution. The Fund may terminate or modify this privilege at any time. Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under these programs, all or a portion of a shareholder's net pay or government check is automatically invested in the Fund account each payment period. A shareholder may terminate participation in these programs by giving written notice to the shareholder's employer or government agency, as appropriate. (A reasonable time to act is required.) The Fund is not responsible for the efficiency of the employer or government agency making the payment or any financial institutions transmitting payments. Automatic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's shares at the offering price (net asset value plus, in the case of Class A shares, the initial sales charge) may provide for the payment from the owner's account of any requested dollar amount to be paid to the owner or a designated payee monthly, quarterly, semiannually or annually. The $5,000 minimum account size is not applicable to IRAs. The minimum periodic payment is $50. The maximum annual rate at which Class B shares may be redeemed (and Class A shares purchased under the Large Order NAV Purchase Privilege and Class C shares in their first year following the purchase) under a automatic withdrawal plan is 10% of the net asset value of the account. Shares are redeemed so that the payee will receive payment approximately the first of the month. Any income and capital gain dividends will be automatically reinvested at net asset value. A sufficient number of full and fractional shares will be redeemed to make the designated payment. Depending upon the size of the payments requested and fluctuations in the net asset value of the shares redeemed, redemptions for the purpose of making such payments may reduce or even exhaust the account. The purchase of Class A shares while participating in a automatic withdrawal plan will ordinarily be disadvantageous to the investor because the investor will be paying a sales charge on the purchase of shares at the same time that the investor is redeeming shares upon which a sales charge may have already been paid. Therefore, the Fund will not knowingly permit additional investments of less than $2,000 if the investor is at the same time making automatic withdrawals. SDI will waive the contingent deferred sales charge on redemptions of Class A shares purchased under the Large Order NAV Purchase Privilege, Class B shares and Class C shares made pursuant to a automatic withdrawal plan. The right is reserved to amend the automatic withdrawal plan on 30 days' notice. The plan may be terminated at any time by the investor or the Fund. Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides retirement plan services and documents and SDI can establish investor accounts in any of the following types of retirement plans: o Traditional, Roth and Education IRAs. This includes Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE"), Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents. o 403(b)(7) Custodial Accounts. This type of plan is available to employees of most non-profit organizations. o Prototype money purchase pension and profit-sharing plans may be adopted by employers. The maximum annual contribution per participant is the lesser of 25% of compensation or $30,000. 53 Brochures describing the above plans as well as model defined benefit plans, target benefit plans, 457 plans, 401(k) plans, simple 401(k) plans and materials for establishing them are available from the Shareholder Service Agent upon request. Investors should consult with their own tax advisors before establishing a retirement plan. The Fund may suspend the right of redemption or delay payment more than seven days (a) during any period when the Exchange is closed other than customary weekend and holiday closings or during any period in which trading on the Exchange is restricted, (b) during any period when an emergency exists as a result of which (i) disposal of the Fund's investments is not reasonably practicable, or (ii) it is not reasonably practicable for the Fund to determine the value of its net assets, or (c) for such other periods as the SEC may by order permit for the protection of the Fund's shareholders. The conversion of Class B shares to Class A shares may be subject to the continuing availability of an opinion of counsel, ruling by the IRS or other assurance acceptable to the Fund to the effect that (a) the assessment of the distribution services fee with respect to Class B shares and not Class A shares does not result in the Fund's dividends constituting "preferential dividends" under the IRC, and (b) that the conversion of Class B shares to Class A shares does not constitute a taxable event under the IRC. The conversion of Class B shares to Class A shares may be suspended if such assurance is not available. In that event, no further conversions of Class B shares would occur, and Shares might continue to be subject to the distribution services fee for an indefinite period that may extend beyond the proposed conversion date as described in the prospectus. DIVIDENDS, CAPITAL GAINS AND TAXES Dividends Each Fund normally distributes annual dividends of net investment income as follows. Each Fund distributes any net realized short-term and long-term capital gains at least annually (Growth and Income distributes income quarterly). A Fund may at any time vary its foregoing dividend practices and, therefore, reserves the right from time to time to either distribute or retain for reinvestment such of its net investment income and its net short-term and long-term capital gains as the Boards of Trustees of the Funds determine appropriate under the then current circumstances. In particular, and without limiting the foregoing, a Fund may make additional distributions of net investment income or capital gain net income in order to satisfy the minimum distribution requirements contained in the Internal Revenue Code (the "Code"). Dividends will be reinvested in shares of the Fund unless shareholders indicate in writing that they wish to receive them in cash or in shares of other Scudder Funds as described in the prospectus. The level of income dividends per share (as a percentage of net asset value) will be lower for Class B and Class C shares than for Class A shares primarily as a result of the distribution fee applicable to Class B and Class C shares. Distributions of capital gains, if any, will be paid in the same proportion for each class. Taxes Each Fund has elected to be treated as a regulated investment company under Subchapter M of the Code or a predecessor statute and has qualified as such from inception. Each Fund intends to qualify for such treatment. Such qualification does not involve governmental supervision of management or investment practices or policies. A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including net short-term capital gain in excess of net long-term capital loss) and generally is not subject to federal income tax to the extent that it distributes annually its investment company taxable income and net realized capital gains in the manner required under the Code. If for any taxable year a Fund does not qualify for 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 an 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 deductions in the case of corporate shareholders. 54 Investment company taxable income generally is made up of dividends, interest, and net short-term capital gains in excess of net long-term capital losses, less expenses. Net capital gains (the excess of net long-term capital gain over net short-term capital loss) are computed by taking into account any capital loss carryforward of the Funds. Presently, the Funds, except for Research Fund, have no capital loss carryforward. At October 31, 2001, Blue Chip Fund had a net tax basis capital loss carryforward of approximately $119,021,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2009, the expiration date, whichever occurs first. At October 31, 2001, Total Return Fund had a net tax basis capital loss carryforward of approximately $115,044,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2009. In addition, Total Return Fund inherited approximately $1,025,000, $477,000 and $216,000 from its merger (see note H) with Kemper Horizon 20+ Portfolio, Kemper Horizon 10+ Portfolio and Kemper Horizon 5 Portfolio, respectively, which may be applied against any realized net taxable capital gains in future years or until October 31, 2008, the expiration date, whichever occurs first, subject to certain limitations imposed by Sections 382-384 of the Internal Revenue Code. At November 30, 2001, Focus Value+Growth Fund had a net tax basis capital loss carryforward of approximately $6,450,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until November 30, 2009, ($6,450,000), the expiration date, whichever occurs first. In addition, from November 1, 2001 through November 30, 2001 Focus Value+Growth Fund incurred approximately $1,847,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ended November 30, 2002. At August 31, 2001, Research Fund had a net tax basis capital loss carryforward of approximately $26,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until August 31, 2009, the expiration date, whichever occurs first. In addition, from November 1, 2000 through August 31, 2001 the Fund incurred approximately $243,500 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer those losses and treat them as arising in the fiscal year ended August 31, 2002. Growth and Income Fund inherited approximately $2,943,000 of capital losses from its merger with Kemper U.S. Growth and Income Fund, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until September 30, 2008 ($1,589,000), September 30, 2007 ($684,000), September 30, 2006 ($263,000) and September 30, 2005 ($407,000), the respective expiration dates, whichever occurs first, subject to certain limitations imposed by Sections 382-384 of the Internal Revenue Code. In addition, from November 1, 2000 through September 30, 2001, Growth and Income Fund incurred approximately $127,758,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ending September 30, 2002. Each Fund is subject to a 4% nondeductible excise tax on amounts required to be but not distributed under a prescribed formula. The formula requires payment to shareholders during a calendar year of distributions at least equal to the sum of 98% of 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 as prescribed in the Code) realized during the one-year period ending October 31 during such year, and all ordinary income and capital gains for prior years that were not previously distributed. Distributions of investment company taxable income are taxable to shareholders as ordinary income. Dividends from domestic corporations are expected to comprise a substantial part of each Fund's gross income. To the extent that such dividends constitute a portion of a Fund's gross income, a portion of the income distributions of the Fund may be eligible for the dividends received deduction for corporations. Shareholders will be informed of the portion of dividends which so qualify. The dividends-received deduction is reduced to the extent the shares with respect to which the dividends are received are treated as debt-financed under the federal income tax law and is eliminated if either those share or 55 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 net capital gains are taxable to shareholders as long-term capital gain, regardless of the length of time the shares of the Fund have been held by such shareholders. Such distributions are not eligible for the dividends received deduction. Any loss realized upon the redemption of shares held at the time of redemption for six months or less will be treated as a long-term capital loss to the extent of any amounts treated as long-term capital gain distributions during such six-month period. If any net capital gains are retained by a Fund for reinvestment, requiring federal income taxes to be paid thereon by 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 the federal income taxes paid by the Fund on such gains as a credit against personal federal income tax liabilities, 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. However, retention of such gains by the Fund may cause the Fund to be liable for an excise tax on all or a portion of those gains. Distributions of investment company taxable income and net realized capital gains will be taxable as described above, whether made in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of a share on the reinvestment date. All distributions of investment company taxable income and net realized capital gains, whether received in shares or cash, must be reported by each shareholder on his or her federal income tax return. Dividends declared in October, November or December with a record date in such a month and paid during the following January will be treated by shareholders for federal income tax purposes as if received on December 31 of the calendar year declared. Redemptions of shares, including exchanges for shares of another Scudder fund, may result in tax consequences (gain or loss) to the shareholder and are also subject to these reporting requirements. Generally, a qualifying individual may make a deductible IRA contribution of up to $2,000 for any taxable year only if (i) the individual and his or her spouse are not active participants in an employer's retirement plan, (ii) the individual (and his or her spouse, if applicable) has an adjusted gross income below a certain level for 2001 ($53,000 for married individuals filing a joint return, with a phase-out of the deduction for adjusted gross income between $53,000 and $63,000; $33,000 for a single individual, with a phase-out for adjusted gross income between $33,000 and $43,000), or (iii) the individual is not an active participant in an employer's retirement plan, but his or her spouse is such a participant, and the couple's adjusted gross income is $150,000 or less (the deduction limit is phased out for adjusted gross income between $150,000 and $160,000). However, an individual who is 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) for that year. The $2,000 limit on contributions (whether deductible or nondeductible) is increased to $3,000 for 2002 through 2004. In addition, for 2002 through 2005, individuals who are age 50 or older will be permitted to make additional "catch-up" contributions of $500 in each of those years. In addition, a temporary nonrefundable income tax credit of up to $1,000 may be available for certain individuals with low and middle incomes for 2002 through 2006. 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. Distributions by a Fund result in a reduction in the net asset value of that Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution would nevertheless be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will then receive a partial return of capital upon the distribution, which will nevertheless be taxable to them. If a 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 56 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. Each 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. Equity options (including covered call options written on portfolio stock) and over-the-counter options on debt securities written or purchased by a Fund will be subject to tax under Section 1234 of the Code. In general, no loss will be recognized by the Fund upon payment of a premium in connection with the purchase of a put or call option. The character of any gain or loss recognized (i.e. long-term or short-term) will generally depend, in the case of a lapse or sale of the option, on the Fund's holding period for the option, and in the case of the exercise of a put option, on the Fund's holding period for the underlying property. The purchase of a put option may constitute a short sale for federal income tax purposes, causing an adjustment in the holding period of the underlying security or a substantially identical security in the Fund's portfolio. If a Fund writes a covered call option on portfolio stock, no gain is recognized upon its receipt of a premium. If the option lapses or is closed out, any gain or loss is treated as short-term capital gain or loss. If the option is exercised, the character of the gain or loss depends on the holding period of the underlying stock. Positions of a Fund which consist of at least one stock and at least one stock option or other position with respect to a related security which substantially diminishes the Fund's risk of loss with respect to such stock could be treated as a "straddle" which is governed by Section 1092 of the Code, the operation of which may cause deferral of losses, adjustments in the holding periods of stocks or securities and conversion of short-term capital losses into long-term capital losses. An exception to these straddle rules exists for certain "qualified covered call options" on stock written by a Fund. Many or all futures and forward contracts entered into by a Fund and many or all listed nonequity options written or purchased by a Fund (including options on debt securities, options on futures contracts, options on foreign currencies and options on securities indices) will be governed by Section 1256 of the Code. Absent a tax election to the contrary, gain or loss attributable to the lapse, exercise or closing out of any such position generally will be treated as 60% long-term and 40% short-term capital gain or loss, and on the last day of the Funds' fiscal year (as well as on October 31 for purposes of the 4% excise tax), all outstanding Section 1256 positions will be marked to market (i.e. treated as if such positions were sold at their closing price on such day), with any resulting gain or loss recognized as 60% long-term and 40% short-term capital gain or loss. Under Section 988 of the Code, discussed below, foreign currency gain or loss from foreign currency-related forward contracts, certain futures and options, and similar financial instruments entered into or acquired by the Fund will be treated as ordinary income or loss. Under certain circumstances, entry into a futures contract to sell a security may constitute a short sale for federal income tax purposes, causing an adjustment in the holding period of the underlying security or a substantially identical security in the Fund's portfolio. Positions of the Fund which consist of at least one 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 may be treated as a "mixed straddle." Mixed straddles are subject to the straddle rules of Section 1092 of the Code and may result in the deferral of losses if the non-Section 1256 position is in an unrealized gain at the end of a reporting period. Notwithstanding any of the foregoing, recent tax law changes may require a Fund to recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. 57 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. A transaction during the tax year that would otherwise be a constructive sale may be disregarded if 1) the transaction is closed by the 30th day after the close of the tax year, and 2) the taxpayer holds the appreciated financial position (without reduction of risk of loss) throughout the 60-day period following the date of closing of the transaction. Similarly, if a Fund enters into a short sale of property that becomes substantially worthless, the Fund will be required to recognize gain at that time as though it had closed the short sale. Future regulations may apply similar treatment to other strategic transactions with respect to property that becomes substantially worthless. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to a Fund each year, even though the Fund will not receive cash interest payments from these securities. This original issue discount imputed income will comprise a part of the investment company taxable income of the Fund which must be distributed to shareholders in order to maintain the qualification of the Fund as a regulated investment company and to avoid federal income tax at the Fund's level. Upon the sale or other disposition of shares of a Fund, a shareholder may realize a capital gain or loss which will be long-term or short-term, generally depending upon the shareholder's holding period for the shares. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced within a period of 61 days beginning 30 days before and ending 30 days after disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund shares held by the shareholder for six months or less will be treated as long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. A shareholder who has redeemed shares of a Fund or other Scudder Fund listed in the prospectus under "Special Features -- Class A Shares -- Combined Purchases" (other than shares of Scudder Cash Reserves Fund not acquired by exchange from another Scudder Fund) may reinvest the amount redeemed at net asset value at the time of the reinvestment in shares of any Fund or in shares of a Scudder Fund within six months of the redemption as described in the prospectus under "Redemption or Repurchase of Shares -- Reinvestment Privilege." If redeemed shares were purchased after October 3, 1989 and were held less than 91 days, then the lesser of (a) the sales charge waived on the reinvested shares, or (b) the sales charge incurred on the redeemed shares, is included in the basis of the reinvested shares and is not included in the basis of the redeemed shares. If a shareholder realized a loss on the redemption or exchange of a Fund's shares and reinvests in shares of the same Fund 30 days before or after the redemption or exchange, the transactions may be subject to the wash sale rules resulting in a postponement of the recognition of such loss for federal income tax purposes. An exchange of a Fund's shares for shares of another fund is treated as a redemption and reinvestment for federal income tax purposes upon which gain or loss may be recognized. Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of the Fund's investment company taxable income to be distributed to its shareholders as ordinary income. Income received by a Fund from sources within a foreign country may be subject to foreign and other withholding taxes imposed by that country. Each Fund will be required to report to the IRS all distributions of taxable income and capital gains as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code distributions of taxable income and capital gains and proceeds from the redemption or exchange of the shares of a regulated investment company may be subject to withholding of federal income tax at the rate of 30% (for 2002 and 2003) in the case of nonexempt shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law. Withholding may also be required if a Fund is notified by the IRS or a broker that the taxpayer identification number 58 furnished by the shareholder is incorrect or that the shareholder has previously failed to report interest or dividend income. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Shareholders may be subject to state and local taxes on distributions received from a Fund and on redemptions of the Fund's shares. Each distribution is accompanied by a brief explanation of the form and character of the distribution. By January 31 of each year each Fund issues to each shareholder a statement of the federal income tax status of all distributions. Each Trust is organized as a Massachusetts business trust. Neither the Trusts nor any Fund is expected to be liable for any income or franchise tax in the Commonwealth of Massachusetts, provided that each Fund qualifies as a regulated investment company under the Code. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of 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 advisors about the application of the provisions of tax law described in this statement of additional information in light of their particular tax situations. NET ASSET VALUE The net asset value of shares of the Fund is computed as of the close of regular trading on the New York Stock Exchange (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 a Saturday or Sunday, respectively. Net asset value per share is determined separately for each class of shares by dividing the value of the total assets of the Fund attributable to the shares of that class, less all liabilities attributable to that class, by the total number of shares of that class outstanding. The per share net asset value may be lower for certain classes of the Fund because of higher expenses borne by these classes. An exchange-traded equity security is valued at its most recent sale price on the relevant exchange 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. If it is not possible to determine the 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 Nasdaq Stock Market, Inc. ("Nasdaq") system or another over-the-counter ("OTC") market is valued at its most recent sale price on Nasdaq or such other OTC market as of the Value Time. Lacking any sales, the security is valued at the Calculated Mean on Nasdaq or such other OTC market as of the Value Time. If it is not possible to determine the Calculated Mean, the security is valued at the most recent bid quotation on Nasdaq or such other OTC market as of the Value Time. In the case of certain foreign exchanges, the closing price reported by the exchange (which may sometimes be referred to by the exchange or one or more pricing agents as the "official close" or the "official closing price" or other similar term) will be considered the most recent sale price. If a security is traded on more than one exchange, or upon one or more exchanges and in the OTC market, quotations are taken from the market in which the security is traded most extensively. Debt securities are valued as follows. Money market instruments purchased with an original or remaining maturity of 60 days or less, maturing at par, are valued at amortized cost. Other money market instruments are valued based on information obtained from an approved pricing agent or, if such information is not readily available, by using matrix pricing techniques (formula driven calculations based primarily on current market yields). Bank loans are valued at prices supplied by an approved pricing agent (which are intended to reflect the mean between the bid and asked prices), if available, and otherwise at the mean of the most recent bid and asked quotations or evaluated prices, as applicable, based on quotations or evaluated prices obtained from one or more broker-dealers. Privately placed debt securities, other than Rule 144A debt securities, initially are valued at cost and thereafter based on all relevant factors including type of security, size of holding and restrictions on disposition. Municipal debt securities are valued at prices supplied by an approved pricing agent (which are 59 intended to reflect the mean between the bid and asked prices), if available, and otherwise at the average of the means based on the most recent bid and asked quotations or evaluated prices obtained from two broker-dealers. Other debt securities are valued at prices supplied by an approved pricing agent, if available, and otherwise at the most recent bid quotation or evaluated price, as applicable, obtained from one or more broker-dealers. If it is not possible to value a particular debt security pursuant to the above methods, the security is valued on the basis of factors including (but not limited to) maturity, coupon, creditworthiness, currency denomination, and the movement of the market in which the security is normally traded. An exchange-traded option contract on securities, currencies and other financial instruments is valued at its most recent sale price on such exchange. Lacking any sales, the option contract is valued at the Calculated Mean. If it is not possible to determine the Calculated Mean, the option contract is valued at the most recent bid quotation in the case of a purchased option contract or the most recent asked quotation in the case of a written option contract, in each case as of the Value Time. An option contract on securities, currencies and other financial instruments traded in the OTC market with less than 180 days remaining until expiration is valued at the evaluated price provided by the broker-dealer with which it was traded. An option contract on securities, currencies and other financial instruments traded in the OTC market with 180 days or more remaining until expiration is valued at the average of the evaluated prices provided by two broker-dealers. Futures contracts (and options thereon) are valued at the most recent settlement price as of the Value Time on such exchange. Foreign currency forward contracts are valued at the value of the underlying currency at the prevailing currency exchange rate, which shall be determined not more than one hour before the Value Time based on information obtained from sources determined by the Advisor to be appropriate. 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. If market quotations for a portfolio asset are not readily available or the value of a portfolio asset as determined in accordance with Board approved 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 Fund's Pricing Committee (or, in some cases, the Board's Valuation Committee), represents fair market value. The value of other portfolio holdings owned by the Fund is determined in a manner which is intended to fairly reflect the fair market value of the asset on the valuation date, based on valuation procedures adopted by the Fund's Board and overseen primarily by the Fund's Pricing Committee. OFFICERS AND TRUSTEES The following table presents information regarding each Trustee of the Fund as of March 1, 2002. Each Trustee's age as of [specify date] is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Trustee has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each Trustee is c/o Zurich Scudder Investments, Inc., Two International Place, Boston, Massachusetts 02110-4103. The term of office for each Trustee is until the next meeting of shareholders called for the purpose of electing [Trustees/Directors] and until the election and qualification of a successor, or until such Trustee sooner dies, resigns or is removed as provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Trustee will hold office for an indeterminate period. 60 INVESTMENT TRUST (Scudder Growth and Income Fund) Non-Interested Trustee
Number of Length of Principal Portfolios in Name, Age and Position(s) Held Time Occupation(s) During Fund Complex with the Fund Served Past 5 Years Overseen Other Directorships Held - ------------- --------- -------------------- ------------- ------------------------ Henry P. Becton (68) 1990-Present President, WGBH 49 American Public Television; Trustee Educational New England Aquarium; Becton Foundation Dickinson and Company; Mass Corporation for Educational Telecommunications; The A.H. Belo Company; Committee for Economic Development; Concord Academy; Public Broadcasting Service; Boston Museum of Science Dawn-Marie Driscoll (55) 1997-Present President, Driscoll 49 Computer Rescue Squad; Trustee Associates Advisory Board, Center for (consulting firm); Business Ethics, Bentley Executive Fellow, College; Board of Governors, Center for Business Investment Company Institute; Ethics, Bentley Chairman, ICI Directors College Services Committee Edgar R. Fiedler (72) Senior Fellow and 49 None Trustee Economic Counsellor, The Conference Board, Inc. (not-for-profit business research organization) Keith R. Fox (57) Managing Partner, 49 Facts on File (school and Trustee Exeter Capital library publisher); Partners (private Progressive Holding equity funds) Corporation (kitchen importer and distributor) Jean Gleason Stromberg (58) Consultant (1997 to 49 The William and Flora Hewlett Trustee present); prior Foundation thereto, Director, U.S. General Accounting Office (1996-1997); Partner, Fulbright & Jaworski (law firm) (1978-1996)
61
Number of Length of Principal Portfolios in Name, Age and Position(s) Held Time Occupation(s) During Fund Complex with the Fund Served Past 5 Years Overseen Other Directorships Held - ------------- --------- -------------------- ------------- ------------------------ Jean C. Tempel (58) 1994-Present Managing Partner, 49 United Way of Mass Bay; Trustee First Light Capital Sonesta International Hotels, (venture capital Inc.; Northeastern University group) Funds and Endowment Committee; Connecticut College Finance [N.B. - I believe Committee; Commonwealth Jean was a partner Institute (not-for-profit at Internet Capital start-up for women's Corporation during enterprises); The Reference, much of the past 5 Inc. (IT consulting for years] financial services)
Interested Directors and Officers*
Number of Portfolios Positions(s) Term of Office in Fund Other Held and Length of Principal Occupation(s) Complex Directorships Name, Address, and Age with Fund Time Served During Past 5 Years Overseen Held - ---------------------- --------- ----------- ------------------- -------- ---- Linda C. Coughlin+ Chairperson, Managing Director of (50) Trustee and Zurich Scudder President Investments, Inc. Steven Zaleznick Trustee President and CEO, AARP 601 E Street, NW Services, Inc. 7th Floor Washington, D.C. 20004 (47) Thomas V. Bruns (44)# Vice Managing Director of President Zurich Scudder Investments, Inc. William F. Glavin (43)# Vice Managing Director of President Zurich Scudder Investments, Inc. James E. Masur+ Vice Managing Director of (41) President Zurich Scudder Investments, Inc. Kathryn L. Quirk++ (49) Vice Managing Director of President Zurich Scudder and Investments, Inc. Assistant Secretary
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Number of Portfolios Positions(s) Term of Office in Fund Other Held and Length of Principal Occupation(s) Complex Directorships Name, Address, and Age with Fund Time Served During Past 5 Years Overseen Held - ---------------------- --------- ----------- ------------------- -------- ---- Howard S. Schneider+ Vice Managing Director of (44) President Zurich Scudder Investments, Inc. John R. Hebble+ Treasurer Senior Vice President of (43) Zurich Scudder Investments, Inc. Brenda Lyons+ Assistant Senior Vice President of (39) Treasurer Zurich Scudder Investments, Inc. Thomas Lally+ Assistant Senior Vice President of ( ) Treasurer Zurich Scudder Investments, Inc. Caroline Pearson+ (39) Assistant Managing Director of Secretary Zurich Scudder Investments, Inc.; Associate, Dechert Price & Rhoads (law firm) 1989-1997 John Millette+ Vice Vice President of Zurich (39) President Scudder Investments, Inc. and Secretary
* Ms. Coughlin and each Fund officer are considered "interested persons" of the Fund because of their affiliation with the Fund's Advisor. Mr. Zaleznick may be considered an "interested person" of the Fund because of his affiliation with AARP, which receives fees from the Advisor pursuant to the terms of a licensing agreement. + Address: Two International Place, Boston, Massachusetts ++ Address: 345 Park Avenue, New York, New York # Address: 222 South Riverside Plaza, Chicago, Illinois (1) Officer of Scudder International Fund, Inc. only. (2) Officer of Global/International Fund, Inc. only. Trustee's and Officer's Role with Principal Underwriter: Scudder Distributors, Inc. Linda C. Coughlin: Vice Chairman and Director Thomas V. Bruns: President William F. Glavin: Vice President and Director Kathryn L. Quirk: Director, Secretary, Chief Legal Officer and Vice President Howard Schneider: Vice President Caroline Pearson: Assistant Secretary 63 Trustee's Responsibilities. Each Board of Trustees primary responsibility is to represent the interests of each Fund's shareholders and to provide oversight of the management of each Fund. Currently, 75% of the Board is comprised of Non-interested Trustees ("Independent Directors"). The Trustees meet multiple times during the year to review the investment performance of each Fund and other operational matters, including policies and procedures designed to assure compliance with regulatory and other requirements. In 2001, the Trustees conducted over 20 meetings to deal with fund issues (including regular and special board and committee meetings). These meetings included six regular board meetings, six special meetings relating to the proposed acquisition of the Advisor by Deutsche Bank, and two audit committee meetings. Furthermore, the Independent Trustees review the fees paid to the Advisor and its affiliates for investment advisory services and other administrative and shareholder services. The Trustees have adopted specific policies and guidelines that, among other things, seek to further enhance the effectiveness of the Independent Trustees in performing their duties. Many of these are similar to those suggested in the Investment Company Institute's 1999 Report of the Advisory Group on Best Practices for Fund Directors. For example, the Independent Trustees select independent legal counsel to work with them in reviewing fees, advisory and other contracts and overseeing fund matters. The Trustees are also assisted in this regard by the Funds' independent public accountants and other independent experts retained from time to time for this purpose. The Independent Trustees regularly meet privately with their counsel and other advisors. In addition, the Independent Trustees from time to time have appointed task forces and subcommittees from their members to focus on particular matters such as investment, accounting and shareholders servicing issues. In connection with their deliberations relating to the continuation of each Fund's current investment management agreement in August 2001, the Trustees considered such information and factors as they believe, in the light of the legal advice furnished to them by their independent legal counsel and their own business judgment, to be relevant to the interests of the shareholders of the Funds. The factors considered by the Trustees included, among others, the nature, quality and extent of services provided by the Advisor to the Funds; investment performance, both of the Funds themselves and relative to appropriate peer groups and market indices; investment management fees, expense ratios and asset sizes of the Funds, themselves and relative to appropriate peer groups; the Advisor's profitability from managing the Funds (both individually and collectively) and the other investment companies managed by the Advisor before marketing expenses paid by the Advisor; possible economies of scale; and possible financial and other benefits to the Advisor from serving as investment adviser and from affiliates of the Advisor providing various services to the Funds. Committees. The following table provides information regarding each Fund's standing committees, including certain of each committee's principal functions.
Principal Function Number of Meetings Held Name of Committee of Committee Members of Committee Last Fiscal Year - ----------------- ------------ -------------------- ---------------- Audit Committee Recommends selection of Henry P. Becton, Jr. fund's independent Dawn-Marie Driscoll public accountants to Edgar R. Fiedler full board; reviews the Keith R. Fox independence of such Jean Gleason Stromberg firm; reviews scope of Jean C. Tempel audit and internal controls; considers and reports to the board on matters relating to the fund's accounting and financial reporting practices. Committee on Independent Selects and nominates Henry P. Becton, Jr. [Trustees] Independent [Trustees]*; Dawn-Marie Driscoll establishes Edgar R. Fiedler [Trustee/Director] Keith R. Fox compensation, retirement Jean Gleason Stromberg and fund ownership Jean C. Tempel policies.
64
Principal Function Number of Meetings Held Name of Committee of Committee Members of Committee Last Fiscal Year - ----------------- ------------ -------------------- ---------------- Valuation Oversees fund valuation Linda C. Coughlin matters, including Keith R. Fox valuation methodologies; establishes "fair valuation" procedures to determine fair market value of securities held by a fund when actual market values are unavailable. Shareholder Servicing Reviews and reports to Edgar R. Fiedler board on matters Keith R. Fox relating to the quality, Jean C. Tempel type and level of services provided to fund shareholders.
* Fund shareholders may also submit nominees that will be considered by the Committee when a Board vacancy occurs. Submissions should be mailed to the attention of the Secretary of the Fund. Trustee Fund Ownership The following sets forth beneficial share ownership as of December 31, 2001.
Range of Shares Owned of All Scudder Funds Name of Trustee Range of Fund Shares Owned Overseen by Trustee - --------------- -------------------------- ------------------- Henry P. Becton, Jr. $50,001 - $100,000 Over $100,000 Linda C. Coughlin $1 - $10,000 Over $100,000 Dawn-Marie Driscoll $1 - $10,000 Over $100,000 Edgar R. Fiedler None Over $100,000 Keith Fox None Over $100,000 Jean Gleason Stromberg $10,001 - $50,000 Over $100,000 Jean C. Tempel $50,001 - $100,000 Over $100,000 Steven Zaleznick None $10,001 - $50,000
Securities Beneficially Owned
Name of Owner(s) and Relationship to Name of Trustee Trustee Company Title of Class Value of Securities Percent of Class - --------------- ------- ------- -------------- ------------------- ----------------
As of January 31, 2002, all Trustees and Officers of the Funds as a group owned beneficially (as that term is defined is section 13(d) of the Securities Exchange Act of 1934) less than 1% of each Fund. 65 To the best of the Funds' knowledge, as of January 31, 2002, no [other] person owned beneficially more than 5% of each class of each Fund's outstanding shares.] Remuneration. Each Independent Trustee receives compensation from the Funds for his or her services, which includes an annual retainer and an attendance fee for each meeting attended. No additional compensation is paid to any Independent Trustee for travel time to meetings, attendance at director's educational seminars or conferences, service on industry or association committees, participation as speakers at directors' conferences or service on special director task forces or subcommittees. Independent Trustees do not receive any employee benefits such as pension or retirement benefits or health insurance. The Independent Trustees members also serve in the same capacity for other funds managed by the Advisor, which may have substantially different Trustee fee schedules. The following table shows the aggregate compensation received by each Independent Trustee from the Fund/Trust and from all of the Scudder funds as a group for the most recent fiscal year. As noted above, the Trustees conducted over 20 meetings in 2001 to deal with fund issues (including regular and special board and committee meetings). These meetings included six regular board meetings, six special meetings relating to the proposed acquisition of the Advisor by Deutsche Bank, and two audit committee meetings. Members of the Board of Trustees who are employees of the Advisor or its affiliates receive no direct compensation from the Fund, although they are compensated as employees of the Advisor, or its affiliates, and as a result may be deemed to participate in fees paid by each Fund.
Pension or Retirement Compensation from Benefits Accrued as Part Total Compensation Name of Trustee Investment Trust of Fund Expenses Paid to Trustees (3)(4)(5) - --------------- ---------------- ---------------- ---------------- Henry P. Becton, Jr. $37,619 $0 $162,000 Dawn-Marie Driscoll(1) $40,816 $0 $175,000 Edgar R. Fiedler(2) $38,170 $0 $174,666 Keith R. Fox $37,648 $0 $162,000 Jean Gleason Stromberg $38,170 $0 $161,000 Jean C. Tempel $37,892 $0 $164,000
* Scudder Investment Trust consists of six funds: Scudder Capital Growth Fund, Scudder Dividend & Growth Fund, Scudder Growth and Income Fund, Scudder Large Company Growth Fund, Scudder S&P 500 Index Fund and Scudder Small Company Stock Fund. (1) Ms. Driscoll received an additional $10,000 in annual retainer fees in her role as Lead Trustee/Director. (2) In addition to the amounts shown, Mr. Fiedler received a payment of $105,214 pursuant to deferred compensation agreement with certain Funds. (3) Includes compensation for services on the boards of [ ] Scudder trusts/corporations comprised of [ ] fund portfolios. (4) Aggregate compensation for Mr. Fiedler includes $2,665 in retainer fees in his role as Trustee for Farmers Investment Trust (merged into Scudder Pathway Series on April 6, 2001) and $6,474 pursuant to a special retirement plan with The Brazil Fund, Inc. (5) Aggregate compensation reflects amounts paid to the Trustees for numerous special meetings in connection with [Deutsch] transaction. Such amounts totaled $7,000 for Ms. Driscoll and Ms. Tempel and Messrs. Becton and Fox, respectively, and $3,000 for Mr. Fiedler and Ms. Stromberg, Respectively. These meeting fees were borne by Scudder. 66 SCUDDER BLUE CHIP FUND SCUDDER FOCUS VALUE PLUS GROWTH FUND SCUDDER INVESTORS TRUST (Scudder Research Fund) SCUDDER TOTAL RETURN FUND Trustees Information The following table presents information about each Trustee of each Fund as of March 1, 2002. Each Trustee's age is in parentheses after his or her name. Unless otherwise noted, (i) each Trustee has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each Trustee is c/o Zurich Scudder Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606. The term of office for each Trustee is until the next meeting of shareholders, if any, called for the purpose of electing Trustees/Directors and until the election and qualification of a successor, or until such Trustee sooner dies, resigns or is removed as provided in the governing documents of the Fund. Because the Funds do not hold an annual meeting of shareholders, each Trustee/Director will hold office for an indeterminate period.
- ------------------------------------------------------------------------------------------------------------------------------- Non-Interested Trustees - ------------------------------------------------------------------------------------------------------------------------------- Number of Name, Age and Portfolios in Position(s) Held with Length of Principal Occupation(s) During Fund Complex the Fund Time Served* Past 5 Years Overseen Other Directorships Held - ------------------------------------------------------------------------------------------------------------------------------- John W. Ballantine (55) [D.O.B.: 02/16/46 ] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1999-Present Retired 1998; formerly, 85 First Oak Brook Bancshares, Executive Vice President and Inc.; Chief Risk Management Officer, Oak Brook Bank; First Chicago NBD Tokheim Corporation (designer, Corporation/The First National manufacturer and servicer of Bank of Chicago (1996-1998); electronic and mechanical Executive Vice President and petroleum marketing systems) Head of International Banking (1995-1996). - ------------------------------------------------------------------------------------------------------------------------------- Lewis A. Burnham (68) [D.O.B.: 01/08/33] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1977-Present Retired 1998; formerly, Director 85 None. of Management Consulting, McNulty & Company; formerly, Executive Vice President, Anchor Glass Container Corporation. - ------------------------------------------------------------------------------------------------------------------------------- Donald L. Dunaway (64) [D.O.B.: 03/08/37] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1980-Present Retired 1994; formerly, 85 None. Executive Vice President, A.O. Smith Corporation (diversified manufacturer). - ------------------------------------------------------------------------------------------------------------------------------- James R. Edgar (55) [D.O.B.: 07/22/46] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1999-Present Distinguished Fellow, University 85 Kemper Insurance Companies; of Illinois Institute of John B. Sanfilippo & Son, Inc.; Government and Public Affairs; Horizon Group Properties, Inc. formerly, Governor, State of Illinois. - -------------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------------- Non-Interested Trustees - ------------------------------------------------------------------------------------------------------------------------------- Number of Name, Age and Portfolios in Position(s) Held with Length of Principal Occupation(s) During Fund Complex the Fund Time Served* Past 5 Years Overseen Other Directorships Held - ------------------------------------------------------------------------------------------------------------------------------- Robert B. Hoffman (65) [D.O.B.: 12/11/36] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1981-Present Retired 2000; formerly, 85 None. Chairman, Harnischfeger Industries, Inc. (machinery for mining and paper industries); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products); Vice President, Head of International Operations, FMC Corporation (manufacturer of machinery and chemicals). - ------------------------------------------------------------------------------------------------------------------------------- Shirley D. Peterson (60) [D.O.B.: 09/03/41] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1995-Present Retired 2000; formerly, 85 Formerly, Bethlehem Steel Corp. President, Hood College; prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), U.S. Department of Justice. - ------------------------------------------------------------------------------------------------------------------------------- Fred B. Renwick (71) [D.O.B.: 02/01/30] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1998-Present Retired 2001. Professor Emeritus 85 The Wartburg Foundation; of Finance, New York University, Chairman, Finance Committee of Stern School of Business. Morehouse College Board of Trustees; The Investment Fund for Foundations; American Bible Society Investment Committee; formerly, member of the Investment Committee of Atlanta University Board of Trustees; formerly, Director of Board of Pensions, Evangelical Lutheran Church in America. - ------------------------------------------------------------------------------------------------------------------------------- William P. Sommers (68) [D.O.B.: 07/22/33] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1979-Present Retired; formerly, President and 85 PSI Inc.; Chief Executive Officer, SRI Evergreen Solar, Inc.; International (research and Litton Industries; development); prior thereto, SRI/Atomic Tangerine. Executive Vice President, Iameter (medical information and educational service provider); Senior Vice President and Director, Booz, Allen & Hamilton Inc. (management consulting firm). - -------------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------------- Non-Interested Trustees - ------------------------------------------------------------------------------------------------------------------------------- Number of Name, Age and Portfolios in Position(s) Held with Length of Principal Occupation(s) During Fund Complex the Fund Time Served* Past 5 Years Overseen Other Directorships Held - ------------------------------------------------------------------------------------------------------------------------------- John G. Weithers (68) [D.O.B.: 08/03/33] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 1998-Present Retired 1992; formerly, Chairman 85 Federal Life Insurance Company; of the Board and Chief Executive Chairman of the Members of the Officer, Chicago Stock Exchange. Corporation and Trustee, DePaul University; formerly, International Federation of Stock Exchanges, Records Management Systems. - ------------------------------------------------------------------------------------------------------------------------------- Interested Trustees(1) - ------------------------------------------------------------------------------------------------------------------------------- Mark S. Casady (41) [D.O.B.: 09/12/60] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 2001-Present Managing Director, 85 None. and President Zurich Scudder Investments, Inc. - ------------------------------------------------------------------------------------------------------------------------------- Linda C. Coughlin (49) [D.O.B.: 01/01/52] - ------------------------------------------------------------------------------------------------------------------------------- Trustee and Chairperson 2001-Present Managing Director, 134 None. Zurich Scudder Investments, Inc. - ------------------------------------------------------------------------------------------------------------------------------- William F. Glavin, Jr. (43) [D.O.B.: 08/30/58] - ------------------------------------------------------------------------------------------------------------------------------- Trustee 2001-Present Managing Director, 85 None. Zurich Scudder Investments, Inc. (April 1997 to present), prior thereto, Executive Vice President of Market and Product Development of an unaffiliated investment management firm. - -------------------------------------------------------------------------------------------------------------------------------
* Reflects the earliest date of service. OFFICERS INFORMATION: The following table presents information about each Officer of the Fund. Each Officer's age as of December 31, 2001 is in parentheses after his or her name. Unless otherwise noted, (i) each Officer has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each Officer is c/o Zurich Scudder Investments, Inc., Two International Place, Boston, Massachusetts 02110-4103. The President, Treasurer and Secretary each holds office until his or her successor is duly elected and qualified; all other officers hold offices in accordance with the By-Laws of the Fund.
- ------------------------------------------------------------------------------------------------------------------------------- Name, Age and Position(s) Held with the Principal Occupation(s) Fund Length of Time Served During Past 5 Years - ------------------------------------------------------------------------------------------------------------------------------- Mark S. Casady (41) 1998 - present Managing Director, Zurich Scudder Investments, Inc. President - ------------------------------------------------------------------------------------------------------------------------------- Philip J. Collora (56) 1990 - present Senior Vice President, Zurich Scudder Investments, Vice President and Assistant Secretary Inc. - -------------------------------------------------------------------------------------------------------------------------------
- -------- (1) Each trustee listed under the heading "Interested Trustees" is an "interested person" of the investment manager or of the fund within the meaning of the Investment Company Act of 1940, as amended, due to the fact that each is an officer of the fund's investment manager. 69
- ------------------------------------------------------------------------------------------------------------------------------- Name, Age and Position(s) Held with the Principal Occupation(s) Fund Length of Time Served During Past 5 Years - ------------------------------------------------------------------------------------------------------------------------------- Linda C. Coughlin (49) 2001 - present Managing Director, Zurich Scudder Investments, Inc. Vice President - ------------------------------------------------------------------------------------------------------------------------------- Kathryn L. Quirk (49) 1998 - present Managing Director, Zurich Scudder Investments, Inc. Vice President - ------------------------------------------------------------------------------------------------------------------------------- Linda J. Wondrack (37) 1998 - present Managing Director, Zurich Scudder Investments, Inc. Vice President - ------------------------------------------------------------------------------------------------------------------------------- Gary French (50) 2002 - present Managing Director, Zurich Scudder Investments, Inc. Treasurer (2001 to present); prior thereto, President, UAM Fund Services, Inc. - ------------------------------------------------------------------------------------------------------------------------------- John R. Hebble (43) 1998 - present Senior Vice President, Zurich Scudder Investments, Assistant Treasurer Inc. - ------------------------------------------------------------------------------------------------------------------------------- Thomas Lally (34) 2001 - present Senior Vice President, Zurich Scudder Investments, Assistant Treasurer Inc. - ------------------------------------------------------------------------------------------------------------------------------- Brenda Lyons (38) 1998 - present Senior Vice President, Zurich Scudder Investments, Assistant Treasurer Inc. - ------------------------------------------------------------------------------------------------------------------------------- John Millette (39) 2001 - present Vice President, Zurich Scudder Investments, Inc. Secretary - ------------------------------------------------------------------------------------------------------------------------------- Caroline Pearson (39) 1998 - present Managing Director, Zurich Scudder Investments, Inc. Assistant Secretary (1997 to present); prior thereto, Associate, Dechert Price & Rhoads (law firm) - ------------------------------------------------------------------------------------------------------------------------------- Blue Chip Fund - ------------------------------------------------------------------------------------------------------------------------------- Tracy McCormick ( ) [ ] Managing Director, Zurich Scudder Investments, Inc. Vice President - ------------------------------------------------------------------------------------------------------------------------------- Focus Value+Growth Fund - ------------------------------------------------------------------------------------------------------------------------------- Lois Roman ( ) [ ] Managing Director, Zurich Scudder Investments, Inc. Vice President - ------------------------------------------------------------------------------------------------------------------------------- Research Fund - ------------------------------------------------------------------------------------------------------------------------------- Joanne M. Barry (41) [ ] Managing Director, Zurich Scudder Investments, Inc. Vice President - ------------------------------------------------------------------------------------------------------------------------------- Total Return Fund - ------------------------------------------------------------------------------------------------------------------------------- Gary A. Langbaum (52) [ ] Managing Director, Zurich Scudder Investments, Inc. Vice President - -------------------------------------------------------------------------------------------------------------------------------
70 Trustee's and Officer's Role with Principal Underwriter: Scudder Distributors, Inc. Mark S. Casady: Chairman and Director Linda C. Coughlin: Vice Chairperson and Director Thomas V. Bruns: President William F. Glavin: Vice President and Director Kathryn L. Quirk: Director, Secretary, Chief Legal Officer and Vice President Howard Schneider: Vice President Caroline Pearson: Assistant Secretary Linda J. Wondrack: Vice President and Chief Compliance Officer Phillip J. Collora: Assistant Secretary Trustee's Responsibilities. The officers of a Fund manage its day-to-day operations under the direction of each Fund's Board of Trustees. The primary responsibility of the Board is to represent the interests of the shareholders of the Fund and to provide oversight of the management of each Fund. A majority of each Fund's Board members are not affiliated with the Advisor. The Board meets periodically to review the investment performance of each Fund and other operational matters, including policies and procedures with respect to compliance with regulatory and other requirements. At least annually, the Trustees, including the Noninterested Trustees, review the fees paid to the Advisor and its affiliates for investment advisory services and other administrative and shareholder services. In this regard, they evaluate, among other things, each Fund's investment performance qualifications and experience of personnel of the Advisor rendering services, the quality and efficiency of the various other services provided, costs incurred by the Advisor and its affiliates, and the Advisor's profit, comparative information regarding fees, expenses and performance of competitive funds. In addition, the Board has adopted its own Governance Procedures and Guidelines and has established a number of committees, as described below. For each of the following Committees, the Board has adopted a written charter setting forth the Committees' responsibilities. Board Committees. Each Fund's Board has the following committees. Audit Committee: The Audit Committee makes recommendations regarding the selection of independent auditors for each Fund, confers with the independent auditors regarding each Fund's financial statements, the results of audits and related matters, and performs such other tasks as the full Board deems necessary or appropriate. The Audit Committee receives annual representations from the auditors as to their independence. The members of the Audit Committee are Donald L. Dunaway (Chairman), Robert B. Hoffman and William P. Sommers. The Audit Committee held four meetings during each Fund's last fiscal year. Nominating and Governance Committee: This Committee seeks and reviews candidates for consideration as nominees for membership on the Board and oversees the administration of each Fund's Governance Procedures and Guidelines. The members of the Nominating and Governance Committee are Lewis A. Burnham (Chairman), James R. Edgar and Shirley D. Peterson. The Nominating and Governance Committee held four meetings during each Fund's last fiscal year. Shareholders wishing to submit the name of a candidate for consideration as a Board member by the Committee should submit their recommendation(s) to the Secretary of the Fund. Valuation Committee: This Committee reviews Valuation Procedures adopted by the Board, determines fair value of a Fund's securities as needed in accordance with the Valuation Procedures and performs such other tasks as the full Board deems necessary. The members of the Valuation Committee are John W. Ballantine and Linda C. Coughlin. Alternative members are Lewis A. Burnham, Donald L. Dunaway, John G. Weithers, Mark S. Casady and William F. Glavin. The Valuation Committee held no meetings during each Fund's last fiscal year. Operations Committee: This Committee oversees the operations of a Fund, such as reviewing a Fund's administrative fees and expenses, distribution arrangements, portfolio transaction policies, custody and transfer agency arrangements, 71 shareholder services and proxy voting policies. Currently, the members of the Operations Committee are John W. Ballantine (Chairman), Fred B. Renwick and John G. Weithers. The Operations Committee held no meetings during a Fund's last fiscal year. Equity Oversight Committee: This Committee oversees investment activities of a Fund, such as investment performance and risk, expenses and services provided under the investment management agreement. The members of the Equity Oversight Committee are John G. Weithers (Chairman), Lewis A. Burnham and Robert B. Hoffman. The Equity Oversight Committee held no meetings during a Fund's last fiscal year. Trustee Fund Ownership Under each Fund's Governance Procedures and Guidelines, the Noninterested Trustees have established the expectation that within three years an Noninterested Trustee will have invested an amount in those funds he or she oversees (which shall include amounts held under a deferred fee agreement that are valued based on "shadow investments" in such funds) in the aggregate equal to at least one times the amount of the annual retainer received from such funds, with investments allocated to at least one money market, fixed-income and equity fund portfolio, where such an investment is suitable for the particular Noninterested Trustee's personal investment needs. Each interested trustee is also encouraged to own an amount of shares (based upon their own individual judgment) of those funds that he or she oversees that best fit his or her own appropriate investment needs. The following table sets forth each Trustee's share ownership of each Fund and all Scudder funds overseen by the Trustee as of December 31, 2001. Trustee Fund Ownership The following sets forth beneficial share ownership as of December 31, 2001.
Range of Fund Shares Range of Fund Shares Range of Fund Shares Range of Shares Owned Owned in Scudder Blue Owned in Scudder Total Owned in Scudder Focus of All Scudder Funds Name of Trustee Chip Fund Return Fund Value+Growth Fund Overseen by Trustee - --------------- --------- ----------- ----------------- ------------------- John W. Ballantine None None None Over $100,000 Lewis A. Burnham None None None Over $100,000 Mark Casady None None None Over $100,000 Linda C. Coughlin $1 - $10,000 None $1 - $10,000 Over $100,000 Donald L. Dunaway $10,001 - $50,000 $50,001 - $100,000 $10,001 - $50,000 Over $100,000 James R. Edgar None None None $50,001 - $100,000 William F. Glavin, Jr. None None $10,001 - $50,000 Over $100,000 Robert B. Hoffman None $10,001 - $50,000 None Over $100,000 Shirley D. Peterson None None $10,001 - $50,000 Over $100,000 Fred B. Renwick None None None $10,001 - $50,000 William P. Sommers None $1 - $10,000 None Over $100,000 John G. Weithers None $1 - $10,000 None Over $100,000
Range of Shares Owned Range of Fund Shares Owned in of All Scudder Funds Name of Trustee Scudder Research Fund Overseen by Director - --------------- --------------------- -------------------- John W. Ballantine None Over $100,000 Lewis A. Burnham None Over $100,000 Mark Casady None Over $100,000
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Range of Shares Owned Range of Fund Shares Owned in of All Scudder Funds Name of Trustee Scudder Research Fund Overseen by Director - --------------- --------------------- -------------------- Linda C. Coughlin None Over $100,000 Donald L. Dunaway $1 - $10,000 Over $100,000 James R. Edgar None $50,001 - $100,000 William F. Glavin, Jr. None Over $100,000 Robert B. Hoffman None Over $100,000 Shirley D. Peterson None Over $100,000 Fred B. Renwick None $10,001 - $50,000 William P. Sommers None Over $100,000 John G. Weithers None Over $100,000
Securities Beneficially Owned
Name of Owner(s) and Relationship to Name of Director Director Company Title of Class Value of Securities Percent of Class - ---------------- -------- ------- -------------- ------------------- ----------------
As of January 31, 2002, all Trustees and Officers of the Funds as a group owned beneficially (as that term is defined is section 13(d) of the Securities Exchange Act of 1934) less than 1% of each Fund. To the best of the Funds' knowledge, as of January 31, 2002, no [other] person owned beneficially more than 5% of each class of each Fund's outstanding shares.] The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048. REMUNERATION Responsibilities of the Board -- Board and Committee Meetings The Board of Trustees is responsible for the general oversight of each Fund's business. A majority of the Board's members are not affiliated with the Investment Manager or SDI. These "Independent Trustees" have primary responsibility for assuring that each Fund is managed in the interests of its shareholders. The Board of Trustees meets at least quarterly to review the investment performance of each Fund and certain operational matters, including policies and procedures designed to assure compliance with various regulatory requirements. At least annually, the Independent Trustees review the fees paid to the Advisor and its affiliates for investment advisory services and other administrative and shareholder services. In this regard, they evaluate, among other things, each Fund's investment performance, the quality and efficiency of the various other services provided, costs incurred by the Advisor 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. COMPENSATION OF OFFICERS AND DIRECTORS The Noninterested Trustees receive from the Fund a monthly retainer, paid on a quarterly basis, and an attendance fee, plus expenses, for each Board meeting and Committee meeting attended. The Trustees serve as board members of various other Scudder funds. The Advisor supervises a Fund's investments, pays the compensation and expenses of its personnel who serve as Trustees and officers on behalf of the Fund and receives a management fee for its services. Several of the officers and Trustees are also officers, directors, employees or stockholders of the Advisor and participate in the fees paid to that firm, 73 although the Fund does not make any direct payments to them. Trustees and officers of a Fund who are Interested Persons receive no compensation from a Fund. The Noninterested Trustees are not entitled to benefits under any Fund pension or retirement plan. The Board of Trustees of the Fund established a deferred compensation plan for the Noninterested Trustees ("Deferred Compensation Plan"). Under the Deferred Compensation Plan, the Noninterested Trustees may defer receipt of all, or a portion, of the compensation they earn for their services to the Fund, in lieu of receiving current payments of such compensation. Any deferred amount is treated as though an equivalent dollar amount has been invested in shares of one or more funds advised by the Advisor ("Shadow Shares"). Mr. Dunaway and Mr. Edgar have elected to defer at least a portion of their fees. The equivalent Shadow Shares are reflected above in the table describing the Trustee's share ownership.
Pension or Retirement Benefits Compensation Accrued as Compensation from from Scudder Compensation from Compensation Part of Name of Scudder Total Return Scudder Focus from Scudder Fund Total Compensation Trustee Blue Chip Fund Fund Value+GrowthFund Investors Trust Expenses Paid to Trustees(4)(5) - ------- -------------- ---- ---------------- --------------- -------- ---------------------- John W. $4,548 $7,695 $2,294 $740 $0 $183,980 Ballantine Lewis A. $4,287 $7,307 $2,164 $660 $0 $169,290 Burnham Donald L. $4,598 $7,835 $2,344 $670 $0 $181,430 Dunaway(1) James R. $2,240 $3,966 $1,120 $3,791 $0 $200,660 Edgar(2) Robert B. $4,049 $6,672 $2,125 $620 $0 $159,880 Hoffman Shirley D. $4,716 $8,119 $2,349 $720 $0 $189,830 Peterson(3) Fred B. $2,480 $3,720 $1,240 $3,874 $0 $214,990 Renwick William P. $4,539 $7,839 $2,249 $710 $0 $183,300 Sommers John G. $2,459 $3,852 $1,195 $3,809 $0 $206,000 Weithers
* Scudder Investors Trust consists of three funds: Scudder Focus Growth Fund, Scudder Research Fund and Scudder S&P 500 Stock Fund Fund. (1) Pursuant to a Deferred Compensation Plan, Mr. Dunaway previously elected in prior years to defer fees. Deferred amount are treated as though an equivalent dollar amount has been invested in Shadow Shares of funds managed by Scudder. Total deferred fees (including interest thereon and the return from the assumed investments in the funds (payable from the Funds to Mr. Dunaway are $10,166 for Blue Chip Fund, $30,593 for Scudder Total Return Fund and $1,405 for Focus Value+Growth Fund. (2) Includes deferred fees. Pursuant to a Deferred Compensation Plan, deferred amounts are treated as though an equivalent dollar amount has been invested in Shadow Shares of funds managed by Scudder in which compensation may be deferred by Mr. Edgar. Total deferred fees (including interest thereon and the return from the assumed investment in the funds) payable form the Funds to Mr. Edgar are $1,284 for Blue Chip Fund, $2,504 for Total Return Fund, $642 for Focus Value+Growth Fund and $175 for Research Fund. (3) Ms. Peterson received an additional amount of $18,960 in annual retainer fees in her role as Lead Director. 74 (4) Includes compensation for service on the boards of 33 trusts/corporations comprised of 85 funds/portfolio. (5) Aggregate compensation reflects amounts paid to the Trustees for numerous special meetings in connection with the proposed sale of the Advisor to Deutsche Bank. Such amounts totaled $10,340 for each Director. These meeting fees were borne by Scudder. FUND ORGANIZATION AND SHAREHOLDER RIGHTS Scudder Growth and Income Fund is a series of Investment Trust, a Massachusetts business trust established under a Declaration of Trust dated September 20, 1984, as amended from time to time. Scudder Research Fund is one of three series of Scudder Investors Trust (Scudder Focus Growth Fund and Scudder S&P 500 Stock Fund are the other two series in the Trust), a registered open-end management investment company organized as a business trust under the laws of Massachusetts on October 14, 1998. Scudder Blue Chip Fund is a registered open-end management investment company organized as a business trust under the laws of Massachusetts on May 28, 1987. Scudder Focus Value+Growth Fund is a registered open-end management investment company organized as a business trust under the laws of Massachusetts on June 14, 1985 under the name Kemper Value Plus Growth Fund and was known as Kemper Value+Growth Fund until June 11, 2001. Scudder Total Return Fund is a registered open-end management investment company organized as a business trust under the laws of Massachusetts on October 24, 1985, and effective January 31, 1986, the Fund pursuant to a reorganization succeeded to the assets and liabilities of Kemper Total Return Fund, Inc., a Maryland corporation organized in 1963. Scudder Total Return Fund was known as Balanced Income Fund, until 1972 and as Supervised investors Income Fund, Inc. until 1977. A Trust may issue an unlimited number of shares of beneficial interest in one or more series, all having a par value of $0.01 per share, which may be divided by the Board of Trustees into classes of shares. The Board of Trustees of a Fund may authorize the issuance of additional classes and additional Portfolios if deemed desirable, each with its own investment objective, policies and restrictions. Since a Trust may offer multiple series, it is known as a "series company." Shares of a series have equal noncumulative voting rights except that Class A, Class B and Class C shares have separate and exclusive voting rights with respect to each such class' Rule 12b-1 Plan. Shares of each class also have equal rights with respect to dividends, assets and liquidation of a Fund subject to any preferences (such as resulting from different Rule 12b-1 distribution and service fees), rights or privileges of any classes of shares of a Fund. Shares are fully paid and nonassessable when issued, are transferable without restriction and have no preemptive or conversion rights. If shares of more than one series are outstanding, shareholders will vote by series and not in the aggregate or by class except when voting in the aggregate is required under the 1940 Act, such as for the election of trustees, or when voting by class is appropriate. A Fund generally is not required to hold meetings of its shareholders. Under the Agreement and Declaration of Trust of a Fund ("Declaration of Trust"), however, shareholder meetings will be held in connection with the following matters: (a) the election or removal of trustees if a meeting is called for such purpose; (b) the adoption of any contract for which approval by shareholders is required by the 1940 Act; (c) any reorganization or termination of a Fund or a class to the extent and as provided in the Declaration of Trust; (d) any amendment of the Declaration of Trust to the extent and as provided in the Declaration of Trust (other than amendments changing the name of a Fund, supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision thereof); and (e) such additional matters as may be required by law, the Declaration of Trust, the By-laws of a Fund, or any registration of a Fund with the SEC or any state, or as a Trustees may consider necessary or desirable. The shareholders also would vote upon changes in fundamental policies or restrictions. Any matter shall be deemed to have been effectively acted upon with respect to a Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any successor rule, and in a Trust's Declaration of Trust. As used in the Prospectuses and in this Statement of Additional Information, the term "majority", when referring to the approvals to be obtained from 75 shareholders in connection with general matters affecting a Fund and all additional portfolios (e.g., election of directors), means the vote of the lesser of (i) 67% of a 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 a Trust'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. Each Trustee serves until the next meeting of shareholders, if any, called for the purpose of electing trustees and until the election and qualification of a successor or until such trustee sooner dies, resigns, retires or is removed by a majority vote of the Shares entitled to vote (as described below) or a majority of a Trustees. In accordance with the 1940 Act (a) a Fund will hold a shareholder meeting for the election of trustees at such time as less than a majority of a Trustees have been elected by shareholders, and (b) if, as a result of a vacancy in the Board of Trustees, less than two-thirds of a Trustees have been elected by the shareholders, that vacancy will be filled only by a vote of the shareholders. Any of a Trustees may be removed (provided the aggregate number of Trustees after such removal shall not be less than one) with cause, by the action of two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting of shareholders by vote of two-thirds of the Outstanding Shares. A Trustees shall promptly call a meeting of the shareholders for the purpose of voting upon the question of removal of any such Trustee or Trustees when requested in writing to do so by the holders of not less than ten percent of the Outstanding Shares, and in that connection, a Trustees will assist shareholder communications to the extent provided for in Section 16(c) under the 1940 Act. A Fund's Declaration of Trust specifically authorizes the Board of Trustees to terminate a Fund or any Portfolio or class by notice to the shareholders without shareholder approval. Under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for obligations of a Fund. The Declaration of Trust, however, disclaims shareholder liability for acts or obligations of a Fund and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by a Fund or a Fund's trustees. Moreover, the Declaration of Trust provides for indemnification out of Fund property for all losses and expenses of any shareholder held personally liable for the obligations of a Fund and a Fund will be covered by insurance which a Trustees consider adequate to cover foreseeable tort claims. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered by the Advisor remote and not material, since it is limited to circumstances in which a disclaimer is inoperative and a Fund itself is unable to meet its obligations. The assets of a 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 a 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 a Trust, subject to the general supervision of a 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 a 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. A Fund's activities are supervised by a Trust's Board of Trustees. A Trust has adopted a plan pursuant to Rule 18f-3 (the "Plan") under the 1940 Act to permit a Trust to establish a multiple class distribution system. Under the Plan, shares of each class represent an equal pro rata interest in a 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 76 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 a Trust's Board of Trustees under the Plan include, for example, transfer agency fees attributable to a specific class, and certain securities registration fees. ADDITIONAL INFORMATION Internet Access World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com. These sites offer guidance on global investing and developing strategies to help meet financial goals and provides access to the Scudder investor relations department via e-mail. The sites also enable users to access or view Fund prospectuses and profiles with links between summary information in Fund Summaries and details in the Prospectus. Users can fill out new account forms on-line, order free software, and request literature on Funds. Account Access -- The Advisor is among the first mutual fund families to allow shareholders to manage their fund accounts through the World Wide Web. Scudder Fund shareholders can view a snapshot of current holdings, review account activity and move assets between Scudder Fund accounts. The Advisor'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. Other Information The CUSIP numbers for each class of Blue Chip Fund are: Class A: 8111P-100 Class B: 8111P-209 Class C: 8111P-308 Class I: 8111P-407 Blue Chip Fund has a fiscal year ending of October 31. The CUSIP numbers for each class of Total Return Fund are: Class A: 81123H-104 Class B: 81123H-203 Class C: 81123H-302 Class I: 81123H-401 Total Return Fund has a fiscal year ending October 31. The CUSIP numbers for each class of Focus Value+Growth Fund are: Class A: 81114W-102 77 Class B: 81114W-201 Class C: 81114W-300 Class I: 81114W-409 Focus Value+Growth Fund has a fiscal year ending November 30. The CUSIP numbers for each class of Research Fund are: Class A: 811166-404 Class B: 811166-503 Class C: 811166-602 Research Fund has a fiscal year ending August 31. The CUSIP numbers for each class of Growth and Income Fund are: Class A: 460965-27 Class B: 460965-619 Class C: 460965-593 On February 7, 2000, the Board of Growth and Income Fund changed the fiscal year end from December 31 to September 30. Many of the investment changes in a Fund will be made at prices different from those prevailing at the time they may be reflected in a regular report to shareholders of a Fund. These transactions will reflect investment decisions made by the Advisor in light of a 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. This Statement of Additional Information contains the information of Blue Chip Fund, Research Fund, Growth and Income Fund, Focus Value+Growth Fund and Total Return Fund. Each Fund, through its combined prospectus, offers only its own share classes, yet it is possible that one Fund might become liable for a misstatement regarding the other Fund. The Funds' prospectus and this Statement of Additional Information omit certain information contained in the Registration Statement and its amendments which each 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 a 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 Scudder Blue Chip Fund The financial statements, including the investment portfolio of Blue Chip Fund, together with the Report of Independent Auditors, Financial Highlights and notes to financial statements in the Annual Report to Shareholders of the Fund dated October 31, 2001 are incorporated herein by reference and are hereby deemed to be a part of this combined Statement of Additional Information. Scudder Total Return Fund The financial statements, including the investment portfolio of Total Return Fund, together with the Report of Independent Auditors, Financial Highlights and notes to financial statements in the Annual Report to Shareholders of the Fund dated 78 October 31, 2001 are incorporated herein by reference and are hereby deemed to be a part of this combined Statement of Additional Information. Scudder Focus Value+Growth Fund The financial statements, including the investment portfolio of Focus Value+Growth Fund, together with the Report of Independent Auditors, Financial Highlights and notes to financial statements in the Annual Report to Shareholders of the Fund dated November 30, 2001 are incorporated herein by reference and are hereby deemed to be a part of this combined Statement of Additional Information. Scudder Research Fund The financial statements, including the investment portfolio of Research Fund, together with the Report of Independent Auditors, Financial Highlights and notes to financial statements in the Annual Report to Shareholders of the Fund dated August 31, 2001 are incorporated herein by reference and are hereby deemed to be a part of this combined Statement of Additional Information. Scudder Growth and Income Fund The financial statements, including the investment portfolio of Growth and Income Fund, together with the Report of Independent Accountants, Financial Highlights and notes to financial statements in the Annual Report to Shareholders of the Fund dated September 30, 2001 are incorporated herein by reference and are hereby deemed to be a part of this combined Statement of Additional Information. 79 APPENDIX The following is a description of the ratings given by Moody's and S&P to corporate bonds. Ratings of Corporate Bonds S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. The rating CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating C1 is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period had not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Moody's: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative 80 elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Fitch Long-Term Debt Ratings AAA. Highest credit quality. 'AAA' ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA. Very high credit quality. 'AA' ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A. High credit quality. 'A' ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB. Good credit quality. 'BBB' ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. BB. Speculative. 'BB' ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B. Highly speculative. 'B' ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC, CC, C. High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A 'CC' rating indicates that default of some kind appears probable. 'C' ratings signal imminent default. DDD, DD, D. Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. 'DDD' obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest. 'DD' indicates potential recoveries in the range of 50%-90%, and 'D' the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated 'DDD' have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated 'DD' and 'D' are generally undergoing a formal reorganization or liquidation process; those rated 'DD' are likely to satisfy a higher portion of their outstanding obligations, while entities rated 'D' have a poor prospect for repaying all obligations. Fitch Short-Term Debt Ratings F1. Highest credit quality. Indicates the Best capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F2. Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. F3. Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade. 81 B. Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions. C. High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. D. Default. Denotes actual or imminent payment default. Commercial Paper Ratings Commercial paper rated by Standard & Poor's Ratings Services ("S&P") has the following characteristics: Liquidity ratios are adequate to meet cash requirements. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. Relative strength or weakness of the above factors determine whether the issuer's commercial paper is rated A-1 or A-2. The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors considered by it in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Relative strength or weakness of the above factors determines whether the issuer's commercial paper is rated Prime-1 or 2. Municipal Notes Moody's: The highest ratings for state and municipal short-term obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the case of an issue having a variable rate demand feature). Notes rated "MIG 1" or "VMIG 1" are judged to be of the "best quality". Notes rated "MIG 2" or "VMIG 2" are of "high quality," with margins or protection "ample although not as large as in the preceding group". Notes rated "MIG 3" or "VMIG 3" are of "favorable quality," with all security elements accounted for but lacking the strength of the preceding grades. S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay principal and interest". Notes issued with "overwhelming safety characteristics" will be rated "SP-1+". The "SP-2" rating reflects a "satisfactory capacity" to pay principal and interest. Fitch: The highest ratings for state and municipal short-term obligations are "F-1+," "F-1," and "F-2." 82 Standard & Poor's Earnings and Dividend Rankings for Common Stocks The investment process involves assessment of various factors -- such as product and industry position, corporate resources and financial policy -- with results that make some common stocks more highly esteemed than others. In this assessment, Standard & Poor believes that earnings and dividend performance is the end result of the interplay of these factors and that, over the long run, the record of this performance has a considerable bearing on relative quality. The rankings, however, do not pretend to reflect all of the factors, tangible or intangible, that bear on stock quality. Relative quality of bonds or other debt, that is, degrees of protection for principal and interest, called creditworthiness, cannot be applied to common stocks, and therefore rankings are not to be confused with bond quality ratings which are arrived at by a necessarily different approach. Growth and stability of earnings and dividends are deemed key elements in establishing Standard & Poor's earnings and dividend rankings for common stocks, which are designed to capsulize the nature of this record in a single symbol. It should be noted, however, that the process also takes into consideration certain adjustments and modifications deemed desirable in establishing such rankings. The point of departure in arriving at these rankings is a computerized scoring system based on per-share earnings and dividend records of the most recent ten years -- a period deemed long enough to measure significant time segments of secular growth, to capture indications of basic change in trend as they develop, and to encompass the full peak-to-peak range of the business cycle. Basic scores are computed for earnings and dividends, then adjusted as indicated by a set of predetermined modifiers for growth, stability within long-term trend, and cyclicality. Adjusted scores for earnings and dividends are then combined to yield a final score. Further, the ranking system makes allowance for the fact that, in general, corporate size imparts certain recognized advantages from an investment standpoint. Conversely, minimum size limits (in terms of corporate sales volume) are set for the various rankings, but the system provides for making exceptions where the score reflects an outstanding earnings-dividend record. The final score for each stock is measured against a scoring matrix determined by analysis of the scores of a large and representative sample of stocks. The range of scores in the array of this sample has been aligned with the following ladder of rankings: A+ Highest B+ Average C Lowest A High B Below Average D In Reorganization A- Above Average B- Lower NR signifies no ranking because of insufficient data or because the stock is not amenable to the ranking process. The positions as determined above may be modified in some instances by special considerations, such as natural disasters, massive strikes, and non-recurring accounting adjustments. A ranking is not a forecast of future market price performance, but is basically an appraisal of past performance of earnings and dividends, and relative current standing. These rankings must not be used as market recommendations; a high-score stock may at times be so overpriced as to justify its sale, while a low-score stock may be attractively priced for purchase. Rankings based upon earnings and dividend records are no substitute for complete analysis. They cannot take into account potential effects of management changes, internal company policies not yet fully reflected in the earnings and dividend record, public relations standing, recent competitive shifts, and a host of other factors that may be relevant to investment status and decision. 83 SCUDDER BLUE CHIP FUND PART C. OTHER INFORMATION
Item 23. Exhibits. -------- --------- (a) Amended and Restated Declaration of Trust (Incorporated by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement.) (a)(1) Certificate of Amendment of Declaration of Trust dated June 11, 2001 (Filed herein) (b) By-laws (Incorporated by reference to Post-Effective Amendment No. 12 to Registrant's Registration Statement.) (b)(2) Amendment to the By-laws (Incorporated by reference to Post-Effective Amendment No. 20 to Registrant's Registration Statement.) (c)(1) Text of Share Certificate. (Incorporated by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement.) (c)(2) Written Instrument Establishing and Designating Separate Classes of Shares (Incorporated by reference to Post-Effective Amendment No. 12 to the Registrant's Registration Statement.) (c)(3) Amended and Restated Written Instrument Establishing and Designating Separate Classes of Shares. (Incorporated by reference to Post-Effective Amendment No. 13 to the Registrant's Registration Statement.) (d)(1) Investment Advisory Contracts (IMA) between the Registrant and Scudder Kemper Investments, Inc. dated September 7, 1998. (Incorporated by reference to Post-Effective Amendment No. 15 to the Registrant's Registration Statement..) (e)(1) Underwriting and Distribution Services Agreement between the Registrant and Kemper Distributors, Inc. dated September 7, 1998. (Incorporated by reference to Post-Effective Amendment No. 15 to the Registrant's Registration Statement.) (f) Inapplicable. (g)(1) Foreign Custody Agreement between the Registrant, on behalf of Scudder Blue Chip Fund, and The Chase Manhattan Bank. (Incorporated by reference to Post-Effective Amendment No. 12 to Registrant's Registration Statement.) Custodian Agreement dated March 3, 1999 between the Registrant and State (g)(2) Street Bank and Trust Company. (Incorporated by reference to Post-Effective Amendment No. 20 to Registrant's Registration Statement.) Amendment to Custody Contract dated March 31, 1999 between the Registrant (g)(2)(a) and State Street Bank and Trust Company (Incorporated by reference to Post-Effective Amendment No. 20 to Registrant's Registration Statement.) Amendment to Custody Contract dated July 2, 2001 between the Registrant and State Street Bank and Trust Company (g)(2)(b) (Filed herein) (h)(1) Agency Agreement. (Incorporated by reference to Post-Effective Amendment No. 12 to Registrant's Registration Statement.) (h)(1)(a) Supplement to Agency Agreement dated January 1, 1999 (Incorporated by reference to Post-Effective Amendment No. 20 to Registrant's Registration Statement.) (h)(1)(b) Supplement to Agency Agreement between Registrant and Investors Fiduciary Trust Company dated June 1, 1997. (Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's Registration Statement.) (h)(2) Administrative Services Agreement between the Registrant and Kemper Distributors, Inc. dated April 1, 1997. (Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's Registration Statement.) (h)(2)(a) Administrative Services Agreement with Zurich Scudder Investments, Inc., dated July 1, 2001. (Filed herein) (h)(2)(b) Amended Fee Schedule for Administrative Services Agreement dated January 1, 2000 (Incorporated by reference to Post-Effective Amendment No. 20 to Registrant's Registration Statement.) (h)(3) Fund Accounting Agreement between the Registrant and Scudder Fund Accounting Corporation dated December 31, 1997. (Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's Registration Statement.) (i) Opinion of Legal Counsel. (Filed herein) (j) Report and Consent of Independent Auditors. (Filed herein) (k) Inapplicable. (l) Inapplicable. (m)(1) Rule 12b-1 Plan between Scudder Blue Chip Fund (Class B Shares) and Kemper Distributors, Inc. dated August 1, 1998. (Incorporated by reference to Post-Effective Amendment No. 15 to the Registrant's Registration Statement.) (m)(2) Rule 12b-1 Plan between Scudder Blue Chip Fund (Class C Shares) and Kemper Distributors, Inc. dated September 7, 1998. (Incorporated by reference to Post-Effective Amendment No. 15 to the Registrant's Registration Statement.) (m)(3) Rule 12b-1 Plan between Scudder Blue Chip Fund (Class A Shares) and Scudder Distributors, Inc. dated July 1, 2001. (Filed herein) (m)(4) Amended and Restated Rule 12b-1 Plan between Scudder Blue Chip Fund (Class B Shares) and Scudder Distributors, Inc. dated July 1, 2001. (Filed herein) (m)(5) Amended and RestatedRule 12b-1 Plan between Scudder Blue Chip Fund (Class C Shares) and Scudder Distributors, Inc. dated July 1, 2001. (Filed herein) (m)(6) Shareholder Services Agreement dated July 1, 2001 between Scudder Blue Chip Fund and Scudder Distributors, Inc. (Filed herein) (n) Rule 18f-3 Plan. (Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's Registration Statement.) (n)(1) Amended and Restated 18f-3 Plan dated July 1, 2001. (Filed herein) (p)(1) Scudder Kemper Investments, Inc. and Kemper Distributors Code of Ethics (Incorporated by reference to Post-Effective Amendment No. 20 to Registrant's Registration Statement.) (p)(2) Code of Ethics of the Registrant (Incorporated by reference to Post-Effective Amendment No. 20 to Registrant's Registration Statement.) (p)(2)(a) Amended and Restated Code of Ethics of the Registrant (Filed herein)
Item 24. Persons Controlled by or under Common Control with Fund. - -------- -------------------------------------------------------- None Item 25. Indemnification. - -------- ---------------- Article VIII of the Registrant's Agreement and Declaration of Trust (Exhibit (a)(1) hereto, which is incorporated herein by reference) provides in effect that the Registrant will indemnify its officers and trustees under certain circumstances. However, in accordance with Section 17(h) and 17(i) of the Investment Company Act of 1940 and its own terms, said Article of the Agreement and Declaration of Trust does not protect any person against any liability to the Registrant or its shareholders to which such Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Each of the trustees who is not an "interested person" (as defined under the Investment Company Act of 1940) of Registrant (a "Non-interested Trustee") has entered into an indemnification agreement with Registrant, which agreement provides that the Registrant shall indemnify the Non-interested Trustee against certain liabilities which such Trustee may incur while acting in the capacity as a trustee, officer or employee of the Registrant to the fullest extent permitted by law, now or in the future, and requires indemnification and advancement of expenses unless prohibited by law. The indemnification agreement cannot be altered without the consent of the Non-interested Trustee and is not affected by amendment of the Agreement and Declaration of Trust. In addition, the indemnification agreement adopts certain presumptions and procedures which may make the process of indemnification and advancement of expenses, more timely, efficient and certain. In accordance with Section 17(h) of the Investment Company Act of 1940, the indemnification agreement does not protect a Non-interested Trustee against any liability to the Registrant or its shareholders to which such Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. The Registrant has purchased insurance policies insuring its officers and trustees against certain liabilities which such officers and trustees may incur while acting in such capacities and providing reimbursement to the Registrant for sums which it may be permitted or required to pay to its officers and trustees by way of indemnification against such liabilities, subject to certain deductibles. On December 3, 2001, the majority owners of Zurich Scudder Investments, Inc. ("Scudder") entered into a transaction agreement with Deutsche Bank whereby Deutsche Bank would acquire 100% of Scudder, not including certain U.K. Operations (the "Transaction"). In connection with the Trustees' evaluation of the Transaction, Deutsche Bank agreed to indemnify, defend and hold harmless Registrant and the trustees who were not "interested persons" of Scudder, Deutsche Bank or Registrant (the "Independent Trustees") for and against any liability and claims and expenses based upon or arising from, whether in whole or in part, or directly or indirectly, any untrue statement or alleged untrue statement of a material fact made to the Independent Trustees by Deutsche Bank in connection with the Independent Trustees' consideration of the Transaction, or any omission or alleged omission of a material fact necessary in order to make statements made, in light of the circumstances under which they were made, not misleading. Item 26. Business and Other Connections of Investment Adviser - -------- ---------------------------------------------------- Zurich Scudder 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.
Name Business and Other Connections of Board of Directors of Registrant's Advisor - ---- ---------------------------------------------------------------------------- Lynn S. Birdsong Director and Vice President, Zurich Scudder Investments, Inc.** Director and Chairman, Scudder Investments (Luxembourg) S.A.# Director, Scudder Investments (U.K.) Ltd. oo Director and Chairman of the Board, Scudder Investments Asia, Ltd. ooo Director and Chairman, Scudder Investments Japan, Inc.+ Senior Vice President, Scudder Investor Services, Inc. Director and Chairman, Scudder Trust (Cayman) Ltd.@@@ Director, Scudder, Stevens & Clark Australia x Director and Vice President, Zurich Investment Management, Inc. xx Director and President, Scudder, Stevens & Clark Corporation** Director and President, Scudder , Stevens & Clark Overseas Corporation o Director, Scudder Threadneedle International Ltd. Director, Korea Bond Fund Management Co., Ltd.@@ Nicholas Bratt Director and Vice President, Zurich Scudder Investments, Inc.** Vice President, Scudder MAXXUM Company*** Vice President, Scudder, Stevens & Clark Corporation** Vice President, Scudder, Stevens & Clark Overseas Corporation o Laurence W. Cheng Director, Zurich Scudder Investments, Inc.** Member, Corporate Executive Board, Zurich Insurance Company of Switzerland## Director, ZKI Holding Corporation xx Name Business and Other Connections of Board of Directors of Registrant's Advisor - ---- ---------------------------------------------------------------------------- Martin Feinstein Director, Zurich Scudder Investments, Inc.** Steven Gluckstern Director, Chairman of the Board, Zurich Scudder Investments, Inc.** Chief Executive Officer, Zurich Global Asset Business Gunther Gose Director, Zurich Scudder Investments, Inc.** CFO, Member Group Executive Board, Zurich Financial Services, Inc.## CEO/Branch Offices, Zurich Life Insurance Company## Harold D. Kahn Treasurer and Chief Financial Officer, Zurich Scudder Investments, Inc.** Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Zurich Scudder Investments, Inc.** Director and Secretary, Scudder, Stevens & Clark Overseas Corporation o 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.* Director, Vice President & Assistant Secretary, Scudder Precious Metals, Inc.*** Director, Vice President & Secretary, Scudder, Stevens & Clark of Canada, Ltd.*** Director, Vice President & Secretary, Scudder Canada Investor Services Ltd.*** Director, Vice President & Secretary, Scudder Realty Advisers, Inc.@ Director and Secretary, Scudder, Stevens & Clark Corporation** Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.** Director, Vice President and Secretary, Scudder Capital Asset Corporation** Director, Vice President and Secretary, Scudder Capital Stock Corporation** Director, Vice President and Secretary, Scudder Capital Planning Corporation** Director, Vice President and Secretary, SS&C Investment Corporation** Director, Vice President and Secretary, SIS Investment Corporation** Director, Vice President and Secretary, SRV Investment Corporation** Director, Vice President, Chief Legal Officer and Secretary, Scudder Financial Services, Inc.* Director, Korea Bond Fund Management Co., Ltd.@@ Director, Scudder Threadneedle International Ltd. Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd. Director, Scudder Investments Japan, Inc.+ Director and Secretary, Scudder Kemper Holdings (UK) Ltd. oo Director and Secretary, Zurich Investment Management, Inc. xx Director, Secretary, Chief Legal Officer and Vice President, Scudder Distributors, Inc. Director and Secretary, Scudder Investments Service Company Farhan Sharaff Chief Investment Officer, Zurich Scudder Investments, Inc.** Name Business and Other Connections of Board of Directors of Registrant's Advisor - ---- ---------------------------------------------------------------------------- Edmond D. Villani Director, President and Chief Executive Officer, Zurich Scudder Investments, Inc.** Director, Scudder, Stevens & Clark Japan, Inc.### President and Director, Scudder, Stevens & Clark Overseas Corporation o President and Director, Scudder, Stevens & Clark Corporation** Director, Scudder Realty Advisors, Inc.@ Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg Director, Scudder Threadneedle International Ltd. oo Director, Scudder Investments Japan, Inc.+ Director, Scudder Kemper Holdings (UK) Ltd. oo President and Director, Zurich Investment Management, Inc. xx Director and Deputy Chairman, Scudder Investment Holdings, Ltd.
* Two International Place, Boston, MA @ 333 South Hope Street, Los Angeles, CA ** 345 Park Avenue, New York, NY # Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564 *** Toronto, Ontario, Canada @@@ Grand Cayman, Cayman Islands, British West Indies o 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan ### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan xx 222 S. Riverside, Chicago, IL xxx Zurich Towers, 1400 American Ln., Schaumburg, IL @@ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies ## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland oo 1 South Place 5th floor, London EC2M 2ZS England ooo One Exchange Square 29th Floor, Hong Kong + Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon, Minato-ku, Tokyo 105-0001 x Level 3, 5 Blue Street North Sydney, NSW 2060 Item 27. Principal Underwriters - -------- ---------------------- (a) Scudder Distributors, Inc. acts as principal underwriter of the Registrant's shares and acts as principal underwriter of other funds managed by Zurich Scudder Investments, Inc. (b) Information on the officers and directors of Scudder Distributors, Inc., principal underwriter for the Registrant is set forth below. The principal business address is 222 South Riverside Plaza, Chicago, Illinois 60606.
(1) (2) (3) Scudder Distributors, Inc. Name and Principal Positions and Offices with Positions and Business Address Scudder Distributors, Inc. Offices with Registrant ---------------- -------------------------- ----------------------- Mark S. Casady Chairman and Director President, Trustee Two International Place Boston, MA 02110-4103 (1) (2) (3) Scudder Distributors, Inc. Name and Principal Positions and Offices with Positions and Business Address Scudder Distributors, Inc. Offices with Registrant ---------------- -------------------------- ----------------------- Linda C. Coughlin Vice Chairman and Director Vice President, Chairperson, Two International Place Trustee Boston, MA 02110-4103 William F. Glavin Vice President and Director Trustee Two International Place Boston, MA 02110-4103 Thomas V. Bruns President None 222 South Riverside Plaza Chicago, IL 60606 James J. McGovern Chief Financial Officer and Treasurer None 345 Park Avenue New York, NY 10054 Paula Gaccione Secretary None 345 Park Avenue New York, NY 10054 Linda J. Wondrack Vice President and Chief Compliance Vice President Two International Place Officer Boston, MA 02110-4103 Susan K. Crawshaw Vice President None 222 South Riverside Plaza Chicago, IL 60606 Scott B. David Vice President None Two International Place Boston, MA 02110-4103 Robert Froelich Vice President None 222 South Riverside Plaza Chicago, IL 60606 Michael L. Gallagher Vice President None 222 South Riverside Plaza Chicago, IL 60606 Robert J. Guerin Vice President None Two International Place Boston, MA 02110-4103 Michael E. Harrington Vice President None 222 South Riverside Plaza Chicago, IL 60606 Dean Jackson Vice President None 222 South Riverside Plaza Chicago, IL 60606 (1) (2) (3) Scudder Distributors, Inc. Name and Principal Positions and Offices with Positions and Business Address Scudder Distributors, Inc. Offices with Registrant ---------------- -------------------------- ----------------------- Terrance S. McBride Vice President None 222 South Riverside Plaza Chicago, IL 60606 C. Perry Moore Vice President None 222 South Riverside Plaza Chicago, IL 60606 Johnston A. Norris Vice President None 222 South Riverside Plaza Chicago, IL 60606 Howard S. Schneider Vice President None Two International Place Boston, MA 02110-4103 Todd N. Gierke Assistant Treasurer None 222 South Riverside Plaza Chicago, IL 60606 James E. Keating Assistant Treasurer None 345 Park Avenue New York, NY 10054 Philip J. Collora Assistant Secretary Vice President, Assistant 222 South Riverside Plaza Secretary Chicago, IL 60606 Caroline Pearson Assistant Secretary Assistant Secretary Two International Place Boston, MA 02110-4103 Diane E. Ratekin Assistant Secretary None 222 South Riverside Plaza Chicago, IL 60606
(c) Not applicable Item 28. Location of Accounts and Records - -------- -------------------------------- Accounts, books and other documents are maintained at the offices of the Registrant, the offices of Registrant's investment adviser, Zurich Scudder Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the offices of the Registrant's principal underwriter, Scudder Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records concerning custodial functions, at the offices of the custodian, State Street Bank and Trust Company ("State Street"), 225 Franklin Street, Boston, MA 02110 or, in the case of records concerning transfer agency functions, at the offices of State Street and of the shareholder service agent, Scudder Investments Service Company, 811 Main Street, Kansas City, Missouri 64105. Item 29. Management Services. - -------- -------------------- Inapplicable. Item 30. Undertakings. - -------- ------------- Inapplicable. 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 26th day of February 2002. Scudder Blue Chip Fund By: /s/Mark S. Casady ---------------------------- Mark S. Casady, President (Chief Executive Officer) Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below on February 26, 2002 on behalf of the following persons in the capacities indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ John W. Ballantine - -------------------------------------- John W. Ballantine* Trustee February 26, 2002 /s/ Lewis A. Burnham - -------------------------------------- Lewis A. Burnham* Trustee February 26, 2002 /s/Linda C. Coughlin - -------------------------------------- Linda C. Coughlin Trustee February 26, 2002 /s/ Donald L. Dunaway - -------------------------------------- Donald L. Dunaway* Trustee February 26, 2002 /s/ Robert B. Hoffman - -------------------------------------- Robert B. Hoffman* Trustee February 26, 2002 /s/ Donald R. Jones - -------------------------------------- Donald R. Jones* Trustee February 26, 2002 /s/ Shirley D. Peterson - -------------------------------------- Shirley D. Peterson* Trustee February 26, 2002 /s/ William P. Sommers - -------------------------------------- William P. Sommers* Trustee February 26, 2002 /s/Gary L. French - -------------------------------------- Gary L. French Treasurer (Chief Financial Officer) February 26, 2002
By: /s/John Millette -------------------------- John Millette, Secretary** **John Millette signs this document pursuant to powers of attorney filed herein. File No. 33-17777 File No. 811-5357 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBITS TO FORM N-1A POST-EFFECTIVE AMENDMENT NO. 21 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND AMENDMENT NO. 21 TO REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 SCUDDER BLUE CHIP FUND SCUDDER BLUE CHIP FUND EXHIBIT INDEX (a)(1) (g)(2)(b) (h)(2)(a) (i) (j) (m)(3) (m)(4) (m)(5) (m)(6) (n)(1) (p)(2)(a) EX-99.A 3 exa1-bcf.txt Exhibit (a)(1) KEMPER BLUE CHIP FUND Certificate of Amendment of Declaration of Trust ------------------------------------------------ The undersigned, being a majority of the duly elected and qualified Trustees of Kemper Blue Chip Fund, a Massachusetts business trust (the "Trust"), acting pursuant to the authority granted to the Board of Trustees in the Amended and Restated Agreement and Declaration of Trust dated May 27, 1994 (the "Declaration of Trust"), do hereby certify that the Board of Trustees unanimously adopted the resolution set forth below at a meeting called, convened and held on November 29, 2000: RESOLVED, that, pursuant to the authority granted to the Board of Trustees in the Declaration of Trust, the Declaration of Trust shall be amended to change the name of the Trust as set forth below, effective as of June 11, 2001, 2001, and, further, that the execution by a majority of the members of this Board of an appropriate instrument in writing reflecting the change of the name of the Trust, and the filing of such instrument with the office of the Secretary of State of The Commonwealth of Massachusetts be, and hereby is, approved: The name of the Trust shall be changed from "Kemper Blue Chip Fund" to "Scudder Blue Chip Fund." IN WITNESS WHEREOF, the undersigned have this day signed this Certificate. /s/John W. Ballantine /s/Donald R. Jones - -------------------------------- ---------------------------------- John W. Ballantine, Trustee Donald R. Jones, Trustee /s/Lewis A. Burnham /s/Thomas W. Littauer - -------------------------------- ---------------------------------- Lewis A. Burnham, Trustee Thomas W. Littauer, Trustee /s/Linda C. Coughlin /s/Shirley D. Peterson - -------------------------------- ---------------------------------- Linda C. Coughlin, Trustee Shirley D. Peterson, Trustee /s/Donald L. Dunaway /s/William P. Sommers - -------------------------------- ---------------------------------- Donald L. Dunaway, Trustee William P. Sommers, Trustee /s/Robert B. Hoffman - -------------------------------- Robert B. Hoffman, Trustee Dated: November 29, 2000 EX-99.G 4 exg2b-bcf.txt Exhibit (g)(1)(b) AMENDMENT TO CUSTODIAN CONTRACT This Amendment to the Custodian Contract is made as of July 2, 2001, by and between SCUDDER BLUE CHIP FUND (the "Fund") and State Street Bank and Trust Company (the "Custodian"). Capitalized terms used in this Amendment without definition shall have the respective meanings given to such terms in the Custodian Contract referred to below. WHEREAS, the Fund and the Custodian entered into a Custodian Contract dated as of March 3, 1999 (as amended and in effect from time to time, the "Contract"); and WHEREAS, the Fund and the Custodian desire to amend certain provisions of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") and the adoption of Rule 17f-7 ("Rule 17f-7") promulgated under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund and the Custodian desire to amend and restate certain other provisions of the Contract relating to the custody of assets of the Fund held outside of the United States. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Contract, pursuant to the terms thereof, as follows: I. Article 3 of the Contract is hereby deleted, and Articles 4 through 19 of the Contract are hereby renumbered, as of the effective date of this Amendment, as Articles 5 through 20, respectively. II. New Articles 3 and 4 of the Contract are hereby added, as of the effective date of this Amendment, as set forth below. 3. Provisions Relating to Rules 17f-5 and 17f-7 -------------------------------------------- 3.1. Definitions. Capitalized terms in this Amendment shall have the following meanings: "Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country. "Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned direct or indirect subsidiary of a U.S. Bank (as defined in Section (a)(7) of Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the U.S. 1 Securities and Exchange Commission (the "SEC")), or a foreign branch of a Bank (as defined in Section.2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository. "Eligible Securities Depository" has the meaning set forth in section (b)(1) of Rule 17f-7. "Foreign Assets" means any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments. "Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule 17f-5. 3.2. The Custodian as Foreign Custody Manager. ---------------------------------------- 3.2.1 Delegation to the Custodian as Foreign Custody Manager. The Fund, by resolution adopted by its Board of Trustees (the "Board"), hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets of the Fund held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Fund. 3.2.2 Countries Covered. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Contract, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Fund, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof. Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board on behalf of the Fund responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Amendment by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Contract. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of the Fund with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of the Fund to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Fund with respect to that country. 2 In the event that the Foreign Custody Manager determines that no Eligible Foreign Custodian in the designated market satisfies the requirements of Rule 17f-5, the Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to such designated market satisfies the requirements of Rule 17f-5, the Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to such designated country upon written notice to the Fund. Sixty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn. 3.2.3 Scope of Delegated Responsibilities: ----------------------------------- (a) Selection of Eligible Foreign Custodians. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation, the factors specified in Rule 17f-5(c)(1). (b) Contracts With Eligible Foreign Custodians. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2). (c) Monitoring. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) performance of the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder. 3.2.4 Guidelines for the Exercise of Delegated Authority. For purposes of this Section 3.2, the Board, directly or by delegation to its duly authorized investment adviser or investment manager, shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Fund. 3.2.5 Reporting Requirements. At least annually and more frequently as the Board deems reasonable and appropriate based on the circumstances, the Custodian shall provide the Board with written reports specifying placement of the Fund's Foreign Assets with each 3 Eligible Foreign Custodian selected by the Custodian and shall promptly report to the Board, or its duly authorized investment adviser or manager, as to any material changes to such foreign custody arrangement. 3.2.6 Standard of Care as Foreign Custody Manager of the Fund. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise. 3.2.7 Representations with Respect to Rule 17f-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Contract to the Custodian as the Foreign Custody Manager of the Fund. 3.2.8 Effective Date and Termination of the Custodian as Foreign Custody Manager. The Board's delegation to the Custodian as Foreign Custody Manager of the Fund shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective sixty (60) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Fund with respect to designated countries. 3.3 Eligible Securities Depositories. -------------------------------- 3.3.1 Analysis and Monitoring. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment adviser) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment adviser) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7. 3.3.2 Standard of Care. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1. 4. Duties of the Custodian with Respect to Property of the Fund Held Outside ------------------------------------------------------------------------- the United States. ----------------- 4.1 Definitions. Capitalized terms in this Article 4 shall have the following meanings: 4 "Foreign Securities System" means an Eligible Securities Depository listed on Schedule B hereto. "Foreign Sub-Custodian" means a foreign banking institution serving as an Eligible Foreign Custodian. 4.2. Holding Securities. The Custodian shall identify on its books as belonging to the Fund the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Fund, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Fund which are maintained in such account shall identify those securities as belonging to the Fund and (ii) to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian. 4.3 Foreign Securities Systems. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country. 4.4. Transactions in Foreign Custody Account. --------------------------------------- 4.4.1. Delivery of Foreign Assets. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Fund held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (i) upon the sale of such foreign securities for the Fund in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System; (ii) in connection with any repurchase agreement related to foreign securities; (iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Fund; (iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable; 5 (v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; (vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct; (vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; (viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; (ix) for delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund; (x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (xi) in connection with the lending of foreign securities; and (xii) for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made. 4.4.2. Payment of Fund Monies. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of the Fund in the following cases only: (i) upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System; 6 (ii) in connection with the conversion, exchange or surrender of foreign securities of the Fund; (iii) for the payment of any expense or liability of the Fund, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Contract, legal fees, accounting fees, and other operating expenses; (iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians; (v) in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (vi) for payment of part or all of the dividends received in respect of securities sold short; (vii) in connection with the borrowing or lending of foreign securities; and (viii) for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made. 4.4.3. Market Conditions. Notwithstanding any provision of this Contract to the contrary, settlement and payment for Foreign Assets received for the account of the Fund and delivery of Foreign Assets maintained for the account of the Fund may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer. The Custodian shall provide to the Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had been previously provided hereunder. 4.5. Registration of Foreign Securities. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and, provided that a nominee does not act negligently, 7 the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of the Fund under the terms of this Contract unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. 4.6 Bank Accounts. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of the Fund with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of the Contract to hold cash received by or from or for the account of the Fund. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts. 4.7. Collection of Income . The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Fund shall be entitled and shall credit such income, as collected, to the Fund. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. 4.8 Shareholder Rights. With respect to the foreign securities held pursuant to this Article 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights. 4.9. Communications Relating to Foreign Securities. The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Fund (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. Absent negligence on the part of the Custodian, the Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Fund at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or 8 property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. 4.10. Liability of Foreign Sub-Custodians. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Fund shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund have not been made whole for any such loss, damage, cost, expense, liability or claim. 4.11. Tax Law. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Fund by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information. 4.12. Access of Independent Accountants of the Fund. Upon request of the Fund, the Custodian will use reasonable efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as a foreign sub-custodian insofar as such books and records relate to the performance of such foreign banking institution under its agreement with the Custodian. 4.13 Liability of Custodian. Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Contract and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Foreign Sub-Custodian has otherwise acted with reasonable care. 9 III. Except as specifically superseded or modified herein, the terms and provisions of the Contract shall continue to apply with full force and effect. In the event of any conflict between the terms of the Contract prior to this Amendment and this Amendment, the terms of this Amendment shall prevail. If the Custodian is delegated the responsibilities of Foreign Custody Manager pursuant to the terms of Article 3 hereof, in the event of any conflict between the provisions of Articles 3 and 4 hereof, the provisions of Article 3 shall prevail. IV. Limitation of Liability. It is understood and expressly stipulated that none of the trustees, officers, agents or shareholders of the Fund shall be personally liable under the Contract. It is understood and acknowledged that 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 nor shareholders assume any personal liability for obligations entered into on behalf of the Fund. [Remainder of page left intentionally blank] 10 IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and behalf by its duly authorized representative as of the date first above written. WITNESSED BY: STATE STREET BANK and TRUST COMPANY /s/Jean S. Carr - -------------------- Jean S. Carr By: /s/Joseph L. Hooley Assistant Vice President ---------------------------- & Associate Counsel Name: Joseph L. Hooley Title: Executive Vice President WITNESSED BY: SCUDDER BLUE CHIP FUND /s/Maureen Kane - --------------------- Name: By: /s/illegible Title: ---------------------------- Name: Title: 11 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Argentina Citibank, N.A. Australia Westpac Banking Corporation Austria Erste Bank der Osterreichischen Sparkassen AG Bahrain HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Bangladesh Standard Chartered Bank Belgium Fortis Bank nv-sa Bermuda The Bank of Bermuda Limited Bolivia Citibank, N. A. Botswana Barclays Bank of Botswana Limited Brazil Citibank, N.A. Bulgaria ING Bank N.V. Canada State Street Trust Company Canada Chile BankBoston, N.A. People's Republic The Hongkong and Shanghai of China Banking Corporation Limited, Shanghai and Shenzhen branches Colombia Cititrust Colombia S.A. Sociedad Fiduciaria 04/24/01 1 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Costa Rica Banco BCT S.A. Croatia Privredna Banka Zagreb d.d Cyprus The Cyprus Popular Bank Ltd. Czech Republic Ceskoslovenska Obchodni Banka, A.S. Denmark Danske Bank A/S Ecuador Citibank, N.A. Egypt Egyptian British Bank S.A.E. (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Estonia Hansabank Finland Merita Bank Plc. France BNP Paribas, S.A. Germany Dresdner Bank AG Ghana Barclays Bank of Ghana Limited Greece National Bank of Greece S.A. Hong Kong Standard Chartered Bank Hungary Citibank Rt. Iceland Icebank Ltd. 04/24/01 2 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian India Deutsche Bank AG The Hongkong and Shanghai Banking Corporation Limited Indonesia Standard Chartered Bank Ireland Bank of Ireland Israel Bank Hapoalim B.M. Italy BNP Paribas, Italian Branch Ivory Coast Societe Generale de Banques en Cote d'Ivoire Jamaica Scotiabank Jamaica Trust and Merchant Bank Ltd. Japan The Fuji Bank, Limited The Sumitomo Bank, Limited Jordan HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Kazakhstan HSBC Bank Kazakhstan Kenya Barclays Bank of Kenya Limited Republic of Korea The Hongkong and Shanghai Banking Corporation Limited Latvia A/s Hansabanka 04/24/01 3 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Lebanon HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Lithuania Vilniaus Bankas AB Malaysia Standard Chartered Bank Malaysia Berhad Mauritius The Hongkong and Shanghai Banking Corporation Limited Mexico Citibank Mexico, S.A. Morocco Banque Commerciale du Maroc Namibia Standard Bank Namibia Limited Netherlands Fortis Bank (Nederland) N.V. New Zealand ANZ Banking Group (New Zealand) Limited Nigeria Stanbic Merchant Bank Nigeria Limited Norway Christiania Bank og Kreditkasse ASA Oman HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Pakistan Deutsche Bank AG Palestine HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Panama BankBoston, N.A. 04/24/01 4 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Peru Citibank, N.A. Philippines Standard Chartered Bank Poland Bank Handlowy w Warszawie S.A. Portugal Banco Comercial Portugues Qatar HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Romania ING Bank N.V. Russia Credit Suisse First Boston AO - Moscow (as delegate of Credit Suisse First Boston - Zurich) Singapore The Development Bank of Singapore Limited Slovak Republic Ceskoslovenska Obchodni Banka, A.S. Slovenia Bank Austria Creditanstalt d.d. - Ljubljana South Africa Standard Bank of South Africa Limited Spain Banco Santander Central Hispano S.A. Sri Lanka The Hongkong and Shanghai Banking Corporation Limited Swaziland Standard Bank Swaziland Limited Sweden Skandinaviska Enskilda Banken 04/24/01 5 STATE STREET SCHEDULE A GLOBAL CUSTODY NETWORK SUBCUSTODIANS Country Subcustodian Switzerland UBS AG Taiwan - R.O.C. Central Trust of China Thailand Standard Chartered Bank Trinidad & Tobago Republic Bank Limited Tunisia Banque Internationale Arabe de Tunisie Turkey Citibank, N.A. Ukraine ING Bank Ukraine United Kingdom State Street Bank and Trust Company, London Branch Uruguay BankBoston, N.A. Venezuela Citibank, N.A. Vietnam The Hongkong and Shanghai Banking Corporation Limited Zambia Barclays Bank of Zambia Limited Zimbabwe Barclays Bank of Zimbabwe Limited 04/24/01 6 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Depositories Argentina Caja de Valores S.A. Australia Austraclear Limited Reserve Bank Information and Transfer System Austria Oesterreichische Kontrollbank AG (Wertpapiersammelbank Division) Belgium Caisse Interprofessionnelle de Depots et de Virements de Titres, S.A. Banque Nationale de Belgique Brazil Companhia Brasileira de Liquidacao a Custodia Sistema Especial de Liquidacao a de Custodia (SELIC) Central de Custodia a de Liquidacao Financeira de Titulos Privados (CETIP) Bulgaria Central Depository AD Bulgarian National Bank Canada Canadian Depository for Securities Limited Chile Deposito Central de Valores S.A. People's Republic Shanghai Securities Central Clearing & of China Registration Corporation Shenzhen Securities Central Clearing Co., Ltd. Colombia Deposito Centralizado de Valores 1 04/24/01 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Depositories Costa Rica Central de Valores S.A. Croatia Ministry of Finance National Bank of Croatia Sredisnja Depozitarna Agencija d.d. Czech Republic Stredisko cennych papiru Czech National Bank Denmark Vaerdipapircentralen (Danish Securities Center) Egypt Misr for Clearing, Settlement, and Depository Estonia Eesti Vaartpabeite Keskdepositoorium Finland Finnish Central Securities Depository France Euroclear France Germany Clearstream Banking AG, Frankfurt Greece Bank of Greece, System for Monitoring Transactions in Securities in Book-Entry Form Apothetirion Titlon AE - Central Securities Depository Hong Kong Central Clearing and Settlement System Central Moneymarkets Unit Hungary Kozpnti Elszamolohaz es Ertektar (Budapest) Rt. (KELER) 2 04/24/01 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Depositories India National Securities Depository Limited Central Depository Services India Limited Reserve Bank of India Indonesia Bank Indonesia PT Kustodian Sentral Efek Indonesia Israel Tel Aviv Stock Exchange Clearing House Ltd. (TASE Clearinghouse) Italy Monte Titoli S.p.A. Ivory Coast Depositaire Central - Banque de Reglement Jamaica Jamaica Central Securities Depository Japan Japan Securities Depository Center (JASDEC) Bank of Japan Net System Kazakhstan Central Depository of Securities Kenya Central Bank of Kenya Republic of Korea Korea Securities Depository Latvia Latvian Central Depository 3 04/24/01 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Depositories Lebanon Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East (Midclear) S.A.L. Banque du Liban Lithuania Central Securities Depository of Lithuania Malaysia Malaysian Central Depository Sdn. Bhd. Bank Negara Malaysia, Scripless Securities Trading and Safekeeping System Mauritius Central Depository and Settlement Co. Ltd. Bank of Mauritius Mexico S.D. INDEVAL (Instituto para el Deposito de Valores) Morocco Maroclear Netherlands Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. (NECIGEF) New Zealand New Zealand Central Securities Depository Limited Nigeria Central Securities Clearing System Limited Norway Verdipapirsentralen (Norwegian Central Securities Depository) Oman Muscat Depository & Securities Registration Company, SAOC 4 04/24/01 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Depositories Pakistan Central Depository Company of Pakistan Limited State Bank of Pakistan Palestine Clearing Depository and Settlement, a department of the Palestine Stock Exchange Peru Caja de Valores y Liquidaciones, Institucion de Copensacion y Liquidacion de Valores S.A Philippines Philippine Central Depository, Inc. Registry of Scripless Securities (ROSS) of the Bureau of Treasury Poland National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych SA) Central Treasury Bills Registrar Portugal Central de Valores Mobiliarios Qatar Central Clearing and Registration (CCR), a department of the Doha Securities Market Romania National Securities Clearing, Settlement and Depository Company Bucharest Stock Exchange Registry Division National Bank of Romania Singapore Central Depository (Pte) Limited Monetary Authority of Singapore 5 04/24/01 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Depositories Slovak Republic Stredisko cennych papierov National Bank of Slovakia Slovenia Klirinsko Depotna Druzba d.d. South Africa Central Depository Limited Share Transactions Totally Electronic (STRATE) Ltd. Spain Servicio de Compensacion y Liquidacion de Valores, S.A. Banco de Espana, Central de Anotaciones en Cuenta Sri Lanka Central Depository System (Pvt) Limited Sweden Vardepapperscentralen VPC AB (Swedish Central Securities Depository) Switzerland SegaIntersettle AG (SIS) Taiwan - R.O.C. Taiwan Securities Central Depository Co., Ltd. Thailand Thailand Securities Depository Company Limited Tunisia Societe Tunisienne Interprofessionelle pour la Compensation et de Depots des Valeurs Mobilieres Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK) Central Bank of Turkey 6 04/24/01 STATE STREET SCHEDULE B GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS Country Depositories Ukraine National Bank of Ukraine United Kingdom Central Gilts Office and Central Moneymarkets Office Venezuela Banco Central de Venezuela Zambia LuSE Central Shares Depository Limited Bank of Zambia TRANSNATIONAL Euroclear Clearstream Banking AG 7 04/24/01 SCHEDULE C MARKET INFORMATION
Publication/Type of Information Brief Description - ------------------------------- ----------------- (scheduled frequency) The Guide to Custody in World Markets An overview of settlement and safekeeping procedures, (hardcopy annually and regular custody practices and foreign investor considerations for the website updates) markets in which State Street offers custodial services. Global Custody Network Review Information relating to Foreign Sub-Custodians in State Street's (annually) Global Custody Network. The Review stands as an integral part of the materials that State Street provides to its U.S. mutual fund clients to assist them in complying with SEC Rule 17f-S. The Review also gives insight into State Street's market expansion and Foreign Sub-Custodian selection processes, as well as the procedures and controls used to monitor the financial condition and performance of our Foreign Sub- Custodian banks. Securities Depository Review Custody risk analyses of the Foreign Securities Depositories (annually) presently operating in Network markets. This publication is an integral part of the materials that State Street provides to its U.S. mutual fund clients to meet informational obligations created by SEC Rule 17f-7. Global Legal Survey With respect to each market in which State Street offers custodial (annually) services, opinions relating to whether local law restricts (i) access of a fund's independent public accountants to books and records of a Foreign Sub-Custodian or Foreign Securities System, (ii) a fund's ability to recover in the event of bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign Securities System, (iii) a fund's ability to recover in the event of a loss by a Foreign Sub-Custodian or Foreign Securities System, and (iv) the ability of a foreign investor to convert cash and cash equivalents to U.S. dollars. Subcustodian Agreements Copies of the contracts that State Street has entered into with each (annually) Foreign Sub-Custodian that maintains U.S. mutual fund assets in the markets in which State Street offers custodial services. Global Market Bulletin Information on changing settlement and custody conditions in (daily or as necessary) markets where State Street offers custodial services. Includes changes in market and tax regulations, depository developments, dematerialization information, as well as other market changes that may impact State Street's clients. Foreign Custody Advisories For those markets where State Street offers custodial (as necessary) services that exhibit special risks or infrastructures impacting custody, State Street issues market advisories to highlight those unique market factors which might impact our ability to offer recognized custody service levels. Material Change Notices Informational letters and accompanying materials confirming (presently on a quarterly State Street's foreign custody arrangements, including a basis or as otherwise necessary) summary of material changes with Foreign Sub-Custodians that have occurred during the previous quarter. The notices also identify any material changes in the custodial risks associated with maintaining assets with Foreign Securities Depositories.
EX-99.H 5 exh2a-bcf.txt Exhibit (h)(2)(b) ADMINISTRATIVE SERVICES AGREEMENT ADMINISTRATIVE SERVICES AGREEMENT, dated this 1st day of July, 2001, between SCUDDER BLUE CHIP FUND (the "Fund"), a Massachusetts business trust and Zurich Scudder Investments, Inc. ("Zurich Scudder" or "Administrator"), a Delaware corporation. WHEREAS, the Fund is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund is authorized to issue shares of beneficial interest ("Shares") in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund has established a single series designated as Scudder Blue Chip Fund (the "Series"), which offers four classes of shares, namely the Class A, Class B, Class C and Class I Shares (collectively, the "Classes"); and WHEREAS, Zurich Scudder provides investment management services pursuant to a separate Investment Management Agreement; and WHEREAS, the Fund wishes to retain Zurich Scudder to provide administrative and other services to the Fund with respect to the Series and Classes in the manner and on the terms hereinafter set forth; and WHEREAS, Zurich Scudder is willing to furnish such services in the manner and on the terms hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: I. APPOINTMENT. The Fund hereby appoints Zurich Scudder as Administrator to provide the administrative and other services with respect to the Series for the period and on the terms set forth in this Agreement. The Administrator accepts such appointment and agrees during such period to render the services herein set forth for the compensation herein provided. In the event the Fund establishes and designates additional series with respect to which it desires to retain the Administrator to render administrative and other services hereunder and the Administrator is willing to render those services, Schedule A hereto shall be amended to reflect the compensation payable to the Administrator on behalf of that series and that series shall become a Series hereunder. II. DUTIES. Subject to the general supervision of the Board of Trustees of the Fund (the "Board"), the Administrator shall provide or procure all organizational, administrative and other services reasonably necessary for the operation of the Series and certain other services, all as more particularly described and except as provided below. A. ADMINISTRATIVE SERVICES. Subject to the approval or consent of the Board, the Administrator shall provide or procure, at the Administrator's expense, services to each Series ("Serieswide Administrative Services") to include the following: (i) coordinating matters relating to the operation of the Series, including any necessary coordination among Zurich Scudder or other advisers to the Series, the custodian(s), transfer agent(s), shareholder servicing and dividend disbursing agent(s), subaccounting and recordkeeping agent(s), pricing agent(s), independent public accountants, attorneys, and other parties performing services or operational functions for the Series; (ii) providing the Series with the services of a sufficient number of persons competent to perform such administrative and clerical functions as are necessary to ensure compliance with federal securities laws, as well as other applicable laws, and to provide effective administration of the Series; (iii) maintaining, or supervising the maintenance by third parties, of such books and records of the Fund and the Series as may be required by applicable federal or state law other than the records and ledgers maintained under the Investment Management Agreement; (iv) preparing and arranging for the distribution of proxy materials to shareholders of the Series as required by applicable law; (v) arranging for and paying for services of the Series' custodian; (vi) arranging for and paying for preparation of the Series' tax returns; and (vii) taking such other action with respect to the Series as may be required by applicable law, including, without limitation, the rules and regulations of the SEC and of state securities commissions and other regulatory agencies. Subject to the approval or consent of the Board, the Administrator shall provide or procure, at the Administrator's expense, services to each Class of the Series ("Class Administrative Services") to include the following: (i) transfer agency, shareholder servicing and dividend disbursing services, and, to the extent allocable to a particular Class, subaccounting and recordkeeping services; (ii) internal fund accounting services performed on behalf of each Series; and (iii) preparing and arranging for the printing and distribution of prospectuses, periodic reports and notices to shareholders of the Series as required by applicable law. To the extent that any Serieswide Administrative Services described above are provided to a particular Class, they may be deemed to be Class Administrative Services. B. EXPENSES. During the term of this Agreement, the Administrator will pay all expenses incurred by it in connection with its obligations under this Agreement, except such expenses as are those of the Series under this Agreement. The Administrator shall pay for maintaining its staff and personnel and shall, at its own expense provide the equipment, office space, and facilities necessary to perform its obligations under this Agreement. In addition, the Administrator shall, at its expense, furnish to the Fund, any Series or a particular Class thereof, as applicable, or procure and pay for: (a) usual and customary auditing services of each Series' independent public accountants; (b) services of each Series' transfer agent(s), shareholder servicing and dividend disbursing agent(s), and shareholder recordkeeping agent(s); (c) services of each Series' custodian, including any recordkeeping services provided by the custodian; (d) services of each Series' accounting agent(s); (e) services of obtaining quotations for calculating the value of each Series' net assets; (f) services of maintaining the Series' tax records; (g) services, including procurement of legal services, incident to meetings of the Fund's shareholders, the preparation and filing of registration statements under the Securities Act of 1933, as amended, and the 1940 Act and any amendments thereto, and reports of the Fund to its shareholders, the preparation and filing of reports to regulatory bodies, the maintenance of the Fund's existence and qualification to do business, and the registration of shares with federal and state securities authorities (except as described in subsection (gg) below); (h) procurement of 2 ordinary legal services, including the services that arise in the ordinary course of business for a Massachusetts business trust registered as an open-end management investment company; (i) the Fund's pro rata portion of the fidelity bond required by Section 17(g) of the 1940 Act, or other insurance premiums; (j) association membership dues; (k) services to organize and offer shares of the Fund and the Series; and (l) printing and postage expenses related to the mailing of periodic reports, prospectuses, statements of additional information and other shareholder mailings, excluding proxy solicitations; (m) expenses that are the obligation of a Series pursuant to a special servicing agreement with a registered investment company that is a holder of shares of the Series and that may be deemed to be an affiliated person, or an affiliated person of such a person, as defined in the 1940 Act; and (n) expenses in the nature of avoided transfer agency costs payable to a person that is a shareholder of record for an omnibus account on the transfer agency records of the Series. The Fund shall bear the following expenses: (aa) salaries and other compensation of any of the Fund's executive officers and employees, if any, who are not officers, directors, stockholders, or employees of the Administrator or its subsidiaries or affiliates; (bb) taxes, if any, levied against the Fund or any of its Series; (cc) brokerage fees and commissions in connection with the purchase and sale of portfolio securities for any of the Series; (dd) costs, including the interest expenses, of borrowing money; (ee) fees and expenses of Board members who are not officers, employees, or stockholders of the Administrator or its subsidiaries or affiliates, and the fees and expenses of any counsel, accountants, or any other persons engaged by such Board members in connection with the duties of their office with the Fund; (ff) extraordinary expenses, including extraordinary legal expenses to the extent authorized by the Board, as may arise, including expenses incurred in connection with litigation, proceedings, other claims and the legal obligations of the Fund to indemnify its Board members, officers, employees, shareholders, distributors, and agents with respect thereto; (gg) organizational and offering expenses of the Fund and the Series to the extent authorized by the Board, and any other expenses which are capitalized in accordance with generally accepted accounting principles; and (hh) any expenses allocated to a specific Series pursuant to a shareholder services or Rule 12b-1 distribution plan. C. ORGANIZATIONAL SERVICES. The Administrator shall provide the Fund and the Series, at the Administrator's expense, with the services necessary to organize any Series that commence operations on or after the date of this Agreement so that such Series can conduct business as described in the Fund's Registration Statement. D. The Administrator shall also make its officers and employees available to the Board and officers of the Fund for consultation and discussions regarding the administration of the Series and services provided to the Series under this agreement. E. In performing these services, the Administrator: (i) shall conform with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Board, and with the provisions of the Fund's Registration Statement filed on Form N-1A, as supplemented or amended from time to time, (ii) will make available to the Fund, promptly upon request, any of the Series' books and records as are maintained under this Agreement, and will furnish to regulatory authorities having the requisite authority any such books and records and any information or reports in connection with the Administrator's services under this Agreement that may be requested in order to ascertain whether the operations of the Fund are being conducted in a manner consistent with applicable laws and regulations, and (iii) will regularly report to the Board on the services 3 provided under this Agreement and will furnish the Board with respect to the Series such periodic and special reports as the Board may reasonably request. The Administrator shall keep books and records relating to the services performed hereunder, in the form and manner, and for such period as it may deem advisable and is agreeable to the Fund but not inconsistent with the rules and regulations of appropriate government authorities, in particular, Section 31 of the 1940 Act and the rules thereunder. The Administrator agrees that all such records prepared or maintained by the Administrator relating to the services to be performed by the Administrator pursuant to this Agreement are the property of the Fund and will be preserved, maintained, and made available in accordance with such section and rules of the 1940 Act and will be promptly surrendered to the Fund on and in accordance with its request. F. The services provided by the Administrator under this Agreement are in addition to those required to be provided by it under the Investment Management Agreement entered into between the Administrator and the Fund on behalf of the Series. Notwithstanding any other provision of the Agreement, all other services provided by the Administrator under the Investment Management Agreement will continue to be provided by the Administrator and paid for by the Fund pursuant to that agreement. III. INDEPENDENT CONTRACTOR. The Administrator shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Board from time to time, have no authority to act for or represent the Fund in any way or otherwise be deemed its agent. IV. COMPENSATION. The Fund shall pay the Administrator on behalf of the Series a Serieswide Administrative Fee as compensation for the Serieswide Administrative Services set forth in Section II.A above. Each Class of the Series shall pay the Administrator on its own behalf a Class Administrative Fee as compensation for the Class Administrative Services provided to the Class as set forth in Section II.A above. The Serieswide Administrative Fee and the Class Administrative Fee shall be at the rates set forth in Schedule A hereto. The amount of any credit received from the Series' custodian for cash balances maintained at the custodian shall be subtracted from the Serieswide Administrative Fee required to be paid by Fund under this Agreement. V. NON-EXCLUSIVITY. It is understood that the services of the Administrator hereunder are not exclusive, and the Administrator shall be free to render similar services to other investment companies and other clients. VI. LIABILITY. The Administrator shall give the Fund the benefit of the Administrator's best efforts in rendering services under this Agreement. The Administrator may rely on information reasonably believed by it to be accurate and reliable. As an inducement for the Administrator's undertaking to render services under this Agreement, the Fund agrees that neither the Administrator nor the stockholders, officers, directors, or employees of the Administrator shall be subject to any liability for, or any damages, expenses or losses incurred in connection with, any act, omission or mistake in judgment connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or negligence in the performance of the Administrator's duties, or by reason of reckless disregard of 4 the Administrator's obligations and duties under this Agreement. This provision shall govern only the liability to the Fund of the Administrator and that of the stockholders, officers, directors, and employees of the Administrator, and shall in no way govern the liability to the Fund or the Administrator of any other person or provide a defense for such other person, including persons that provide services for the Series as described in Section II.B or C of this Agreement. VII. TERM AND CONTINUATION. This Agreement shall take effect as of the date hereof, and shall remain in effect, unless sooner terminated as provided herein, until September 30, 2003, and shall continue thereafter on an annual basis with respect to each Series, provided that such continuance is specifically approved at least annually (a) by the vote of a majority of the Board, or (b) by vote of a majority of the outstanding voting securities of the Series, and provided continuance is also approved by the vote of a majority of the Board who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of the Fund, cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty with respect to the entire Fund or only with respect to one or more Series thereof: (a) by the Fund at any time with respect to the services provided by the Administrator by vote of (1) a majority of the Board members who are not "interested persons" (as such term is defined in the 1940 Act) of the Fund, or (2) a majority of the outstanding voting shares of the Fund or, with respect to a particular Series, by vote of a majority of the outstanding voting shares of such Series, on 60 days' written notice to the Administrator; and (b) by the Administrator on or after September 30, 2003, without the payment of any penalty, upon 60 days' written notice to the Fund. VIII. NOTICES. Notices of any kind to be given to the Administrator by the Fund shall be in writing and shall be duly given if mailed or delivered to the Administrator at 345 Park Avenue, New York, New York, 10154, or to such other address or to such individual as shall be specified by the Administrator. Notices of any kind to be given to the Fund by the Administrator shall be in writing and shall be duly given if mailed or delivered to 345 Park Avenue, New York, New York, 10154, or to such other address or to such individual as shall be specified by the Fund. IX. FUND OBLIGATION. A copy of the Trust's Agreement and Declaration of Trust, as amended, is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that, if this Agreement has been executed on behalf of the Trust by a Board member, he or she has done so in his or her capacity as Board member and not individually. The obligations of this Agreement to pay the Administrator for services provided to or procured for a Series shall be binding only upon the assets and property of that Series and shall not be binding upon any Board member, officer, or shareholder of the Fund individually. X. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. XI. MISCELLANEOUS. This Agreement shall be governed by the laws of Massachusetts, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act or any rule or order of the SEC thereunder. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. To the extent that any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise with regard to any party hereunder, such provisions 5 with respect to other parties hereto shall not be affected thereby. The captions in this Agreement are included for convenience only and in no way define any of the provisions hereof or otherwise affect their construction or effect. This Agreement may not be assigned by the Fund or the Administrator without the consent of the other party. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below on the day and year first above written. SCUDDER BLUE CHIP FUND By: /s/Mark S. Casady --------------------------------------- Mark S. Casady, President ZURICH SCUDDER INVESTMENTS, INC. By: /s/William F. Glavin --------------------------------------- Managing Director 6 EX-99.I 6 exi-bcf.txt Exhibit (i) [VEDDER PRICE LETTERHEAD] February 14, 2002 Scudder Blue Chip Fund 222 South Riverside Plaza Chicago, Illinois 60606 Ladies and Gentlemen: Reference is made to Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A under the Securities Act of 1933 being filed by Scudder Blue Chip Fund (the "Fund") in connection with the public offering from time to time of units of beneficial interest, no par value of Class A, Class B, Class C and Class I shares ("Shares"), in one authorized series (the "Portfolio"). We have acted as counsel to the Fund, and in such capacity are familiar with the Fund's organization and have counseled the Fund regarding various legal matters. We have examined such Fund records and other documents and certificates as we have considered necessary or appropriate for the purposes of this opinion. In our examination of such materials, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. Based upon the foregoing and assuming that the Fund's Amended and Restated Agreement and Declaration of Trust dated May 27, 1994, the Written Instrument Establishing and Designating Separate Classes of Shares dated May 27, 1994, the Amended and Restated Written Instrument Establishing and Designating Separate Classes of Shares dated March 9, 1996, and the By-Laws of the Fund adopted October 6, 1987 and amended November 29, 2000, are presently in full force and effect and have not been amended in any material respect and that the resolutions adopted by the Board of Trustees of the Fund on October 6, 1987, January 14, 1994, March 5, 1994, March 9, 1996, and November 29, 2000, relating to organizational matters, securities matters and the issuance of shares are presently in full force and effect and have not been amended in any material respect, we advise you and opine that (a) the Fund is a validly existing voluntary association with transferable shares under the laws of the Commonwealth of Massachusetts and is authorized to issue an unlimited number of Shares in the Portfolio; and (b) presently and upon such further issuance of the Shares in accordance with the Fund's Amended and Restated Agreement and Declaration of Trust and the receipt by the Fund of a purchase price not less than the net asset value per Share and when the pertinent provisions of the Securities Act of 1933 and such "blue-sky" and securities laws as may be applicable have VEDDER PRICE Scudder Blue Chip Fund February 14, 2002 Page 2 been complied with, and assuming that the Fund continues to validly exist as provided in (a) above, the Shares are and will be legally issued and outstanding, fully paid and nonassessable. The Fund is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund or the Portfolio. However, the Amended and Restated Agreement and Declaration of Trust disclaims shareholder liability for acts and obligations of the Fund or the Portfolio and requires that notice of such disclaimer be given in each note, bond, contract, instrument, certificate share or undertaking made or issued by the Trustees or officers of the Fund. The Amended and Restated Agreement and Declaration of Trust provides for indemnification out of the property of the Portfolio for all loss and expense of any shareholder of the Portfolio held personally liable for the obligations of such Portfolio. Thus, the risk of liability is limited to circumstances in which the Portfolio would be unable to meet its obligations. This opinion is solely for the benefit of the Fund, the Fund's Board of Trustees and the Fund's officers and may not be relied upon by any other person without our prior written consent. We hereby consent to the use of this opinion in connection with said Post-Effective Amendment. Very truly yours, /s/VEDDER, PRICE, KAUFMAN & KAMMHOLZ VEDDER, PRICE, KAUFMAN & KAMMHOLZ DAS/RJM EX-99.J 7 exj-bcf.txt Exhibit (j) CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references made to our firm under the captions "Financial Highlights" for Scudder Blue Chip Fund in the Core/Large Cap Funds - Advisor Classes A, B and C Prospectus and "Auditors" and "Financial Statements" in the Statement of Additional Information for Scudder Blue Chip Fund included in Post-Effective Amendment No. 21 to the Registration Statement (Form N-1A, No. 33-17777). We also consent to the incorporation by reference into the Statement of Additional Information for Scudder Blue Chip Fund of our report dated December 10, 2001 with respect to the financial statements and financial highlights of Scudder Blue Chip Fund included in the October 31, 2001 annual report. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Boston, Massachusetts February 26, 2002 EX-99.M 8 exm3-bcf.txt Exhibit (m)(3) Fund: Scudder Blue Chip Fund (the "Fund") ---------------------- Series: Scudder Blue Chip Fund (the "Series") ---------------------- Class: Class A (the "Class") RULE 12b-1 PLAN Pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940 (the "Act"), this Rule 12b-1 Plan (the "Plan") has been adopted for the Fund, on behalf of the Series, for the Class (all as noted and defined above) by a majority of the members of the Fund's Board of Trustees, including a majority of the Trustees who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (the "Qualified Trustees") at a meeting called for the purpose of voting on this Plan. 1. Services. Pursuant to the terms of a Shareholder Services Agreement (the "Services Agreement"), Scudder Distributors, Inc. ("SDI") provides information and administrative services for the benefit of the Fund and its shareholders. This Plan authorizes the Fund to pay SDI the administrative services fee computed at an annual rate of up to 0.25 of 1% of the average daily net assets of the Class, as set forth in the Services Agreement. As described in the Services Agreement, SDI may use the administrative services fee to compensate various financial services firms ("Firms") for providing such office space and equipment, telephone facilities, personnel or other services as may be necessary or beneficial for providing information and services to investors in the Fund. Such services and assistance may include, but are not limited to, establishing and maintaining accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding the Fund and its special features, providing assistance to investors in changing dividend and investment options, account designations and addresses, and such other administrative services as the Fund or SDI may reasonably request. 2. Periodic Reporting. SDI shall prepare reports for the Board of Trustees of the Fund on a quarterly basis for the Class showing amounts paid to the various Firms pursuant to this Plan, the Services Agreement and any other related agreement, the purpose for such expenditure, and such other information as from time to time shall be reasonably requested by the Board of Trustees. 3. Continuance. This Plan shall continue in effect indefinitely, provided that such continuance is approved at least annually by a vote of a majority of the Trustees, and of the Qualified Trustees, cast in person at a meeting called for such purpose. 4. Termination. This Plan may be terminated at any time without penalty with respect to the Class by vote of a majority of the Qualified Trustees or by vote of the majority of the outstanding voting securities of the Class. 5. Amendment. This Plan may not be amended to materially increase the amount payable to SDI by the Fund for its services under the Services Agreement with respect to the Class without the vote of a majority of the outstanding voting securities of the Class. All material amendments to this Plan must in any event be approved by a vote of a majority of the Board, and of the Qualified Trustees, cast in person at a meeting called for such purpose. 6. Selection of Non-Interested Trustees. So long as this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Fund will be committed to the discretion of Trustees who are not themselves interested persons. 7. Recordkeeping. The Fund will preserve copies of this Plan, the Services Agreement and all reports made pursuant to Paragraph 2 above for a period of not less than six (6) years from the date of this Plan, the Services Agreement or any such report, as the case may be, the first two (2) years in an easily accessible place. 8. Limitation of Liability. Any obligation of the Fund hereunder shall be binding only upon the assets of the Class and shall not be binding on any trustee, officer, employee, agent, or shareholder of the Fund. Neither the authorization of any action by the trustees or shareholders of the Fund nor the adoption of the Plan on behalf of the Fund shall impose any liability upon any trustees or upon any shareholder. 9. Definitions. The terms "interested person" and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the Act and the rules and regulations thereunder. 10. Severability; Separate Action. If any provision of this Plan shall be held or made invalid by a court decision, rule or otherwise, the remainder of this Plan shall not be affected thereby. Action shall be taken separately for the Series or Class as the Act or the rules thereunder so require. Dated: July 1, 2001 2 EX-99.M 9 exm4-bcf.txt Exhibit (m)(4) Fund: Scudder Blue Chip Fund (the "Fund") ---------------------- Series: Scudder Blue Chip Fund (the "Series") ---------------------- Class: Class B (the "Class") AMENDED AND RESTATED RULE 12b-1 PLAN Pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940 (the "Act"), this Amended and Restated Rule 12b-1 Plan (the "Plan") has been adopted for the Fund, on behalf of the Series, for the Class (all as noted and defined above) by a majority of the members of the Fund's Board of Trustees, including a majority of the Trustees who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (the "Qualified Trustees") at a meeting called for the purpose of voting on this Plan. 1. Compensation. The Fund will pay to Scudder Distributors, Inc. ("SDI") at the end of each calendar month a distribution services fee computed at the annual rate of .75% of the average daily net assets attributable to the Class. SDI may compensate various financial services firms appointed by SDI ("Firms") in accordance with the provisions of the Fund's Underwriting and Distribution Services Agreement (the "Distribution Agreement") for sales of shares at the fee levels provided in the Fund's prospectus from time to time. SDI may pay other commissions, fees or concessions to Firms, and may pay them to others in its discretion, in such amounts as SDI may determine from time to time. The distribution services fee for the Class shall be based upon the average daily net assets of the Series attributable to the Class and such fee shall be charged only to that Class. For the month and year in which this Plan becomes effective or terminates, there shall be an appropriate proration of the distribution services fee set forth herein on the basis of the number of days that the Plan, the Distribution Agreement and any agreement related to the Plan is in effect during the month and year, respectively. The distribution services fee shall be in addition to and shall not be reduced or offset by the amount of any contingent deferred sales charge received by SDI. 2. Additional Services. Pursuant to the terms of a Shareholder Services Agreement (the "Services Agreement"), SDI provides information and administrative services for the benefit of the Fund and its shareholders. This Plan authorizes the Fund to pay SDI the administrative services fee computed at an annual rate of up to 0.25 of 1% of the average daily net assets of the Class, as set forth in the Services Agreement. As described in the Services Agreement, SDI may use the administrative services fee to compensate various Firms for providing such office space and equipment, telephone facilities, personnel or other services as may be necessary or beneficial for providing information and services to investors in the Fund. Such services and assistance may include, but are not limited to, establishing and maintaining accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding the Fund and its special features, providing assistance to investors in changing dividend and investment options, account designations and addresses, and such other administrative services as the Fund or SDI may reasonably request. 3. Periodic Reporting. SDI shall prepare reports for the Board of Trustees of the Fund on a quarterly basis for the Class showing amounts paid to the various Firms pursuant to this Plan, the Services Agreement and any other related agreement, the purpose of such expenditure, and such other information as from time to time shall be reasonably requested by the Board of Trustees. 4. Continuance. This Plan shall continue in effect indefinitely, provided that such continuance is approved at least annually by a vote of a majority of the Trustees, and of the Qualified Trustees, cast in person at a meeting called for such purpose. 5. Termination. This Plan may be terminated at any time without penalty with respect to the Class by vote of a majority of the Qualified Trustees or by vote of the majority of the outstanding voting securities of the Class. 6. Amendment. This Plan may not be amended to materially increase the amount payable to SDI by the Fund either for distribution services or for services under the Services Agreement with respect to the Class without the vote of a majority of the outstanding voting securities of the Class. All material amendments to this Plan must in any event be approved by a vote of a majority of the Board, and of the Qualified Trustees, cast in person at a meeting called for such purpose. 7. Selection of Non-Interested Trustees. So long as this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Fund will be committed to the discretion of Trustees who are not themselves interested persons. 8. Recordkeeping. The Fund will preserve copies of this Plan, the Distribution Agreement, the Services Agreement and all reports made pursuant to Paragraph 3 above for a period of not less than six (6) years from the date of this Plan, the Distribution Agreement, the Services Agreement or any such report, as the case may be, the first two (2) years in an easily accessible place. 9. Limitation of Liability. Any obligation of the Fund hereunder shall be binding only upon the assets of the Class and shall not be binding on any Trustee, officer, employee, agent, or shareholder of the Fund. Neither the authorization of any action by the trustees or shareholders of the Fund nor the adoption of the Plan on behalf of the Fund shall impose any liability upon any trustees or upon any shareholder. 10. Definitions. The terms "interested person" and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the Act and the rules and regulations thereunder. 2 11. Severability; Separate Action. If any provision of this Plan shall be held or made invalid by a court decision, rule or otherwise, the remainder of this Plan shall not be affected thereby. Action shall be taken separately for the Series or Class as the Act or the rules thereunder so require. Dated: July 1, 2001 3 EX-99.M 10 exm5-bcf.txt Exhibit (m)(5) Fund: Scudder Blue Chip Fund (the "Fund") ---------------------- Series: Scudder Blue Chip Fund (the "Series") ---------------------- Class: Class C (the "Class") AMENDED AND RESTATED RULE 12b-1 PLAN Pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940 (the "Act"), this Amended and Restated Rule 12b-1 Plan (the "Plan") has been adopted for the Fund, on behalf of the Series, for the Class (all as noted and defined above) by a majority of the members of the Fund's Board of Trustees, including a majority of the Trustees who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (the "Qualified Trustees") at a meeting called for the purpose of voting on this Plan. 1. Compensation. The Fund will pay to Scudder Distributors, Inc. ("SDI") at the end of each calendar month a distribution services fee computed at the annual rate of .75% of the average daily net assets attributable to the Class. SDI may compensate various financial services firms appointed by SDI ("Firms") in accordance with the provisions of the Fund's Underwriting and Distribution Services Agreement (the "Distribution Agreement") for sales of shares at the fee levels provided in the Fund's prospectus from time to time. SDI may pay other commissions, fees or concessions to Firms, and may pay them to others in its discretion, in such amounts as SDI may determine from time to time. The distribution services fee for the Class shall be based upon the average daily net assets of the Series attributable to the Class and such fee shall be charged only to that Class. For the month and year in which this Plan becomes effective or terminates, there shall be an appropriate proration of the distribution services fee set forth herein on the basis of the number of days that the Plan, the Distribution Agreement and any agreement related to the Plan is in effect during the month and year, respectively. The distribution services fee shall be in addition to and shall not be reduced or offset by the amount of any contingent deferred sales charge received by SDI. 2. Additional Services. Pursuant to the terms of an Shareholder Services Agreement (the "Services Agreement"), SDI provides information and administrative services for the benefit of the Fund and its shareholders. This Plan authorizes the Fund to pay SDI the administrative services fee computed at an annual rate of up to 0.25 of 1% of the average daily net assets of the Class, as set forth in the Services Agreement. As described in the Services Agreement, SDI may use the administrative services fee to compensate various Firms for providing such office space and equipment, telephone facilities, personnel or other services as may be necessary or beneficial for providing information and services to investors in the Fund. Such services and assistance may include, but are not limited to, establishing and maintaining accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding the Fund and its special features, providing assistance to investors in changing dividend and investment options, account designations and addresses, and such other administrative services as the Fund or SDI may reasonably request. 3. Periodic Reporting. SDI shall prepare reports for the Board of Trustees of the Fund on a quarterly basis for the Class showing amounts paid to the various Firms pursuant to this Plan, the Services Agreement and any other related agreement, the purpose of such expenditure, and such other information as from time to time shall be reasonably requested by the Board of Trustees. 4. Continuance. This Plan shall continue in effect indefinitely, provided that such continuance is approved at least annually by a vote of a majority of the Trustees, and of the Qualified Trustees, cast in person at a meeting called for such purpose. 5. Termination. This Plan may be terminated at any time without penalty with respect to the Class by vote of a majority of the Qualified Trustees or by vote of the majority of the outstanding voting securities of the Class. 6. Amendment. This Plan may not be amended to materially increase the amount payable to SDI by the Fund either for distribution services or for services under the Services Agreement with respect to the Class without the vote of a majority of the outstanding voting securities of the Class. All material amendments to this Plan must in any event be approved by a vote of a majority of the Board, and of the Qualified Trustees, cast in person at a meeting called for such purpose. 7. Selection of Non-Interested Trustees. So long as this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Fund will be committed to the discretion of Trustees who are not themselves interested persons. 8. Recordkeeping. The Fund will preserve copies of this Plan, the Distribution Agreement, the Services Agreement and all reports made pursuant to Paragraph 3 above for a period of not less than six (6) years from the date of this Plan, the Distribution Agreement, the Services Agreement or any such report, as the case may be, the first two (2) years in an easily accessible place. 9. Limitation of Liability. Any obligation of the Fund hereunder shall be binding only upon the assets of the Class and shall not be binding on any trustee, officer, employee, agent, or shareholder of the Fund. Neither the authorization of any action by the trustees or shareholders of the Fund nor the adoption of the Plan on behalf of the Fund shall impose any liability upon any trustees or upon any shareholder. 10. Definitions. The terms "interested person" and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the Act and the rules and regulations thereunder. 2 11. Severability; Separate Action. If any provision of this Plan shall be held or made invalid by a court decision, rule or otherwise, the remainder of this Plan shall not be affected thereby. Action shall be taken separately for the Series or Class as the Act or the rules thereunder so require. Dated: July 1, 2001 3 EX-99.M 11 exm6-bcf.txt Exhibit (h)(4) SHAREHOLDER SERVICES AGREEMENT SHAREHOLDER SERVICES AGREEMENT dated this 1st day of July, 2001 by and between SCUDDER BLUE CHIP FUND, a Massachusetts business trust (the "Fund"), and SCUDDER DISTRIBUTORS, INC., a Delaware corporation ("SDI"). In consideration of the mutual covenants hereinafter contained, it is hereby agreed by and between the parties hereto as follows: 1. The Fund hereby appoints SDI to provide information and administrative services for the benefit of the Fund and shareholders of Class A, Class B and Class C shares (each a "Retail Class") of the Fund or series thereof, as applicable. In this regard, SDI shall appoint various broker-dealer firms and other service or administrative firms ("Firms") to provide related services and facilities for investors in each Retail Class of the Fund ("investors"). The Firms shall provide such office space and equipment, telephone facilities, personnel or other services as may be necessary or beneficial for providing information and services to investors in each Retail Class of the Fund. Such services and assistance may include, but are not limited to, establishing and maintaining accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding the Fund and its special features, providing assistance to investors in changing dividend and investment options, account designations and addresses, and such other administrative services as the Fund or SDI may reasonably request. Firms may include affiliates of SDI. SDI may also provide some of the above services for the Fund directly. SDI accepts such appointment and agrees during such period to render such services and to assume the obligations herein set forth for the compensation herein provided. SDI shall for all purposes herein provided be deemed to be an independent contractor and, unless otherwise expressly provided or authorized, shall have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. SDI, by separate agreement with the Fund, may also serve the Fund in other capacities. The services of SDI to the Fund under this Agreement are not to be deemed exclusive, and SDI shall be free to render similar services or other services to others. In carrying out its duties and responsibilities hereunder, SDI will appoint various Firms to provide administrative and other services described herein directly to or for the benefit of investors in each Retail Class of the Fund. Such Firms shall at all times be deemed to be independent contractors retained by SDI and not the Fund. SDI and not the Fund will be responsible for the payment of compensation to such Firms for such services. 2. For the administrative services and facilities described in Section 1, the Fund may pay to SDI any amount authorized for payment to SDI out of the Rule 12b-1 Plan adopted by the Fund on behalf of each Retail Class (each, a "Plan"). The current fee authorized under the Plan and the current fee schedule agreed upon by the parties is set forth as Appendix I hereto. The administrative service fee will be calculated separately for each Retail Class as an expense of each such class. For the month and year in which this Agreement becomes effective or terminates, there shall be an appropriate proration on the basis of the number of days that the Agreement is in effect during such month and year, respectively. SDI may use such payments, in its discretion, to compensate Firms who provide administrative services to the extent permitted by the Plan. The payment of fees pursuant to this Agreement, for each Retail Class, is subject to and contingent upon, the continued effectiveness of a duly adopted Rule 12b-1 Plan authorizing such payment for such class. SDI shall be contractually bound hereunder by the terms of any publicly announced fee cap or waiver of its fee or by the terms of any written document provided to the Board of Trustees of the Fund announcing a fee cap or waiver of its fee, or any limitation of the Fund's expenses, as if such fee cap, fee waiver or expense limitation were fully set forth herein. The net asset value for each Retail Class shall be calculated in accordance with the provisions of the Fund's current prospectus. On each day when net asset value is not calculated, the net asset value of a share of a Retail Class shall be deemed to be the net asset value of such a share as of the close of business on the last day on which such calculation was made for the purpose of the foregoing computations. 3. The Fund shall assume and pay all charges and expenses of its operations not specifically assumed or otherwise to be provided by SDI under this Agreement. 4. This Agreement shall become effective on the date hereof and shall continue until September 30, 2001, and shall continue from year to year thereafter only so long as such continuance is approved at least annually by a vote of a majority of the Trustees, including the Trustees who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plans, this Agreement or in any other agreement related to the Plans, at a meeting called for such purpose. This Agreement shall automatically terminate in the event of its assignment and may be terminated at any time without the payment of any penalty by the Fund or by SDI on sixty (60) days' written notice to the other party. The Fund may effect termination with respect to any Retail Class of the Fund or any series thereof, as applicable, by a vote of (i) a majority of the Trustees of the Fund who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans, this Agreement or in any other agreement related to the Plans or this Agreement or (ii) a majority of the outstanding voting securities of such Retail Class. Without prejudice to any other remedies of the Fund, the Fund may terminate this Agreement at any time immediately upon SDI's failure to fulfill any of its obligations hereunder. This Agreement may not be amended to materially increase the amount payable to SDI by the Fund for services hereunder with respect to a Retail Class of the Fund or any series thereof, as applicable, without a vote of a majority of the outstanding voting securities of such class. All material amendments to this Agreement must in any event be approved by a vote of a majority of the Board of Trustees of the Fund including the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans, this Agreement or in any other agreement related to the Plans or this Agreement, cast in person at a meeting called for such purpose. The terms "assignment" "interested person" and "vote of a majority of the outstanding voting securities" shall have the meanings set forth in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. 2 5. Any person authorized to direct the disposition of monies paid or payable by the Fund pursuant to the Plans, this Agreement, or any related agreement, shall provide to the Fund's Board of Trustees and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purpose for which such expenditures were made. 6. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder shall not be thereby affected. 7. Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, to the other party at such address as such other party may designate for the receipt of such notice. 8. All parties hereto are expressly put on notice of the Fund's Agreement and Declaration of Trust and all amendments thereto, all of which are on file with the Secretary of The Commonwealth of Massachusetts, and the limitation of shareholder and trustee liability contained therein. This Agreement has been executed by and on behalf of the Fund by its representatives as such representatives and not individually, and the obligations of the Fund thereunder are not binding upon any of the trustees, officers or shareholders of the Fund individually but are binding upon only the assets and property of the Fund. With respect to any claim by SDI for recovery of that portion of the administrative services fees (or any other liability of the Fund arising hereunder) related to a particular series and class of the Fund, whether in accordance with the express terms hereof or otherwise, SDI shall have recourse solely against the assets of such series and class to satisfy such claim and shall have no recourse against the assets of any other series and class of the Fund for such purpose. 9. This Agreement shall be construed in accordance with applicable federal law and with the laws of The Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Fund and SDI have caused this Agreement to be executed as of the day and year first above written. SCUDDER BLUE CHIP FUND By: /s/Mark S. Casady -------------------------------------- Mark S. Casady, President SCUDDER DISTRIBUTORS, INC. By: /s/Thomas V. Bruns -------------------------------------- Thomas V. Bruns, President 3 APPENDIX I SCUDDER BLUE CHIP FUND FEE SCHEDULE FOR SHAREHOLDER SERVICES AGREEMENT Pursuant to Section 2 of the Shareholder Services Agreement between Scudder Blue Chip Fund (the "Fund") and Scudder Distributors, Inc. ("SDI"), the Fund and SDI agree that the administrative service fee will be computed at an annual rate of .25 of 1% based upon the average daily net assets with respect to which a Firm other than SDI provides administrative services and .15 of 1% based upon the average daily net assets with respect to which SDI provides administrative services. SCUDDER BLUE CHIP FUND SCUDDER DISTRIBUTORS, INC. By: /s/Mark S. Casady By: /s/Thomas V. Bruns ------------------------ ------------------------ Title: President Title: President Thomas V. Bruns Dated: July 1, 2001 4 EX-99.N 12 exn1-bcf.txt Exhibit (n)(1) AMENDED AND RESTATED MULTI-DISTRIBUTION SYSTEM PLAN WHEREAS, each investment company adopting this Amended and Restated Multi-Distribution System Plan (each a "Fund" and collectively the "Funds") is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, Zurich Scudder Investments, Inc. ("Zurich Scudder") serves as investment adviser and Scudder Distributors, Inc. serves as principal underwriter for each Fund; WHEREAS, each Fund has established a Multi-Distribution System enabling each Fund, as more fully reflected in its prospectus, to offer investors the option of purchasing shares (a) with a front-end sales load (which may vary among Funds) and a Rule 12b-1 plan providing for a service fee ("Class A shares"); (b) without a front-end sales load, but subject to a Contingent Deferred Sales Charge ("CDSC") (which may vary among Funds), and a Rule 12b-1 plan providing for a distribution fee and a service fee ("Class B shares"); (c) without a front-end sales load, but subject to a CDSC (applicable to shares purchased on or after April 1, 1996 and which may vary among Funds), and a Rule 12b-1 plan providing for a distribution fee and a service fee ("Class C shares"); (d) for certain Funds, without a front-end sales load, a CDSC, a distribution fee or a service fee ("Class I shares"); and (e) for certain funds, without a front-end sales load, a CDSC, a distribution fee or a service fee ("Class S shares"); and WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management investment companies to issue multiple classes of voting stock representing interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i) under the 1940 Act if, among other things, such investment companies adopt a written plan setting forth the separate arrangement and expense allocation of each class and any related conversion features or exchange privileges; NOW, THEREFORE, each Fund, wishing to be governed by Rule 18f-3 under the 1940 Act, hereby adopts this Amended and Restated Multi-Distribution System Plan as follows: 1. Each class of shares will represent interests in the same portfolio of investments of the Fund (or series thereof, as applicable), and be identical in all respects to each other class, except as set forth below. The only differences among the various classes of shares of the Fund (or series) will relate solely to: (a) different distribution fee payments associated with any Rule 12b-1 Plan for a particular class of shares and any other costs relating to implementing or amending such Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1 Plan or any amendment thereto), which will be borne solely by shareholders of such classes; (b) different service fees; (c) different account minimums; (d) different class expenses, as defined in Section 2(b) below; (e) different voting rights related to any Rule 12b-1 Plan affecting a specific class of shares; (f) different exchange privileges; and (g) different conversion features. 2. (a) The gross income, realized and unrealized capital gains and losses and expenses (other than Class Expenses, as defined below) of the Fund or series thereof, as applicable, shall be allocated to each class on the basis of its net asset value relative to the net asset value of the Fund or series thereof, as applicable, pursuant to Rule 18f-3(c)(2)(ii) of the 1940 Act. Expenses to be so allocated include expenses of the Fund that are not specifically attributable to a series of the Fund, which shall first be allocated among the series of the Fund based upon their relative aggregate net assets ("Fund Expenses") and expenses of the Series not attributable to a particular class of the Series ("Series Expenses") to the extent that such expenses are not paid by Zurich Scudder pursuant to the Administrative Services Agreement between Zurich Scudder and the Fund, as amended (the "Administrative Services Agreement"). Fund Expenses may include, but are not limited to, Trustees'/Directors' fees and certain legal fees. Series Expenses include, but are not limited to, the Serieswide Administrative Fee under the Administrative Services Agreement, advisory fees and other expenses relating to the management of the series' assets. (b) Expenses attributable to one or more particular classes, which are allocated on the basis of the amount incurred on behalf of each class ("Class Expenses"), will include the Class Administrative Fee charged with respect to each class under the Administrative Services Agreement, and may also include the following types of expenses to the extent that such expenses are not paid by Zurich Scudder under the Administrative Services Agreement and to the extent that such expenses are attributable to a specific class: (a) transfer agent fees attributable to a specific class; (b) distribution fees or service fees associated with a Rule 12b-1 Plan for a particular class and any other costs relating to implementing or amending such Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1 Plan or any amendment thereto); (c) printing and postage expenses related to preparing and distributing material such as shareholder reports, prospectuses and proxy materials to current shareholders of the Series; (d) registration fees (other than state filing fees imposed on a Fund-wide basis and Securities and Exchange Commission registration fees); (e) the expense of administrative personnel and services as required to support the shareholders of a specific class; (f) litigation or other legal expenses and audit or other accounting expenses relating to a specific class; (g) fees of Board members incurred as a result of issues relating to a specific class; and (h) shareholder or Board meeting costs that relate to a specific class. All expenses described in clauses (a) through (h) of this paragraph may be allocated as Class Expenses, but only if the Fund's President and Treasurer have determined, subject to review by the Board of Trustees/Directors (the "Board"), which expenses will be treated as Class Expenses, consistent with applicable legal principles under the 1940 Act and the Internal Revenue Code of 1986, as amended. In the event that a particular expense is no longer reasonably allocable by class or to a particular class, it shall be treated as a Fund Expense or Series Expense, and in the event a Fund Expense or Series Expense becomes allocable at a different level, including as a Class Expense, it shall be so allocated, subject to compliance with Rule 18f-3 and to approval or ratification by the Board. Any changes in the categories of expenses that will be allocated as Class Expenses shall be reviewed and approved by the Board, including a majority of the Board members who are not "interested persons" of the Fund or series, as defined in the 1940 Act. Any changes to such expense allocation shall be set forth in a schedule as amended from time to time by the Board, including a majority of the Board members who are not "interested persons" of the Fund, which shall form a part of this Plan. 2 3. After a shareholder's Class B shares have been outstanding for six years, they will automatically convert to Class A shares of the Fund or series thereof, as applicable, at the relative net asset values of the two classes. Class B shares issued upon reinvestment of income and capital gain dividends and other distributions will be converted to Class A shares on a pro rata basis with the Class B shares. 4. Any conversion of shares of one class to shares of another class is subject to the continuing availability of a ruling of the Internal Revenue Service or an opinion of counsel to the effect that the conversion of shares does not constitute a taxable event under federal income tax law. Any such conversion may be suspended if such a ruling or opinion is no longer available. 5. To the extent exchanges are permitted, shares of any class of the Fund will be exchangeable with shares of the same class of another Fund, or with money market fund shares as described in the applicable prospectus. Exchanges will comply with all applicable provisions of Rule 11a-3 under the 1940 Act. For purposes of calculating the time period remaining on the conversion of Class B shares to Class A shares, Class B shares received on exchange retain their original purchase date. 6. Dividends paid by the Fund or series thereof, as applicable, as to each class of its shares, to the extent any dividends are paid, will be calculated in the same manner, at the same time, on the same day, and will be in the same amount; except that any distribution fees, service fees, shareholder servicing fees and class expenses allocated to a class will be borne exclusively by that class. 7. Any distribution arrangement of the Fund, including distribution fees, front-end sales loads and CDSCs, will comply with Section 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. 8. All material amendments to this Plan must be approved by a majority of the members of the Fund's Board, including a majority of the Board members who are not interested persons of the Fund. The Fund's Board, including a majority of the Board members who are not interested persons of the Fund, has determined that this Amended and Restated Multi-Distribution System Plan, including the expense allocation, is in the best interests of each class of the Fund or series thereof, as applicable, and the Fund or series as a whole, based on their review of information furnished to them which they deemed reasonably necessary and sufficient to evaluate the Plan. Dated: July 1, 2001 3 EX-99.P 13 exp2a-bcf.txt Zurich Scudder Investments, Inc. Code of Ethics January 1, 2002 Contents Preamble Part 1: Conflicts of Interest Part 2: Personal Investments o Definitions o Specific Rules and Regulations Applicable to Employees o Specific Rules and Regulations Applicable to Access Persons o Specific Rules and Regulations Applicable to Investment Personnel o Specific Rules and Regulations Applicable to Portfolio Managers o General o Excessive Trading Part 3: Insider Trading o Introduction o General Guidelines o Definitions Part 4: Confidentiality Part 5: Proprietary Rights of the Firm Part 6: Gifts, Entertainment and Political Contributions o Overview o General Guidelines o Reporting and Supervision Part 7: Fiduciary and Corporate Activities o Executorships o Trusteeships o Custodianships for Minors o Directorships and Consultant Positions in Business Corporations o Public and Charitable Positions o Outside Activities o New Employees o Written Approval Part 8: External Communications Part 9: Reporting Apparent Violations Part 10: Condition of Employment or Service 2 Form 1 Quarterly Personal Trading Report Form 2 Personal Transaction Preclearance Form Form 3 Special Transaction Preclearance Form Form 4 Annual Acknowledgment of Obligations Under Code of Ethics Form 5 Affiliated Persons Letter (407 Letter) Form 6 Report of Gifts, Entertainment and Political Contributions Form 7 Request for Approval of Fiduciary, Corporate or Other Outside Activity Form 8 Annual Review of Personal Activities Form 9 Personal Securities Holdings Form 3 ZURICH SCUDDER INVESTMENTS, INC. Effective Date: 1/1/02 Distribution: General ZURICH SCUDDER INVESTMENTS POLICY AND PROCEDURE 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 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 Zurich Scudder Investments, Inc. ("Zurich Scudder") and certain of its subsidiaries (the "Covered Companies"), including Scudder Investor Services, Inc. ("SIS"), Scudder Distributors, Inc. ("SDI"), Scudder Financial Services, Inc., Scudder Service Investment Company, Scudder Service Corporation, Scudder Trust Company, Scudder Fund Accounting Corporation, and by Zurich Scudder-sponsored investment companies as their codes of ethics applicable to Zurich Scudder-affiliated personnel. The Firm has an Ethics Committee that is empowered to administer, apply, interpret, and enforce the Code of Ethics. The Ethics Committee's responsibilities include issuing periodic revisions of the Code, granting exemptions, approving exceptions, and determining sanctions. 4 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. 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. Quarterly Personal Securities Trading 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. 5 Part 2: Personal Investments Definitions (a) Access Person includes officers and directors of Zurich Scudder, SIS, SDI, and Zurich Scudder sponsored investment companies as well as employees of Covered Companies 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 Legal Department on behalf of Zurich Scudder Investments, Inc. authorizing an employee to open a brokerage account and providing for the direction of duplicate trade confirmations and account statements to the Legal Department. All Access Persons must apply for an affiliated person letter for each personal account prior to making any trades in the account. Employees who are not deemed Access Persons can obtain 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); or 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 direct or indirect 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. (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. 6 (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 to the public. (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 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 Zurich Scudder 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. All forms of Hedge Funds are included under this definition. (m) Reportable Transaction includes any transaction in a Security or Derivative; except such term does not include any transaction in (i) direct obligations of the U.S. Government, (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, or (iii) shares of open-end investment companies (mutual funds). (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) Zurich Scudder Funds means each registered investment company to which a Zurich Scudder affiliated Adviser renders advisory services. (p) Waiver from preclearance exempts certain accounts from the preclearance requirements (provided, that no waiver shall be granted for Investment Personnel or Portfolio Managers from the prior approval requirements with respect to IPOs or private placements). An Access Person may apply for a certificate of waiver from preclearance under the following circumstances: 7 (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 (iii) Any other situation where a waiver of preclearance is deemed appropriate by the Ethics Committee. 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 still apply for a 407 letter. Transactions occurring in accounts which have obtained a waiver from preclearance are not exempt from the quarterly reporting requirement or annual personal securities holdings reporting requirement. Specific Rules and Restrictions Applicable to all Employees, Access Persons, Investment Personnel and Portfolio Managers (a) Every Employee must file by the seventh day of the month following the end of each calendar quarter a Quarterly Personal Trading Report for the immediately preceding quarter (Form 1: Quarterly Personal Securities Trading Report). Each report must set forth every Reportable Transaction for any Personal Account in which the Employee has any Beneficial Interest. This report must be filed electronically for those with access to the Firm's intranet. 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. For every Security listed on the report, all 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. (iii) Quarterly reports on family and other accounts that are fee-paying firm clients need merely list the Zurich Scudder account number under Item #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. (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 and Portfolio Mangers service on the board of a 8 public company must be consistent with the interests of the Fund with which such person is associated as well as the shareholders of such Fund, and the Investment Personnel/Portfolio Manager 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 which they are aware are 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. (e) Employees shall submit an Annual Acknowledgement of Obligations Under the Code of Ethics (Form 4). This report must be filed electronically for those with access to the Firm's intranet. (f) Employees shall submit an Annual Review of Personal Activities Form (Form 8). This report must be filed electronically for those with access to the Firm's intranet. Additional Specific Rules and Restrictions Applicable to all Access Persons (a) Access Persons are subject to each of the foregoing rules and restrictions. (b) Access Persons may not purchase or sell a Private Placement security or holding in a hedge fund without the prior written approval of the Ethics Committee or its designee and, in the case of Portfolio Managers and research analysts, in each case the additional approval of their supervisor (see Form 3: Special Preclearance Form). Typically, such purchases 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 and Quarterly Personal Securities Trading Reports. (d) All Access Persons are required to "pre-clear" their personal transactions with the Ethics Committee's designee. (Use Form 2: Preclearance Form or Form 3: Special 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 3:30 pm. If preclearance is granted, the Access Person has until the 9 end of the day preclearance is granted to execute his or her trade. After such time the Access Person must obtain preclearance again. Prior approval is not required for transactions in Securities excepted from the definition of "Reportable Transaction." Similarly, prior approval is not required for acquisitions by give in an account, or dispositions by gift to an account, in which the Access Person has no Beneficial Interest, the rounding out of fractional shares, the receipt of stock dividends or stock splits, and the exercise of options. (Prior approval is required for the sale of stock received as the result of the exercise of options.) (e) Access Persons may not purchase any Security where the investment rating is upgraded to "Neutral" or "Buy" (or any Security added to the Investment Universe with a "Neutral" or "Buy" rating until two weeks after the date of the rating change or addition. (f) Access Persons may not sell any Security where the investment rating is downgraded to "Neutral" or "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 all such client orders are 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, through use of a Form 9, all holdings of Securities and/or Derivatives in which they have a Beneficial Interest (and indicate which of those holdings are private placements). Holdings in direct obligations of the U.S. Government, shares of mutual (i.e., open-end) funds, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, need not be listed. 10 (k) 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. Additional 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 security offered in a Private Placement of an issuer whose securities are being considered for purchase by a client must disclose to their supervisor 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 supervisor. (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 that he or she follows. Additional 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) Fund 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. If a Fund Portfolio Manager believes circumstances have changed such to warrant a trade by a client within 7 days following a trade in the same or related security in his or her own account (or an account he or she has a beneficial interest in), the Fund Portfolio Manager should approach an Ethics Committee member to discuss the change in circumstances. An exception to the above prohibition may in fact be warranted. The Client's best interests must be assessed. (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. 11 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 Zurich Scudder Fund's board of directors concerning material issues arising under Part 1-3, Part 6, Part 9 and 10 of this Code, 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. Such report will be in writing and include any certification required by law. 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 number 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, may be reported to supervisors, and may ultimately not be approved. Sanctions Violations of the Code will result in sanctions as determined by the Ethics Committee. Such sanctions may include reversal of trade and disgorgement of profits, fines, suspensions of trading privileges, additional supervision, and, in the case of the most serious violations or after a series of violations, termination of employment. Sanctions may be implemented either by the Ethics Committee or by appropriate managers in consultation with the Ethics Committee. 12 Part 3: Insider Trading I. Introduction Zurich Scudder has traditionally stressed research in depth and avoided using or seeking "hot tips" or "material non-public information" (defined below) about securities as a basis for recommendations to our clients or for our own investment transactions. Various SEC rules, and Federal and State Laws prohibit the misuse of confidential non-public information. Accordingly, Zurich Scudder has developed a comprehensive insider trading policy which defines insider trading, as well as offers guidance on steps employees must take when they believe they are in possession of material non-public information. Violations of this policy can not only lead to job termination, but could expose both you and the Firm to criminal and civil liability. 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 publicly traded issuers to others outside the company. Employees must not disclose the identities of issuers on the Restricted List to others outside the Firm. The company policy on Insider Trading is incorporated into this 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 Kevin Medina in 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. 13 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 (defined below). 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. Restricted List is a document maintained 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. The company policy on Firewall Procedures 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 Three key elements - our clients, our employees, and the proprietary knowledge we have created through our collective efforts over the years - are central to the Firm's value. The information that relates to our activities is owned solely by the Firm, and we undertake extensive measures to ensure the confidentiality and integrity of this information, which is proprietary to the Firm. Moreover, because we act as fiduciaries for our clients, all of us are subject to special ethical, regulatory, legal and professional duties and considerations, not all of which are specifically addressed below, but which are made known to you throughout the term of your employment. 14 In addition to these fundamental considerations, the Firm requires that you, as an employee, acknowledge and abide by the terms and conditions set forth below: A. Non-Disclosure of Confidential, Non-Public and/or Proprietary Information ------------------------------------------------------------------------- Unless authorized in writing by the Firm, you shall not, during or at any time after your employment with the Firm, disclose to others, use, copy or remove any confidential, non-public or proprietary information concerning the Firm, its clients or its third-party suppliers ("Confidential Information"), except as required in the conduct of the Firm's business. Confidential Information includes, but is not limited to, the following: o names, addresses, telephone numbers or other identifying information and other client contact and correspondence information; 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; o all computer software programs, databases and related documentation pertaining to account or research operations; o presentation materials (including drafts, memoranda and other materials related thereto) prepared for marketing purposes or client meetings; o all information pertaining to investment counsel and fund prospects, including lists and contact logs; o account performance data for any 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; o all information pertaining to potential investments, dispositions or other transactions by or on behalf of clients or the Firm; and o financial models, discoveries and inventions and the like. These restrictions apply to all Confidential Information that you obtain in connection with your employment, whether or not developed by you or others in the Firm or obtained by the Firm from third parties, and whether or not any of the information was identified as secret or confidential. B. Non-Solicitation of the Firm's Clients and Employees ---------------------------------------------------- In order to protect Confidential Information (as defined above) obtained during your employment, and to protect the Firm's relationship with Firm Clients (as defined below), you agree that during the term of your employment and for twelve months thereafter, you will not: (i) directly or indirectly solicit or facilitate obtaining business from any Firm Client, or participate in any discussions relating to the obtaining of business from any Firm Client, in any case other than for Zurich Scudder during your employment, 15 (ii) induce or attempt to induce any Firm Client to reduce or terminate its business with the Firm, or (iii) solicit or encourage any employee to leave the Firm. A "Firm Client" is any person, Firm or entity (a) that was a client of the Firm, or that the Firm has solicited or with which the Firm has had active discussions concerning potential business, at any time during the twelve months preceding the termination of your employment, and (b) with which you or your business unit had any involvement or contact. C. Inventions, Discoveries, Writings and other Proprietary Information ------------------------------------------------------------------- You acknowledge that the Firm shall own all right, title and interest (including patent rights, copyrights, trade secret rights and other rights throughout the world) in any inventions, works of authorship, ideas or information made or conceived or reduced to practice, in whole or in part, by you (either alone or with others) during your employment with the Firm (collectively, "Developments"). However, the term "Developments" does not include inventions, works of authorship, ideas or information for which no equipment, supplies, facilities or trade secret information of the Firm was used, which were developed entirely on your time, and (i) which do not relate to the business of the Firm or to the Firm's actual or demonstrably anticipated research or development, (ii) which do not result from any work performed by you for the Firm, or (iii) for California employees, which qualifies fully under the provisions of California Labor Code Section 2870. You will promptly and fully disclose to the Firm any and all Developments. You hereby assign to the Firm all rights, title and interest in and to any and all Developments. You shall assist the Firm to evidence, record and perfect these assignments, and to perfect, obtain, maintain, enforce, and defend any rights to Developments, without further charge during your employment. After termination of employment, we will compensate you for this assistance on an hourly basis at the base salary rate (excluding any bonuses, deferred compensation or other benefits) you had during your last year of employment. You irrevocably appoint the Firm and its agents as attorneys-in-fact, to act for and on your behalf, to execute and file any document, and to do all other lawfully permitted acts to protect our rights to Developments, with the same legal force and effect as if executed by you. In addition, you acknowledge that all original works of authorship made by you (solely or jointly with others) within the scope of employment and which are protectable by copyright are "works made for hire," as that term is defined in the United States Copyright Act (17 USCA, ss. 101). D. Return of Documents ------------------- You acknowledge that all originals and copies of all lists, materials, catalogs, binders, client lists and other client information, supplier lists, financial information, and other records or documents containing Confidential Information prepared by you or coming into your possession in connection with your employment are and shall remain the property of the Firm. Within three business days of termination of your employment, you will (i) return to the Firm any of the above items that are within your custody or control, and (ii) delete all Confidential Information from any computer or electronic storage device medium owned by you. 16 E. Enforcement ----------- You acknowledge that: (a) the Firm may enforce the rights set forth above pursuant to appropriate judicial proceedings, or that, alternatively, the Firm, in its discretion, may initiate proceedings before the American Arbitration Association in New York, New York, in order to resolve any controversy or claim it may have arising out of this policy or any breach of this policy; (b) judgment on an award entered by the arbitrator may be entered in any court having jurisdiction; and (c) an application to a court for temporary or preliminary or interim relief shall not be considered incompatible with or in derogation of the Firm's right to compel arbitration. To the extent the provisions of this policy are governed by state law, you agree that the laws of the State of New York, without regard to New York's principles of conflicts of laws, shall govern. The invalidity or unenforceability of any provision of this policy shall not affect the validity or enforceability of any other provision of this policy. If any provision of this policy shall be held invalid or unenforceable in part, the remaining portion of that provision, together with all other provisions of this policy, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. Part 6: Gifts, Entertainment and Political Contributions I. Overview (a) It is appropriate for employees to maintain friendly but professional relationships with persons with whom Zurich Scudder conducts its business. These business counterparts may include persons who are associated with Zurich Scudder's vendors, contractors, providers of service, Zurich Scudder clients 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. (b) Gifts given by Zurich Scudder employees to government officials may create the appearance of serious impropriety. Should you have any questions whether a gift you contemplate may cause such an appearance please consult, in advance, with the Legal Department. (c) No employee is permitted to make political contributions to governmental entities in connection with obtaining or maintaining advisory contracts. Employees will be asked to certify that they have not made such political contributions on the Annual Acknowledgement of Obligations Under Code of Ethics (Form 4). 17 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 Zurich Scudder 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. Under most circumstances lodging and transportation charges should be considered the obligation of Zurich Scudder. (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 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, absent advance approval by the Ethics Committee which may be granted in extenuating circumstances. 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 Zurich Scudder Gift Form (Form 6) must be completed within ten days of receipt of the gift. Completed gift forms should be sent to Chelsa Cruz, at 345 Park Avenue, NY, NY 10154. In addition, gifts subject to Form 6 must be reported on the Quarterly Personal Securities Trading Report. IV. Non-Cash Compensation Employees, Registered Representatives and Associated Persons of Zurich Scudder's broker dealer affiliates must also comply with National Association of Securities Dealers, Inc. (NASD(R)) Rules governing the payment of Non-Cash Compensation. Non-Cash Compensation encompasses any form of compensation received in connection with the sale and distribution of variable contracts and investment company securities that is not cash compensation, including, but not limited to, merchandise, gifts and prizes, travel expenses, meals, and lodging. For more information on the policy go to intra.scudder.com/glcomp/sales/noncash.asp. 18 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 Zurich Scudder relationship. With certain exceptions referred to below, any compensation or profits from these activities are, accordingly, considered to be Zurich Scudder'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 prior 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, Zurich Scudder 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 all cases (other than when acting as Executor for one's own spouse, or parent or spouse's parent), it is necessary for the individual to have the written authorization of the firm to act as an executor. All such existing or prospective relationships should be reported in writing. When members of the organization accept executorships under clients' wills, the organization has consistently held to the belief that these individuals are acting for Zurich Scudder and that fees received for executors' services rendered while associated with the firm are exclusively Zurich Scudder 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 Zurich Scudder'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 persons other than a client, a spouse, or a parent. Authorization may be given in other situations assuming that arrangements for the anticipated workload can be made without undue interference with the individual's responsibilities to Zurich Scudder. (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 based upon the facts of each case. 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 19 rule, Zurich Scudder does not accept trustee's commissions where it acts as investment counsel. As in the case of most 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 Zurich Scudder as investment counsel or those which are invested in one or more of the Funds administered by Zurich Scudder. It is recognized that individuals may be asked to serve as trustees of trusts which do not employ Zurich Scudder. 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 and Powers of Attorney 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 Zurich Scudder is required for all other custodianships. Entrustment with a Power of Attorney to execute Securities transactions on behalf of another requires written approval of the Firm. Authorization will only be granted if Zurich Scudder believes such role will not be unduly time consuming or create conflicts of interest. 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, Zurich Scudder considers it inadvisable for such individuals to serve in these capacities. No such position may be accepted without the prior 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 Zurich Scudder (unless the firm decides otherwise) to compensate it for the resources made available. Zurich Scudder 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 Zurich Scudder 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 20 a charity which might appropriately employ Zurich Scudder 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 Zurich Scudder 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 Zurich Scudder. 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. Zurich Scudder 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 Zurich Scudder. 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 Zurich Scudder 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, Zurich Scudder 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 or its designee. 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. 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 21 fairly, accurately and clearly. All marketing materials must be reviewed by the Global Compliance Group. 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 Zurich Scudder 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 Zurich Scudder employees to report apparent compliance violations to the Director of Global Compliance. Violations that go unreported have the potential to cause far more damage than violations that are taken care of immediately upon discovery. 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 a Covered Company, and conduct not in accordance with the Code of Ethics shall constitute grounds for actions including termination of employment or removal from office. Employees must certify annually that they have read and complied with the provisions of this Code of Ethics and that they have disclosed or reported all personal transactions and accounts/holdings 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. 22 SAMPLE - ------ CONFIDENTIAL - Complete Form on Zurich Scudder Intranet by 7th day of start of subsequent quarter Form 1-1/1/02 QUARTERLY PERSONAL SECURITIES TRADING REPORT , 20 ---------------------------------------------------- ------- Quarter Check one: |_| Employee |_| Access Person |_| Investment Personnel |_| Portfolio Manager - ---------------------------- -------------- --------------- ------------- Name Office Employee No. Extension
This form must be filed quarterly, whether or not you have had any transactions, by the 7th day of the start of the subsequent quarter and must cover all Personal Accounts in which you have a direct or indirect Beneficial Interest. These would include any accounts, including those of clients, in which you have a "Beneficial Interest," including those of your spouse and relatives living in your household (unless you obtain written permission from the Ethics Committee or its designee to exclude these accounts), and all non-client accounts over which you act in an advisory capacity. Refer to Code of Ethics for a full explanation of reporting requirements. Please answer all three questions. If it is not applicable write N/A. 1. Zurich Scudder client account numbers in which I have a "Beneficial Interest"(only report PIC accounts here):
- ------------------------------------- -------------------------------------------- -------------------------------------------- PIC ACCOUNT NUMBER ACCOUNT NAME PIC CONSULTANT - ------------------------------------- -------------------------------------------- -------------------------------------------- - ------------------------------------- -------------------------------------------- -------------------------------------------- - ------------------------------------- -------------------------------------------- -------------------------------------------- - ------------------------------------- -------------------------------------------- --------------------------------------------
2. I (had) (had no) Reportable Transactions* during the above quarter. (List all Reportable Transactions on the reverse.) If any such purchases or sales were transacted without obtaining preclearance, so indicate under Name of Account on the reverse. 3. I (received) (did not receive) any gifts or entertainment from brokers, dealers, investment bankers, vendors or other service providers during the above quarter with a value in excess of $100; if any such gifts or entertainment (as defined in Code of Ethics, Part 6) were received, complete and attach Form 6. ------------------------ Signature *Reportable Transactions are all transactions, regardless of size, in Securities or Derivatives (including futures & options), except transactions in (a) direct obligations of the U.S. Government, (b)bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, (c) shares of registered open-end investment companies (mutual funds), and (d) transactions in clients' accounts listed under #1 above. Non-volitional transactions are not required to be reported. The following types of trades will be deemed non-volitional: stock split, automatic tender offer, stock gained from mergers or spin-off companies, dividends received in shares, demutualizations, trust distributions and dividend reinvestment plans. SALES
- --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ Security Units Ticker/ Issuer/ Trade Price Principal Broker/ Acct # Interest Maturity Gift/Waiver/ Type Cusip Company Date Amount Dealer/Bank(3) Rate(1) Date(1) AIP/NBI(2) ========= ====== ======== ========== ======= ========= ============= =============== ========== ========== ============ ============ - --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ - --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ - --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ - --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ - --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ - --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ - --------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------ PURCHASES - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- Security Units Ticker/ Issuer/ Trade Price Principal Broker/ Acct # Interest Maturity Gift/Waiver/ Type Cusip Company Date Amount Dealer/Bank(3) Rate(1) Date(1) AIP/NBI(2) - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ ------------- - -------- ------ -------- ---------- ------- --------- ------------- --------------- ---------- ---------- ------------ -------------
DID YOU ESTABLISH ANY BROKERAGE ACCOUNTS THIS QUARTER? IF SO INSERT THE FOLLOWING INFORMATION BELOW: Name of Brokerage Firm ---------------------------------------------------------- Account Number ------------------------------------------------------------------ Date Account was opened --------------------------------------------------------- FOOTNOTES (Use additional forms if necessary to report all transactions.) (1) For Fixed Income securities only. (2) Indicate here if transaction is a Gift, Waiver, Automatic Investment Plan, or No Beneficial Interest (you do not have any direct or indirect beneficial ownership in such transactions). (3) If you have made a direct issuer trade (i.e. traded directly with the company) enter N/A in this column SAMPLE - ------ Form 2-1/1/02 PERSONAL TRANSACTION PRECLEARANCE --------------------------------- TO: Preclearance Officer/Fax Number (212) 486-9281 From: ----------------- ---------------- -------------- ----------- Applicant's Name Employee Number Office Extension I. Description of Proposed Transaction I wish to: [ ] BUY [ ] SELL the following: [ ] Common Stock [ ] Fixed Income [ ] Option [ ] Other (specify):_______ - --------------------- -------- -------------- ----------- ------------ Issuer/Company Name Units Expected Price Ticker/CUSIP Option/Fixed (in US dollars) (underlying Income Ticker Description for Options) This Transaction is for: [ ] My Own Account [ ] An account of which the investment is attributed to me (See Code Part 2: Definitions) (e.g., spouse, trust for which I am trustee) - ------------------------- ---------------------- Account Number Account Number II. Certifications A. By signing this form, I certify that the information stated above is accurate and the following statements are true: o The security identified above is not part of an IPO (initial public offering), nor has the issuer completed an IPO within the past three business days (this statement applies to proposed purchases only). o To the best of my knowledge, the security identified above has not been upgraded to a Neutral or a Buy rating, nor added to the Scudder Investment Universe with a Neutral or Buy rating, within the past two weeks (this statement applies to proposed purchases only). o To the best of my knowledge, the security identified above has not been downgraded to a Neutral or an Unattractive rating within the past two weeks (this statement applies to proposed sales only). o To the best of my knowledge, the security identified above has not been added to the PIC Universe within the past two weeks (this statement applies to proposed purchases only). o I believe that this transaction is not in conflict with the interests of any client, unless otherwise described in the attached Special Transaction Preclearance Form. B. If I am in the Investment Personnel or Portfolio Manager category (as defined in the Code of Ethics), I certify that the statements in Part II A and the following statements are true: o I have not, for my own account or for any account the investments of which are attributed to me, entered into any transaction within the past sixty (60) days in the security identified above or a related security (within the meaning of the Code) which, together with the proposed transaction, would result in a profit prohibited under the Code. o Unless otherwise explained in the attached Special Transaction Preclearance Form, I do not believe this (i) security is appropriate for inclusion in, or sale by, the portfolio of any client account that I manage. (ii) is a security in an industry (or, for country analysts, a country) which I follow in my capacity as a research analyst. C. If I am a Portfolio Manager (as defined in the Code of Ethics) for one or more registered investment companies, I certify that the statements in Part II A and B and the following statement are true: o No registered investment company of which I am a Portfolio Manager has executed a transaction in the security identified above within the past seven days. o I have determined (by checking with the Lead Portfolio Manager, if other than myself) that no registered investment company of which I am a Portfolio Manager intends to place a transaction in the security identified above within the next seven days. III. Special Transactions: Check one of the following: [ ] The proposed transaction does not involve: (a) the sale of a security for my own account or an account attributable to me which is currently held in the portfolio of a client account that I manage, (b) the purchase for my account or an account attributable to me of a security which is eligible for purchase by a client account which I manage, (c) a private placement transaction, (d) a transaction in a hedge fund, (e) the purchase or sale for my account or an account attributable to me of a security in an industry (or for country analysts, a country) which I follow in my capacity as research analyst. [ ] The proposed transaction involves a "special transaction", and I have attached a completed Special Transaction Preclearance Form. I understand that special transactions are prohibited unless specifically approved as provided in the Code of Ethics. ------------------------------------ Signature IV. Approval The proposed transaction described above is [ ] Approved [ ] Disapproved - ---------------------------------------- ---------------------------- Date and Time of Approval Reviewer SAMPLE Form 3-1/1/02 - ------ SPECIAL TRANSACTION PRECLEARANCE FORM TO: Preclearance Officer/Fax (212) 486-9281 (This form must be submitted along with Form 2) From: ----------------- ---------------- -------------- ----------- Applicant's Name Employee Number Office Extension Date Submitted: --------------------- I. Description of Proposed Transaction ----------------------------------- |_| buy 1. I wish to |_| sell the following: - ------------------------- ------------------------- ------------------ Issuer (company name) Security description/type Ticker Symbol/CUSIP - ------------------- ------------------------------ Units Expected price (in US Dollars) 2. This transaction is for: |_| My Own Account |_| An account of which the investment is attributed to me (See Code Part 2: Definitions) (e.g., spouse, trust for which I am trustee) - ------------------------- ---------------------- Account Number Account Number 3. This transaction involves (check all that apply): |_| a private placement |_| a hedge fund/a fund of hedge funds |_| the purchase for my own account (or an account attributed to me) of a security which is eligible for purchase by a client account which I manage. |_| the sale by me for my own account (or an account attributed to me) of securities which are currently held in client accounts which I manage. |_| the purchase by me for my own account (or an account attributed to me) of a security in an industry (or, for country analysts, a country) which I follow in my capacity as a research analyst. |_| the sale by me for my own account (or an account attributed to me) of a security in an industry (or, for country analysts, a country) which I follow in my capacity as a research analyst. |_| a "short sale against the box" and I am a Portfolio Manager. |_| other (describe): ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- II. Potential Conflicts ------------------- 1. Describe any beneficial interest that you (or any accounts attributed to you) currently have in the security described in Section I.1 above or any related securities. Account Issuer and Security #Units Date Acquired Cost ------- ------------------- ------ ------------- ---- 2. Describe generally any interest that any account(s) managed by you currently have in the security described above or any related securities. 3. Describe any personal or professional relationship you may have with the issuer of the security described in I above, its officers, directors, controlling persons or affiliates. 4. If the proposed transaction involves the sale for your own (or an attributed) account of securities held in one or more client accounts managed by you, explain why you believe it is appropriate for you to sell that security when the client is not. 5. If the proposed transaction involves the sale for your own (or an attributed) account of securities held in one or more client accounts managed by you, give transaction details (account(s), units, date acquired, cost) of any client accounts which have acquired the security within the last 14 days. 6. If the proposed transaction involves the purchase for your own (or an attributed) account of a security which is eligible for purchase by one or more client accounts that you manage, explain why you believe this security is not appropriate for inclusion in the client's portfolio. 7. If the proposed transaction involves a purchase or sale by you of a security in an industry (or, for country analysts, a country) you follow in your capacity as a research analyst, explain why you have not recommended such security for purchase or sale, as applicable, by a client account. 8. Describe any potential conflict of interest presented by the proposed transaction that has not been described above. 9. To the best of your knowledge, is any client a co-investor or co-partner with you in this venture or does any client have a pre-existing interest or propose to invest in this venture? 10. Describe how this investment opportunity came to your attention and any personal or professional relationship you may have to any underwriter or placement agent for the transaction. III. Certification ------------- I hereby certify that the foregoing information is correct and complete to the best of my knowledge. ----------------------- signature IV. Approval by Supervisor (To be Obtained Prior to Submission for ---------------------- Preclearance): (applicable only for: (a) Portfolio Managers and research analysts desiring to purchase or sell a private placement holding or hedge fund holding, (b) research analysts purchasing/selling a security in an industry/country they cover, or (c) any Investment Personnel involved in a contemplated client purchase of a security of an issuer in the event that such Investment Personnel also holds a privately placed security of such issuer.) ------------------------- ----------------------- date and time of approval BY: Supervisor's Name: Ext.: V. To be completed by Pre-clearance Officer ----------------------------------------- Approval - -------- |_| Purchase described above is: |_| Approved The proposed |_| Sale |_| Disapproved. - -------------------- ---- --------------------------- date and time of approval Reviewer |_| The proposed transaction has been discussed with the following investment supervisory personnel: -------------------------------------------------------- names Reviewer analysis: SAMPLE - ------ Form 4-1/1/02 Complete Form on Zurich Scudder Intranet Annual Acknowledgement of Obligations Under the Code of Ethics - -------------------------------- --------------- --------- --------------------------------- ------ -------- Applicant's Name (print clearly) Employee Number Dept Code Employee Type Office Extension (i.e. Employee, Access Person, Investment Personnel, Portfolio Mgr.)
1. CODE OF ETHICS I have read/reread the "Code of Ethics" including the material on "Personal Investments" (Code of Ethics, Part 2) and "Gifts, Entertainment and Political Contributions," (Code of Ethics, Part 6) and attachments thereto and understand them and recognize that I am subject to them. Further, I have disclosed or reported all personal transactions required to be disclosed or reported pursuant to the requirements of the Code and I certify that I complied with the provisions of the Code of Ethics applicable to me over the past year. (a) CHECK THE APPROPRIATE STATEMENT (check only one): [ ] I am not an access person, investment personnel or portfolio manager; or [ ] I have arranged for provision to the Legal Department of a complete report of all my holdings information in the form of duplicate account statements for all of my covered accounts. I have disclosed the existence of all brokerage accounts to the Legal Department, and have filed Affiliated Person Letters (Form 5) for each account directing that duplicate confirms and account statements be forwarded to the Legal Department. (Holdings of direct obligations of the U.S. Government, shares of open-end investment companies (mutual funds), bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, are not required to be reported to the Legal Department); or [ ] I have not arranged for provision to the Legal Department of all of my holdings, so I have submitted a supplemental report of all current holdings which the Legal Department has not thus far received, concurrently herewith (Use Form 9 to list additional holdings not on file with the Legal Department); or [ ] I am an Access Person, Investment Personnel or Portfolio Manager who has no holdings and no bank/broker/dealer accounts. (b) The following is a complete list of all brokerage accounts that contain holdings wherein I have a Beneficial Interest: Account Number Broker Name --------------------------- ------------------------ --------------------------- ------------------------ --------------------------- ------------------------ 2. INSIDER TRADING I have read/reread Code of Ethics, including the Material on Insider Trading (Code of Ethics, Part 3). I understand and agree to conform with the policies and procedures set forth in it. 3. OTHER CODE PROVISIONS I have read/reread Code of Ethics including the material on "Conflicts of Interest," (Code of Ethics, Part 1) "Confidentiality," (Code of Ethics, Part 4) "Proprietary Rights of the Firm," (Code of Ethics, Part 5) "Fiduciary and Corporate Activities," (Code of Ethics, Part 7) "External Communications," (Code of Ethics, Part 8) "Reporting Apparent Violations," (Code of Ethics, Part 9) and "Condition of Employment or Service," (Code of Ethics, Part 10) understand them and agree to comply with their content and spirit. 4. POLITICAL CONTRIBUTIONS I have not made any political contributions in connection with obtaining or maintaining advisory contracts to governmental entities. 5. EMPLOYEE COMPLIANCE QUESTIONNAIRE I have read/reread the Compliance Questionnaire regarding disciplinary, legal, or administrative matters. There have been no changes to answers that I have previously reported. 6. FIRMWIDE SECURITY POLICIES I have read/reread the Firm Wide Security Policies, including the material on User Responsibilities for Security. I understand and agree to conform with the policies and procedures set forth in it. - ------------------- --------------------------------------- Date Signature SAMPLE Form 5-1/1/02 - ------ Return Completed Form To: Chelsa Cruz (NY)/ x63976 / Facsimile Number: 212-486-9281 FORM 407/3050: AFFILIATED PERSONS LETTER (A separate form must be used to supply information for each brokerage account.) [ ] I have completed Personal Securities Holdings Report (Form 9) Account Name:* ---------------------------------------------------------- Employee's Office Location: ---------------------------------------------------------- Employee's extension ---------------------------------------------------------- Employee Designation / Dept Number: (i.e. Employee, Access Person, Invest. Personnel, Port. Mgr.) ---------------------------------------------------------- Employee ID Number: ---------------------------------------------------------- Broker (Company Name): ---------------------------------------------------------- Contact at Broker: ---------------------------------------------------------- Mailing Address (Broker): ---------------------------------------------------------- City State Zip Fax Number of Broker: ---------------------------------------- Telephone Number of Broker: ---------------------------------------- Account Number: ---------------------------------------- Additional Names on Account: (if any) ----------------------------------------
*If this form is being used to complete information regarding the account of a spouse or relative of a Scudder employee, please supply the account name above and information regarding the Scudder employee below: Employee Name: ---------------------------------------- Office Location: ---------------------------------------- Employee Number: ---------------------------------------- Department Number: ---------------------------------------- SAMPLE - ------ Form 6-1/1/02 Return To: Chelsa Cruz - NY/24 GIFT AND ENTERTAINMENT FORM 1) _____________________________ 2) ___________________________ Name of Employee Provider / Receiver of gift (circle one) 3) GIFT / BUSINESS MEAL / ENTERTAINMENT (circle one) 4) ____________________________ Date of gift / entertainment 5) Description of gift / entertainment (include restaurant name, address, business reason, etc.): ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- 6) Other attendees (if any) 7) $___________________ Approximate value of ----------------------------------- gift / entertainment ----------------------------------- ----------------------------------- 8) I attest that the gift and/or entertainment activity listed above complies with all company rules and regulations concerning giving and receiving gifts. ---------------------------------- --------------------- Employee Date Reminder: This form must be submitted within ten business days of the activity, gift, etc. ----------------------------------------------------------------------- APPROVAL -------- --------------------------------- ---------------------- Supervisor Date (Must be a Senior Vice President or Managing Director) Comments of Legal Department: SAMPLE Form 7-1/1/02 - ------ RETURN TO: Pat Fiore - NY/24 REQUEST FOR APPROVAL OF FIDUCIARY, CORPORATE OR OTHER OUTSIDE ACTIVITY From: ---------------- --------------- --------- -------- ----------- Applicant's Name Employee Number Extension Office Dept. Code 1. I believe that the activity described below is not in conflict with the interests of the firm or its clients and I request that it be approved. 2. Activity (check one and include the start date of the Activity)* [ ] Trustee ____________ [ ] Business Consultant ______ [ ] Executor ____________ [ ] Director ____________ [ ] Custodian ____________ [ ] Other (describe)____________ [ ] Power of Attorney (over investments) __________ 3. Name of trust, estate, account, corporation or other entity 4. Timing/Status (check one) [ ] I am currently serving. [ ] I anticipate serving. (Must be reviewed and reapproved when actual service begins.) 5. Salient Facts (relationship, nature of duties, client status and any facts indicating possible conflict or lack thereof): 6. Assignment Status (check one) [ ] I hereby assign any income from this activity to the firm. [ ] I believe any income should appropriately be retained by me. [ ] No income is expected from this activity. - ---------------------------- -------------------------------------- Date Signature The above activity is approved. It is/is not (circle one) to be considered subject to the firm's standard indemnification. The firm reserves the right to withdraw this approval at any time. By - --------------------------- ------------------------------------------ Date On Behalf of the Ethics Committee Comments: *If applicable, I have filled out Form 5 for the account(s) I oversee. SAMPLE Form 8-1/1/02 - ------ Complete Form on Zurich Scudder Intranet Annual Review of Personal Activities Form ----------------------------------------- - ----------------- --------------- --------- ----------------- ------ --------- Applicant's Name Employee Number Dept Code Employee Type Office Extension (i.e. Employee, Access Person, Investment Personnel, Portfolio Mgr.)
As required annually of all members of Zurich Scudder Investments and its affiliated corporations, please indicate all fiduciary, corporate and outside relationships, positions and responsibilities. Below you are asked to refer to Code of Ethics, Part 7 where your reporting obligations are examined in greater detail. This report includes all activities covered in Code of Ethics, Part 7 whether or not previously authorized by the firm. If necessary, attach extra sheets for categories requiring lengthy answers and use heading as outlined below. 1. EXECUTORSHIPS*: (including those in which you are currently serving and all known future appointments as Executor.) Client Authorized of Firm by Firm Estate Yes/No Yes/No - ------ ------ ------ - -------------------------------------------------------------------------------- *Reporting unnecessary if position held with respect to the estate of one's spouse or parent. 2. TRUSTEESHIPS: (including T-1, T-10 and Scudder Directed Trusts (Internal Trusts)* and other client Trusteeships and all known future appointments as Trustee.) Client of Firm Authorized by Firm Trust Title Yes/No Yes/No - ----------- ------ ------ * Please indicate under Section 2 the account numbers of any Internal Trusts with which you are associated. 3. CUSTODIANSHIPS * - -------------------------------------------------------------------------------- Relationship Authorized by Firm* Name of Minor To Custodian Yes/No - ------------- ------------ ------ *Reporting unnecessary in the case of members of one's family - -------------------------------------------------------------------------------- 4. DIRECTORSHIPS*
Authorized Year Estimated Are Fees Name of by Firm First Annual Turned Over Organization Yes/No Elected Fees To Firm? ------------ ------ ------- ---- -------- *Other than Zurich Scudder Funds or affiliated corporations. - --------------------------------------------------------------------------------------------------------- 5. BUSINESS CONSULTING POSITIONS Authorized Year Estimated Are Fees by Firm First Annual Turned Over Corporation or Institution Yes/No Retained Fees ------ ------- ---- --------
6. PUBLIC AND CHARITABLE POSITIONS - Describe position and organization briefly. Also indicate whether authorized by the Firm or not. 7. POWERS OF ATTORNEY OVER INVESTMENTS- Describe position briefly. Also indicate whether authorized by the Firm or not. 8. OUTSIDE ACTIVITIES - For additional information about rules applicable to outside activities refer to Code of Ethics - Part 7 on Fiduciary and Corporate Activities. - --------------------------- ------------------------------------- Date Signature (Attach extra sheets if needed) SAMPLE PERSONAL SECURITIES HOLDINGS REPORT / FORM #9 1/1/02 - ------ Complete Form on Zurich Scudder Intranet - -------------------------------------------------------------------------------- Employee Name_________________________ Dept. Name & Number____________________ (print) (print) Employee Number ____________________________________ - --------------------------------------------------------------------------------
- -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- Ticker Symbol Issuer/Company Security Type Principal Number of Name of Account Number Name in which (or CUSIP) Amount Shares Broker/Dealer Security/Acct. or Bank is held - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- -------------- - -------------- --------------- ------------- --------- --------- ------------- ---------------- --------------
The undersigned does not by this report admit that he/she has any direct beneficial ownership in the securities listed. /__/ I certify that the securities listed above and/or the holdings statements attached reflect all my Reportable Securities holdings as of the date I submit this Form. /__/ I currently have no Reportable Securities holdings to report. Not all Securities are required to be reported. Reportable Securities holdings do not include direct obligations of the U.S. Government, shares of open-end investment companies (mutual funds), bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. Signature ____________________________ Date _____________________ Code of Ethics: Personal Trading; Part 2 Questions and Answers --------------------- (As of 1/1/02) 1. Q: If I am not an Access Person, Investment Personnel or Portfolio Manager, am I required to preclear my trades? A: No. Persons outside these designations are categorized as Employees and are not subject to the preclearance requirements. To determine what category you fall into there is a list of department codes and their designations posted on the intranet (Employee Tools, Code of Ethics, COE Home, Department Code Categories). Your Debt. code can be found on the intranet employee phone book. If you are still uncertain, you should ask your supervisor. Department transfer notification to the Legal Department is your responsibility. 2. Q: If I am categorized as an "Employee" do I need to disclose my accounts by completing a Form 407? A: Not unless such a letter is requested by your broker. 3. Q: As an Employee, what rules still apply to me? A: The rules applicable to Employees are stated in the Code of Ethics (the "Code"). Briefly, you remain subject to (a) quarterly personal securities trading reporting, (b) trading restrictions on IPOs, (c) obtaining approval of fiduciary, corporate or other outside activities, (d) rules against trading Restricted List securities and compliance with the Firm's Insider Trading and Proprietary Rights sections of the Code, (e) rules regarding Gifts and Entertainment and (f) completion of an Annual Acknowledgement. 4. Q: Assuming I am not in the Employee category, do I have to go through the preclearance process if I am buying or selling a security for my own account (or an account attributable to me) even if that security is not currently held by a Scudder client? A: Yes, unless a waiver from preclearance has been granted by the Ethics Committee. 5. Q: My spouse invests in his company's stock by means of an Automatic Investment Plan ("AIP"). (a) Does he have to preclear his AIP transactions? (b) Do I have any reporting obligation with respect to these transactions? A: (a) While a spouse is normally subject to the preclearance process to the same extent you are, if you or your spouse determines to participate in an AIP, these scheduled purchases (i.e. monthly, quarterly, etc.) do not have to be precleared. The sale, however, of any stock must be precleared prior to execution. Voluntary cash contributions to purchase fractional shares in an existing AIP need not be precleared. However, purchases or sales of securities transacted directly with the issuer, independent of an AIP, not using a brokerage account must still be precleared. (b) Yes. New employees must report participation in AIPs on the Personal Securities Holdings Form (Form 9). Thereafter, all employees must indicate AIP purchases on their Quarterly Personal Securities Trading Report (Form 1). 1 6. Q: Am I required to open a brokerage account before trading? A: Yes, for all trades that require preclearance with the exception of transactions taking place directly with the issuer (i.e. monthly contributions are set up in an account with Disney). When reporting direct issuer trades on your Quarterly Personal Securities Trading Report simply place an "N/A" (that is, indicate not applicable) under the column heading titled "Broker/Dealer". Further, outside of an AIP or issuer direct stock purchase, all employee accounts must be held with a broker providing duplicate confirms and statements to the Legal Department. Employee account opening requests with foreign brokers, online trading facilities or any other entity unwilling to provide this documentation will generally not be approved. 7. Q: My spouse is employed by a registered broker-dealer. Must she preclear her personal trades at Scudder? A: While generally spouses of access persons are required to submit their trades through the preclearance process, if your spouse is subject to a similar preclearance process by her employer with respect to her own trades and the account is solely in her name, then you should discuss your situation with a member of the Ethics Committee. A Waiver from Preclearance (see Code of Ethics; Part 2 Definitions) may be permissible under these circumstances providing both you and your spouse certify in writing that you will not share or discuss information relating to specific securities. Exemptions from the preclearance process may also be granted where the account in question is fully discretionary or is a blind trust. This exemption does not apply to the reporting requirement; all transactions (other than those in open-end mutual funds) must be reported on the Quarterly Personal Securities Trading Report. 8. Q: My son, who is 20 years of age and resides on a college campus most of the year, conducts his own trading of which I know nothing. Do I have to preclear his trades? A: If you truly have no knowledge of his trading activity nor do you influence or control his trading activity in any way (such as by making recommendations from time to time) then you should speak to a member of the Ethics Committee. An exception from the preclearance rules may be available if you and your son sign a certification to this effect. (Note - It is very important to this hypothetical fact pattern that the son resides in a separate household and that he receives the account statements at his address at college.) 9. Q: My wife participates in an employee stock purchase plan which works as follows: Every six months she has the right to purchase additional shares of stock at the lowest stock price during the past six months. Is she prohibited from selling such shares for sixty days from the day she purchases them? A: Technically no, but, if you are in the "Investment Personnel" or "Portfolio Manager" category, your wife would only be permitted to sell, for a profit, shares of stock that have already been held for 60 days. Selling to mitigate a loss within the 60-day period, however, does not violate the Code. (Refer to question #24 for information on how to compute the sixty-day period and question #25 for LIFO/FIFO rules.) 10. Q: (a) I sit on the finance committee of various charitable organizations. Do I need to preclear their security transactions? (b) I am a trustee of a charitable organization and as such I have investment discretion. Do I need to preclear the trust's securities transactions? A: (a) Not unless you are recommending specific transactions to them. You may give advice as to asset allocation and general outlook without being considered to have made a specific recommendation. (b) Yes, because as trustee you are deemed to have a beneficial interest in the assets of the trust. (Please refer to Code of Ethics; Part 7) which requires that you obtain permission prior to engaging in these types of arrangements.) 2 11. Q: Are U.S. Government securities, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements and shares of registered open end investment companies subject to these rules? A: U.S. Government securities, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements and shares of mutual funds are exempted from the preclearance and reporting requirements (as are the Scudder 401 (k) and profit sharing plans, see question #12 and Index Options, see question #33). However, shares of investment companies other than mutual funds (e.g., closed-end investment companies) must be precleared and reported just as you would for shares of an industrial company. 12. Q: Do I have a preclearance or reporting obligation with respect to my profit sharing or 401(k) plan which invests in Zurich Scudder mutual funds? A: No. (Transactions in a 401(k)/profit sharing plan of employee in a previous employer's plan, an employee's spouse or other person as to which you have beneficial interest (i.e. an account for a child), in something other than mutual funds must however be reported on the Personal Securities Holdings Form (Form 9).) 13. Q: I want to trade on foreign exchanges. The fact that preclearance is valid only on the day it is granted seems to effectively prevent my ability to trade on these exchanges given the time differences. Is my interpretation of the preclearance process correct? A: When trading securities on foreign exchanges, preclearance is valid until the end of the day on which it was granted, giving you until midnight (EST) that day to execute your trade. Therefore, you should be able to place trades even on those foreign markets that open after the New York Stock Exchange is closed. 14. Q: (a) I am a shareholder of The Korea Fund. The Korea Fund has just announced a rights offering. Do I need to obtain preclearance to exercise my right? (b) What rules apply to the exercise of common stock options? A: (a) No. Keep in mind, however, that if you wanted to sell or purchase (as opposed to exercise) rights issued in a transferable offering, preclearance is required. (b) The exercise of options does not require preclearance. However, preclearance is required before selling the underlying security received upon exercise of such options. 15. Q: Are we permitted to join Investment Clubs, and if so, what are the preclearance requirements? A: Yes, you are permitted to join Investment Clubs but the preclearance requirements remain the same. The brokerage account must be registered by completing a Form 407 so that we receive duplicate confirms and monthly statements and all transactions made by the investment club must be precleared. This includes securities recommended by you as well as those recommended by any other member of the club. 16. Q: Is there a limit to the number of trades a day I can get precleared? A: The firm believes that it is sensible and beneficial for members of the organization to become personally involved in the investment process by engaging in personal security trading as long as it in no way creates potential conflicts, however insignificant, with our clients. At the same time, otherwise appropriate trading if EXCESSIVE (measured in terms of frequency and complexity of trading programs and numbers of trades included in them) can give rise to conflicts of a different category by distracting time, focus, and energies from our efforts on behalf of our clients. Accordingly, personal trading considered to be of such dimension 3 as to give rise to this possibility is not consistent with the Code of Ethics and will not be approved. We will be reporting excessive trading volumes to supervisors. 17. Q: Are employees permitted to maintain margin accounts? A: Employees are permitted to maintain margin accounts. Nonetheless, sales by Access Persons pursuant to margin calls must be precleared in accordance with standard preclearance procedures. In addition, sales pursuant to margin calls are subject to the 60-day rule, meaning, the security in question must be sold at a loss or another security, not purchased in that account within the last 60-days, must be sold to cover the margin call. You are responsible for any sales in your account to cover margin calls whether or not initiated by you. 18. Q: I am an independent consultant, am I subject to the Code of Ethics? A: Independent consultants are not Zurich Scudder employees and, therefore, are not subject to the Code of Ethics. 19. Q: I would like to place a trade in a large cap stock, is it true this trade does not require preclearance? A: No. All stock trades require preclearance. However, in the event an Access Person wants to trade less than $10,000 of a security that has a market capitalization of at least $5 billion, preclearance will be granted absent special circumstances (e.g., the security is on the restricted list). 20. Q: Given that once I am granted preclearance I have until the end of the day on which the preclearance was granted to execute the order with my broker, does this mean that I cannot place a good until cancelled or a limit order? A: Yes 21. Q: I am a portfolio manager/PIC consultant and want to buy a security for a client account. Do I have to go through the preclearance process? A No. The preclearance process is not applicable where a security is desired to be traded in a client account. 22. Q: Does the seven-day blackout period really prohibit a fund portfolio manager from buying a security for his/her fund if he/she has bought that same security for himself/herself within the past seven days? A: The blackout period would by its terms prohibit this security from being bought by the fund; however, since we can not under any circumstances disadvantage our clients, the portfolio manager will likely be required to unwind his/her own trade (and disgorge any profits realized) so that the client is free to trade in that security. For this reason, before preclearance will be granted, fund portfolio managers must check with their lead portfolio manager to see if any team member intends on trading the security for a client within the next seven days. 23. Q: Are there any restrictions on a research analyst's ability to recommend a stock he/she owns? A: No, however, research analysts are required to obtain special preclearance and approval from their supervisor (as indicated on the Special Transaction Preclearance Form (Form 3) prior to purchasing or selling a security in an industry or country he or she follows. Obviously analysts must be careful to avoid the appearance of "jumping the gun" by executing a personal trade before recommending a change in such issuer's rating. 4 24. Q: Can you explain to me again how the sixty-day rule works? A: The sixty-day rule applies only to Investment Personnel and Portfolio Managers. It effectively prohibits people falling in these categories from profiting as a result of purchases and sales or sales and purchases within sixty calendar days. You are responsible for knowing the date on which you bought or sold a security. Thus, for example, you should not request preclearance to sell a security which you know you have purchased within the last sixty-days unless you will realize a loss from the sale. If you should inadvertently make such a request and preclearance is granted but your violation of the sixty-day rule later becomes evident you may be sanctioned. Repetitive requests for preclearance when the sixty-day rule is not complied with may also result in a sanction. 25. Q: Is the FIFO or LIFO method the correct procedure to apply when considering whether the sixty-day rule will be violated? A: The sixty-day rule will be monitored as part of the preclearance process; nevertheless, it is your responsibility to ensure compliance with application of the rule (see question #24 above). In the case of an ordinary transaction, LIFO will be applied to make this determination. Where an employee's spouse has compensation that is dependent upon or otherwise participates in a stock purchase plan FIFO is applied. 26. Q: I am Investment Personnel and I would like to preclear a purchase in a security and a stop-loss order in the same security at the same time. Is this a violation of the 60-day rule? A. Technically, a stop-loss order precleared in conjunction with a purchase order in the same security by Investment Personnel would constitute a contra-trade resulting in a 60-day rule restriction. However, since we make exception for sales at a loss, as long as the sale price is lower than the purchase price we will allow preclearance of the two at the same time. Please remain aware that with Stop-Loss trades any change in the parameters negates the preclearance and subsequent approval of the revised order must be obtained. Stop Loss orders intended to carry over beyond one day will not be honored. 27. Q: What happens if I buy a security and then the issuer makes a tender offer twenty days later. Can I sell this security for a profit without violating the sixty-day rule? A: Technically, the sixty-day rule would prohibit this subsequent sale by someone in the "Investment Personnel" or "Portfolio Manager" category; however, the Code provides that in unique circumstances, the Firm reserves the right to grant exceptions. It is probable that an exception would be granted if you had no reason to know of the impending tender offer when you bought the security. If you find yourself in this situation you should contact a member of the Ethics Committee to determine if an exception is permissible. 28. Q: Do commodities trades need to be precleared? What about options on futures? A. Commodity trades in precious metals require preclearance. For Investment Personnel and Portfolio Managers, options on futures may be exercised 60 days after the purchase of the options (assuming preclearance is approved). However, when exercised the commodity cannot be sold for another 60 days. 29. Q: I am Investment Personnel and would like to trade in options on securities in which I have holdings in the common stock. If the option is exercised within 60-days of the purchase or sale of the common stock, does this violate the 60-day rule? A: Preclearance for Investment Personnel of the purchase of call options and the sale of common shares for the same security is permitted; however, if the call strikes (is exercised) within 60 days and a profit is made, the profit must be disgorged for violation of the contra-trade rule (the same applies for the purchase of put options and common stock purchases). In interpreting the 60-day rule, we will not consider a transaction to 5 have occurred when an employee is merely rolling over an option position which is about to expire, provided that net exposure is not changed (e.g. when the number of the same contracts being sold and those being purchased are equal). When rolled over the 60-day clock begins again. Alternately, if you wanted to sell a put option (which gives you the obligation to buy the underlying security if the buyer of the option wishes to sell) with an expiration date of more than 60 days and someone bought the put and wanted to sell the underlying security before the expiration date (within 60 days), you would be obliged to buy the underlying security before the 60 days expired, resulting in a violation of the rule. 30. Q: My brother works for a company that is going public. He has been allocated a number of shares for his friends and family to purchase prior to the effective date of the offering, can I participate? A. No. The only exceptions to the IPO rule are (a) in the case where an employee's spouse works for a company going public and is allotted shares in the offering set aside from market shares. These shares are considered to be received as a benefit of employment, and (b) in the event of a demutualization of a bank or other company where shares are offered to investors prior to the effective date where the shares are set apart from those offered on the market. Speak in advance to a Preclearance Officer if you believe one of these exceptions to be applicable. 31. Q: Are employees permitted to purchase new issues of Municipal Bonds? A: Yes, however, employees may not participate in new issues of municipal bonds until a CUSIP number has been identified. 32. Q: I have a brokerage account with an online broker that allows trades to be executed after the market closes. Can trades precleared earlier in the day be executed after the market close (4:00PM)? A. No. All domestic trades must be executed before the close of the market at 4:00 PM EST. An increasing number of employees have incurred violations trading online by placing orders after the close, only to have them executed the following day. In addition, orders placed on hold before obtaining approval are frequently forgotten and automatically executed at the close without proper approval. Please be advised that online trades should only be submitted for execution after obtaining approval and well before the market close. 33. Q: What are the rules for trading Index Options/Funds/Depository Receipts (i.e. S&P, NASDAQ)? What about Sector Options, etc.? Do they require preclearance? A: Index options do not have to be precleared since they allow investors to trade in a particular market or industry group without having to transact in individual stocks. Similarly, Sector options that are broad based (composed of 10 or more companies) do not require preclearance. In both instances, however, quarterly reporting is required. In addition, UITs (Unit Investment Trusts) as well as exchange index instruments such as SPIDERS (S&P Depository Receipts), WEBS (World Equity Benchmark Shares), DIAMONDS (Dow-30) and QUBES (NASDAQ-100) are traded based on NAV and, therefore, do not require preclearance although they do require quarterly reporting. 34. Q: I would like to invest in a Venture Capital Fund. Does this need to be precleared? If a company in the fund goes public does this violate the IPO rule? 16998 6 First, an employee need not preclear an investment in a Venture Capital Fund, provided that there were no conflict of interest issues (such as Zurich Scudder being a co-investor). Nonetheless, the investment must be disclosed on the Quarterly Personal Securities Trading Report. Second, if an employee receives "in-kind" distributions of securities pursuant to a prior ownership interest then this distribution does not have to be precleared, but should be reported on the Quarterly Personal Securities Trading Report. Third, any sales of securities received after an "in-kind" distribution must be precleared and reported. Securities received as a result of an IPO must be held for three days following the effective date and may be sold thereafter. In addition, Venture Capital Funds are not to be confused with VENTURE CAPITAL LIMITED PARTNERSHIPS or Bridge Loans, which require Special Transaction Preclearance on Form 3. The reason for this being that with a Venture Capital Fund the investment is made initially into the fund, which in turn selects start-up companies in which to invest. A Venture Capital Limited Partnership is a direct investment in a private placement. 35. Q: Are non-volitional trades reportable on the Quarterly Personal Securities Trading Report (Form 1)? A: No, trades that an Employee has absolutely no control over are not subject to preclearance or quarterly reporting. They are however subject to disclosure under the annual reporting requirements of Form 4. Non-volitional trades include stock splits, stock dividends, demutualizations, tender offers, stock gained from mergers or spin-off companies and trust distributions. Margin sales (i.e., a sale by a broker without input from the employee) remain subject to the 60-day rule which Investment Personnel and Portfolio Managers must adhere to. (See question 17 for more information about Margin Accounts.) Moreover, trades in accounts that another adviser has discretion over are not considered non-volitional. If your transaction is not one of the above listed non-volitional transactions or you have any doubt whether your transaction will be deemed non-volitional you should contact a pre-clearance officer to discuss your situation. 36. Q: Are my domestic partner's transactions subject to the Code? A: No, transactions by your domestic partner (unlike transactions by a spouse or other relative living in your household) are not subject to the Code. 37. Q: What are the reporting requirements for employees on disability? A: Employees on maternity leave, short or long term disability - with no access to Zurich Scudder information - are not required to preclear while on leave. They are however required to file all required reports that were due while they were on leave, no later then the end of the month in which he/she returns to the office. However, Access Persons on leave with continued access to Zurich Scudder information (e.g., computer access) are required to preclear and report their trades while out. 38. Q: When should an employee complete the Report of Gifts and Entertainment (Form 6)? A: Employees should never accept gifts of cash or favorable rates on financial transactions. Transactions requiring reporting on Form 6 include gifts valued in excess of $100, business meals valued in excess of $200, and entertainment valued in excess of $300. It is important to note that these dollar amounts apply at the individual level. Thus, for example, if you and two clients go to dinner and the meal you order costs $100 7 you do not have to report it even though the total check adds up to $350. Please refer to Part 6 of the Code for more information. 39. Q: Do I need to complete Form 7 (Request For Approval of Fiduciary, Corporate or Other Outside Activity) if the activity is within the scope of my job? A: Yes. All outside activity must be reported. 40. Q: What is the Firm policy on political contributions? A: Employees are not permitted to make political contributions to governmental entities in connection with obtaining or maintaining advisory contracts. 41. Q: Who should I go to with further questions? A: For questions regarding the 407 process contact Chelsa Cruz in New York; regarding preclearance or reporting questions please contact Glory Ekpe, Pat Fiore or Pamela Ussery in New York. Currently, the Firm's Ethics Committee members are: Jerry Hartman, Randy Zeller, Ann McCreary and Paula Gaccione. 8 -----END PRIVACY-ENHANCED MESSAGE-----