Filed electronically with the Securities and Exchange Commission on
April 3, 1996
File No. 33-2648
File No. 811-4555
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. 15
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT No. 13
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Scudder Institutional Fund, Inc.
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(Exact name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
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Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
345 Park Avenue, New York, NY 10154
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
____ immediately upon filing pursuant to paragraph (b),
X on April 3, 1996 pursuant to paragraph (b),
____ 60 days after filing pursuant to paragraph (a)(1),
____ on ________________ pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on ________________ pursuant to paragraph (a)(2) of Rule 485.
The Registrant previously filed a declaration registering an indefinite amount
of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. The Registrant intends to file the notice required by Rule 24f-2 for
its most recent fiscal year on or about February 29, 1996.
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL FEDERAL PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Items Required by Form N-1A
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PART A
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<TABLE>
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Item No. Item Caption Prospectus Caption
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1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
SUMMARY
3. Condensed Financial Information FINANCIAL HIGHLIGHTS
4. General Description of Registrant SUMMARY
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
COMPANY ORGANIZATION
5. Management of the Fund SUMMARY
FINANCIAL HIGHLIGHTS
COMPANY ORGANIZATION--Investment Adviser, Transfer Agent
BACK COVER PAGE
5A. Management's Discussion of Fund NOT APPLICABLE
Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--
Securities Dividends and Capital Gains Distributions, Taxes
COMPANY ORGANIZATION
BACK COVER PAGE
7. Purchase of Securities Being Offered TRANSACTION INFORMATION--Purchasing Shares, Share Price
COMPANY ORGANIZATION--Distributor
8. Redemption or Repurchase TRANSACTION INFORMATION--Redeeming Shares
9. Pending Legal Proceedings NOT APPLICABLE
</TABLE>
Cross Reference-Page 1
<PAGE>
INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL FEDERAL PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
(continued)
PART B
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<TABLE>
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<C> <C> <C>
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ------------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and COMPANY ORGANIZATION
History
13. Investment Objectives and THE PORTFOLIOS AND THEIR OBJECTIVES
Policies PORTFOLIO TRANSACTIONS
14. Management of the INVESTMENT ADVISER
Registrant DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and Principal DIRECTORS AND OFFICERS
Holders of Securities
16. Investment Advisory and INVESTMENT ADVISER
Other Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation and PORTFOLIO TRANSACTIONS
Other Practices
18. Capital Stock and Other COMPANY ORGANIZATION
Securities DIVIDENDS
19. Purchase, Redemption and PURCHASE OF SHARES
Pricing of Securities REDEMPTION OF SHARES
Being Offered NET ASSET VALUE
20. Tax Status DIVIDENDS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 2
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Items Required by Form N-1A
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PART A
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<TABLE>
<CAPTION>
<C> <C> <C>
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information FINANCIAL HIGHLIGHTS
4. General Description of Registrant INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
COMPANY ORGANIZATION
5. Management of the Fund COMPANY ORGANIZATION--Investment Adviser, Transfer Agent, Experienced
Professional Management
BACK COVER PAGE
5A. Management's Discussion of Fund NOT APPLICABLE
Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--
Securities Dividends and Capital Gains Distributions, Taxes
COMPANY ORGANIZATION
BACK COVER PAGE
7. Purchase of Securities Being Offered TRANSACTION INFORMATION--Purchasing Shares, Share Price
COMPANY ORGANIZATION--Distributor
8. Redemption or Repurchase TRANSACTION INFORMATION--Redeeming Shares
9. Pending Legal Proceedings NOT APPLICABLE
</TABLE>
Cross Reference-Page 3
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
(continued)
PART B
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<TABLE>
<CAPTION>
<C> <C> <C>
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and COMPANY ORGANIZATION
History
13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Policies PORTFOLIO TRANSACTIONS
14. Management of the INVESTMENT ADVISER
Registrant DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and Principal DIRECTORS AND OFFICERS
Holders of Securities
16. Investment Advisory and INVESTMENT ADVISER
Other Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation and PORTFOLIO TRANSACTIONS
Other Practices
18. Capital Stock and Other COMPANY ORGANIZATION
Securities DIVIDENDS
19. Purchase, Redemption and PURCHASE OF SHARES
Pricing of Securities REDEMPTION OF SHARES
Being Offered NET ASSET VALUE
20. Tax Status DIVIDENDS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 4
<PAGE>
Institutional International Equity Portfolio
345 Park Avenue, New York, New York 10154
(800) 854-8525
Investment Adviser
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Fund Accounting Agent
Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Transfer Agent and
Dividend Disbursing Agent
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205
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No person has been authorized to give any information or to make any
representations not contained in this Prospectus, and information or
representations not contained herein must not be relied upon as having been
authorized by the Company or the Distributor. This Prospectus does not
constitute an offer of any security other than the registered securities to
which it relates or an offer to any person in any jurisdiction where such offer
would be unlawful.
Institutional International
Equity Portfolio
BARRETT INTERNATIONAL
SHARES
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Prospectus
April 3, 1996
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
345 Park Avenue, New York, New York 10154
1-800-854-8525
Scudder, Stevens & Clark, Inc. - Investment Adviser
Scudder Investor Services, Inc. - Distributor
Institutional International Equity Portfolio (the "Portfolio") is a series
of Scudder Institutional Fund, Inc. (the "Company"), a no-load, open-end,
diversified, management investment company. Currently the Portfolio is comprised
of a single class of shares ("Barrett International Shares").
The Portfolio seeks long-term growth of capital primarily through a
diversified portfolio of marketable foreign equity securities.
--------------
This Prospectus sets forth concisely the information about the Portfolio
that a prospective investor should know before investing. Please retain it for
future reference. If you require more detailed information, a Statement of
Additional Information dated April 3, 1996, as amended from time to time, may be
obtained without charge by writing or calling the Company at the address and
telephone number printed above. The Statement of Additional Information, which
is incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
Page
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Expense Information 2
Investment Objective and Policies 3
Additional Information About Policies and Investments 4
Distribution and Performance Information 6
Company Organization 7
Transaction Information 9
Shareholder Benefits 12
April 3, 1996
<PAGE>
Expense Information
This information is designed to help an investor understand the various costs
and expenses of investing in the Portfolio.
1) Shareholder Transaction Expenses: Expenses charged directly to an
individual account in the Portfolio for various transactions.
NONE
2) Annual Portfolio Operating Expenses: Estimated expenses to be paid by the
Portfolio before it distributes its net investment income, expressed as an
annualized percentage of its average daily net assets for the initial
fiscal period.
Investment Management Fee (after waiver) 0%*
Other Expenses 0.95%
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Total Portfolio Operating Expenses 0.95%*
=====
Example
Based on the estimated level of total Portfolio operating expenses listed above,
the total expenses relating to a $1,000 investment, assuming a 5% annual return
and redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Portfolio before it distributes
its net investment income to shareholders.
1 Year 3 Years
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$10 $30
See "Company Organization--Investment Adviser" for further information about
investment management fees. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Portfolio
Operating Expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual
Portfolio expenses and return vary from year to year and may be higher or lower
than those shown.
* Until April 30, 1997, the Adviser has agreed to waive a portion of its
investment management fee to the extent necessary so that the total
annualized expenses of the Portfolio do not exceed 0.95% of average daily
net assets. If the Adviser had not agreed to waive a portion of its fee, it
is estimated that annualized Portfolio expenses would be: investment
management fee 0.90%, other expenses 1.22% and total operating expenses
2.12% for the initial fiscal period. To the extent that expenses fall below
0.95% during the fiscal year, the Adviser reserves the right to recoup,
during the fiscal year incurred, amounts waived during the period, but only
to the extent that the Portfolio's expenses do not exceed 0.95%.
2
<PAGE>
Investment Objective and Policies
The investment objective of the Portfolio is to seek long-term growth of
capital primarily through a diversified portfolio of marketable foreign equity
securities. These securities are selected primarily to permit the Portfolio to
participate in non-United States companies and economies with prospects for
growth. The Portfolio invests in companies, wherever organized, which do
business primarily outside the United States. The Portfolio intends to diversify
investments among several countries and to have represented in the portfolio, in
substantial proportions, business activities in not less than five different
countries. The Portfolio does not intend to concentrate investments in any
particular industry. The investment objective of the Portfolio is nonfundamental
and can be changed without the approval of the holders of a majority of the
Portfolio's outstanding shares. Shareholders will receive written notice of any
changes in the Portfolio's objective. If there is a change in investment
objective, shareholders should consider whether the Portfolio remains an
appropriate investment in light of their then current financial position and
needs. There is no assurance that the Portfolio will achieve its investment
objective. Except as otherwise indicated, the Portfolio's policies are not
fundamental and may be changed without a vote of shareholders.
Investments
The Portfolio generally invests at least 90% of its total assets in equity
securities of established companies, listed on foreign exchanges, which the
Portfolio's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"),
believes have favorable characteristics.
When the Adviser believes that it is appropriate to do so in order to
achieve the Portfolio's investment objective of long-term capital growth, the
Portfolio may invest up to 10% of its total assets in debt securities. Such debt
securities include debt securities of foreign governments, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (ECU). Portfolio debt investments will be selected on the basis
of, among other things, yield, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk. The
Portfolio may purchase "investment-grade" bonds, which are those rated Aaa, Aa,
A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by
Standard & Poor's ("S&P") or, if unrated, judged by the Adviser to be of
equivalent quality. The Portfolio may also invest up to 5% of its total assets
in debt securities which are rated below investment-grade (see "Risk Factors").
When the Adviser determines that exceptional conditions exist abroad, the
Portfolio may, for temporary defensive purposes, invest all or a portion of its
assets in Canadian or U.S. Government obligations or currencies, or securities
of companies incorporated in and having their principal activities in Canada or
the U.S.
The Portfolio's investments are generally denominated in foreign
currencies. The strength or weakness of the U.S. dollar against these currencies
is responsible for part of the Portfolio's investment performance. For example,
if the dollar falls in value relative to the Japanese yen, the dollar value of a
Japanese stock held in 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.
The Portfolio reserves the right, without prior shareholder approval, in
the future to pursue its investment objective by investing all of its investable
assets in a separate registered investment company having the same investment
objective and substantially similar policies and restrictions as the Portfolio.
The new structure (commonly known as "master-feeder") could enable the Portfolio
to benefit, directly or indirectly, from certain economies of scale, based on
the premise that certain of the expenses of operating an investment portfolio
are relatively fixed and that a larger investment portfolio may eventually
achieve a lower ratio of operating expenses to average net assets.
3
<PAGE>
Additional Information About Policies and Investments
Investment Restrictions
The following investment restrictions and those described in the Statement
of Additional Information are fundamental policies of the Portfolio that may be
changed only when permitted by law and approved by the holders of a majority of
the Portfolio's outstanding voting securities, as described under "Company
Organization" in the Statement of Additional Information.
The Portfolio may not borrow money, except as a temporary measure for
extraordinary or emergency purposes and may not make loans, except through the
lending of portfolio securities, the purchase of debt securities or through
repurchase agreements. The Portfolio may not invest more than 25% of its assets
in securities of companies in the same industry.
In addition, as a matter of nonfundamental policy, the Portfolio may not
invest more than 10% of its total assets, in the aggregate, in securities which
are not readily marketable or otherwise illiquid, restricted securities and
repurchase agreements maturing in more than seven days.
For a more complete description, see "Investment Restrictions" in the
Statement of Additional Information.
Strategic Transactions and Derivatives
The Portfolio may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Portfolio or to enhance potential gain. These strategies may
be executed through the use of derivative contracts. Such strategies are
generally accepted as a part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments may change over time as new instruments and strategies are developed
or regulatory changes occur.
In the course of pursuing these investment strategies, the Portfolio may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Portfolio's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Portfolio'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 Portfolio
to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Portfolio will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes. Please refer to "Risk
Factors--Strategic Transactions and Derivatives" for more information.
4
<PAGE>
Risk Factors
Foreign Securities. Investments in foreign securities involve special
considerations due to limited information, higher brokerage costs, different
accounting standards, thinner trading markets as compared to domestic markets
and the likely impact of foreign taxes on the income from securities. They may
also entail other risks, such as the possibility of one or more of the
following: imposition of dividend or interest withholding or confiscatory taxes;
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; less government supervision
and regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Purchases of foreign
securities are usually made in foreign currencies and, as a result, the
Portfolio may incur currency conversion costs and may be affected favorably or
unfavorably by changes in the value of foreign currencies against the U.S.
dollar. Further, it may be more difficult for the Company's agents to keep
currently informed about corporate actions 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., increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. The Portfolio's ability and decisions to purchase and sell portfolio
securities may be affected by laws or regulations relating to the convertibility
and repatriation of assets.
Debt Securities. The Portfolio may invest no more than 5% of its total assets in
debt securities which are rated below investment-grade; that is, rated below Baa
by Moody's or below BBB by S&P, commonly referred to as junk bonds. The lower
the ratings of such debt securities, the greater their risks render them like
equity securities. Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics. The Portfolio may invest
in securities which are rated D by S&P or, if unrated, are of equivalent
quality. Securities rated D may be in default with respect to payment of
principal or interest. The market value of the Portfolio's debt securities may
vary inversely with changes in prevailing interest rates.
Strategic Transactions and Derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the
Portfolio, 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 Portfolio can realize on its investments or cause the Portfolio
to hold a security it might otherwise sell. The use of currency transactions can
result in the Portfolio incurring losses as a result of a number of factors
including the imposition of exchange controls, suspension of settlements or the
inability to deliver or receive a specified currency. The use of options and
futures transactions entails certain other risks. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Portfolio creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Portfolio'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 Portfolio might not be
able to close out a transaction without incurring substantial losses, if at all.
Although the use of futures contracts 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. The Strategic Transactions that the Portfolio may use and
some of their risks are described more fully in the Portfolio's Statement of
Additional Information.
5
<PAGE>
Portfolio Turnover
It is anticipated that the portfolio turnover rate of the Portfolio will
not exceed 100% for the initial fiscal year. However, economic and market
conditions may necessitate more active trading, resulting in a higher portfolio
turnover rate. A higher rate involves greater brokerage expenses to the
Portfolio and may result in the realization of net capital gains, which would be
taxable to shareholders when distributed.
Distribution and Performance Information
Dividends and Capital Gains Distributions
The Portfolio intends to distribute dividends from its net investment
income and net realized capital gains after utilization of capital loss
carryforwards, if any, in December to prevent application of federal excise tax.
An additional distribution may be made, if necessary. Any dividends or capital
gains distributions 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. Dividends and distributions will be invested in
additional shares of the Portfolio at net asset value and credited to the
shareholder's account on the payment date or, at the shareholder's election,
paid in cash. Dividend checks and Statements of Account will be mailed
approximately two business days after the payment date.
Generally, dividends from net investment income are taxable to shareholders
as ordinary income. Long-term capital gains distributions, if any, which are so
designated by the Portfolio are taxable as long-term capital gains regardless of
the length of time shareholders have owned their shares. Short-term capital
gains and any other taxable income distributions are taxable as ordinary income.
Dividends and other distributions are taxable to shareholders in the same manner
whether received in cash or reinvested in additional Portfolio shares.
Shareholders may be able to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the Portfolio to
foreign countries.
Taxes
The Portfolio intends to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the
Portfolio must meet certain income, distribution and diversification
requirements. In any year in which the Portfolio qualifies as a regulated
investment company and timely distributes all of its taxable income, the
Portfolio generally will not pay any U.S. federal income or excise tax.
The Portfolio sends detailed tax information about the amount and type of
its distribution by January 31 of the following year.
Upon the redemption, sale or other disposition of shares of the Portfolio,
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.
The Portfolio will be required to withhold, subject to certain exemptions,
at a rate of 31% of all taxable distributions payable to shareholders who fail
to provide the Portfolio with their correct taxpayer identification number or to
make required certifications, or who have been notified by the IRS that they are
subject to backup withholding. (See also "Transaction Information--Redeeming
Shares.")
Further information relating to U.S. federal tax consequences is contained
in the Statement of Additional Information. Portfolio distributions also may be
subject to state, local and foreign taxes. Shareholders are urged to consult
their own tax advisors regarding specific questions as to federal, state, local
or foreign taxes.
Performance Information
From time to time, quotations of the Portfolio's performance may be
included in advertisements, sales literature or shareholder reports. All
performance figures are historical, show the performance of a hypothetical
investment and are not intended to indicate future performance. "Total return"
6
<PAGE>
is the change in value of an investment in the Portfolio for a specified period.
The "average annual total return" of the Portfolio is the average annual
compound rate of return of an investment in the Portfolio assuming the
investment has been held for one year and the life of the Portfolio as of a
stated ending date. "Cumulative total return" represents the cumulative change
in value of an investment in the Portfolio for various periods. Total return
calculations assume that all dividends and capital gains distributions during
the period were reinvested in shares of the Portfolio. "Capital change" measures
return from capital, including reinvestment of any capital gains distributions
but does not include the reinvestment of dividends. Performance will vary based
upon, among other things, changes in market conditions and the level of the
Portfolio's expenses.
Company Organization
The Company was formed on January 2, 1986 as a corporation under the laws
of the State of Maryland. The Company is a no-load, open-end, diversified,
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"). The Company's activities are supervised by its Board of
Directors. The Board of Directors, under applicable laws of the State of
Maryland, in addition to supervising the actions of the Company's Adviser and
Distributor, as set forth below, decides upon matters of general policy.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Company is not required to and has no current intention of
holding annual shareholder meetings, although meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment advisory agreement. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.
If the Portfolio does not achieve an asset level of $100 million within a
period of three years from commencement of operations, it may be terminated at
the Board's discretion.
Investment Adviser
The Company retains the investment management firm of Scudder, Stevens &
Clark, Inc., a Delaware corporation, to manage the Portfolio's daily investment
and business affairs subject to the policies established by the Board of
Directors. The Adviser is one of the most experienced investment counsel firms
in the U.S. The Adviser was established in 1919 as a partnership and was
restructured as a Delaware corporation in 1985. The principal source of the
Adviser's income is professional fees received from providing continuing
investment advice. The Adviser provides investment counsel for many individuals
and institutions, including insurance companies, endowments, industrial
corporations and financial and banking organizations. As of December 31, 1995,
the Adviser and its affiliates had in excess of $100 billion under their
supervision.
Pursuant to the Investment Advisory Agreement (the "Agreement") with the
Company on behalf of the Portfolio, the Adviser regularly provides the Portfolio
with investment research, advice and supervision and furnishes continuously an
investment program for the Portfolio consistent with its investment objective
and policies. The Agreement further provides that the Adviser will pay the
compensation and certain expenses of all officers and certain employees of the
Company who are affiliated with the Adviser or its affiliates and will make
available to the Portfolio such of the Adviser's directors, officers and
employees as are reasonably necessary for the Portfolio's operations or as may
be duly elected officers or directors of the Company. Under the Agreement, the
Adviser also pays the Portfolio's office rent and provides investment advisory
research and statistical facilities and all clerical services relating to
research, statistical and investment work. The Adviser, including the Adviser's
employees who serve the Portfolio, may render investment advice, management and
other services to others.
The Portfolio will bear all expenses not specifically assumed by the
Adviser, including, among others, the fee payable to the Adviser, the fees of
the Directors who are not "affiliated persons" of the Adviser, the expenses of
all Directors and the fees and out-of-pocket expenses of the Company's Custodian
and the Transfer Agent. For a more detailed description of the expenses to be
7
<PAGE>
borne by the Portfolio, see "Investment Adviser" and "Distributor" in the
Statement of Additional Information.
The Portfolio is charged a management fee equal, on an annual basis, to
0.90% of the Portfolio's average daily net assets. Management fees are computed
daily and paid monthly. The Adviser has agreed to maintain the total annualized
expenses of the Portfolio at no more than 0.95% of the average daily net assets
of the Portfolio until April 30, 1997.
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced
investment management firms, actively manages your investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities. The Adviser has been a
leader in international investment management and trading for over 40 years.
The Institutional International Equity Portfolio is managed by a team of
Scudder investment professionals, each of whom plays an important role in the
Portfolio's management process. Team members work together to develop investment
strategies and select securities for the Portfolio. They are supported by
Scudder's large staff of economists, research analysts, traders, and other
investment specialists who work in Scudder's offices across the U.S. and abroad.
Scudder believes its team approach benefits Portfolio investors by bringing
together many disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Carol L. Franklin has responsibility for setting the
Portfolio's investment strategy and overseeing security selection for the
Portfolio. Ms. Franklin, who has 18 years of experience in finance and
investing, joined Scudder in 1981. Nicholas Bratt, Portfolio Manager, directs
Scudder's overall global equity investment strategies. Mr. Bratt joined Scudder
in 1976. Irene T. Cheng, Portfolio Manager, joined Scudder in 1993. Ms. Cheng
has been a portfolio manager since 1993 and has 11 years of experience in
finance and investing. Francisco S. Rodrigo III, Portfolio Manager, joined
Scudder in 1994. Mr. Rodrigo has been involved with investment in global and
international stocks and bonds as a portfolio manager and analyst since 1989.
Joan Gregory, Portfolio Manager, focuses on stock selection, a role she has
played since she joined Scudder in 1992. Ms. Gregory has been involved with
investment in global and international stocks as an assistant portfolio manager
since 1989.
Transfer Agent
Scudder Service Corporation, P.O. Box 9242, Boston, Massachusetts 02205, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Portfolio.
Distributor
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the
Company's principal underwriter (the "Distributor"). Scudder Investor Services,
Inc. confirms, as agent, all purchases of shares of the Portfolio. Under the
Underwriting Agreement with the Company, the Distributor acts as the principal
underwriter and bears the cost of printing and mailing prospectuses to potential
investors and of any advertising expenses incurred by it in connection with the
distribution of shares.
Custodian
Brown Brothers Harriman & Co. is the custodian for the Portfolio.
Accounting Agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of the Portfolio.
8
<PAGE>
Transaction Information
Purchasing Shares
There is a $1,000 minimum initial investment in the Portfolio and a minimum
account size of $1,000. The minimum subsequent investment for the Portfolio is
$1,000. The minimum investment requirement may be waived or lowered for
investments effected through banks and other institutions and for investments
effected on a group basis by certain other entities and their employees, such as
pursuant to a payroll deduction plan and for investments made in an Individual
Retirement Account offered by the Company. Investment minimums may also be
waived for Directors and officers of the Company. The Company and the
Distributor reserve the right to reject any purchase order. All funds will be
invested in full and fractional shares.
Shares of the Portfolio may be purchased by writing or calling the Transfer
Agent. Orders for shares of the Portfolio will be executed at the net asset
value per share next determined after an order has become effective. See "Share
Price."
Orders for shares of the Portfolio will become effective at the net asset
value per share next determined after receipt by the Transfer Agent of a check
drawn on any member of the Federal Reserve System or by the custodian of a bank
wire or Federal Reserve wire.
Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay the
execution of an order. Checks must be payable in U.S. dollars and will be
accepted subject to collection at full face value.
By investing in the Portfolio, a shareholder appoints the Transfer Agent to
establish an open account to which all shares purchased will be credited,
together with any dividends and capital gains distributions that are paid in
additional shares. See "Distribution and Performance Information--Dividends and
Capital Gains Distributions."
Initial Purchase by Wire
1. Shareholders may open an account by calling toll free from any
continental state: 1-800-854-8525. Give the name(s) in which the Portfolio's
account is to be registered, address, Social Security or taxpayer identification
number, dividend payment election, amount to be wired, name of the wiring bank
and name and telephone number of the person to be contacted in connection with
the order. An account number will then be assigned.
2. Instruct the wiring bank to transmit the specified amount to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Number 011000028
Custody and Shareholder Services Division
Attention: Institutional International Equity Portfolio
Account (name(s) in which registered)
Account Number (as assigned by telephone) and amount
invested in the Portfolio
3. Complete a Purchase Application. Indicate the services to be used. A
completed Purchase Application must be received by the Transfer Agent before the
Expedited Redemption Service can be used. Mail the Purchase Application to:
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205
Additional Purchases by Wire
Instruct the wiring bank to transmit the specified amount to State Street
Bank and Trust Company with the information stated above.
9
<PAGE>
Additional Purchases by Telephone Order
Existing shareholders may purchase shares at a certain day's price by
calling the Transfer Agent before the close of regular trading on the New York
Stock Exchange (the "Exchange"), normally 4:00 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Portfolio resulting from this cancellation. The
Portfolio may, at its discretion, accept purchase orders of less than $10,000
regardless of the account size or may allow an account to be established through
this service.
Initial Purchase by Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and check payable to the Institutional
International Equity Portfolio to the Transfer Agent at the address set forth
above.
Additional Purchases by Mail
1. Make a check payable to the Institutional International Equity
Portfolio. Write the shareholder's Portfolio account number on the check.
2. Mail the check and the detachable stub from the Statement of Account (or
a letter providing the account number) to the Transfer Agent at the address set
forth above.
Redeeming Shares
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of the Portfolio will be redeemed at its next determined net asset value.
See "Share Price." For the shareholder's convenience, the Company has
established several different redemption procedures.
No redemption of shares purchased by check will be permitted until seven
business days after those shares have been credited to the shareholder's
account.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to make payment of redemption proceeds in whole or in part
in readily marketable securities, subject to regulation by some state securities
commissions. The Company may suspend the right of redemption during any period
when (i) trading on the Exchange is restricted or the Exchange is closed, other
than customary weekend and holiday closings, (ii) the SEC has by order permitted
such suspension or (iii) an emergency, as defined by rules of the SEC, exists
making disposal of portfolio securities or determination of the value of the net
assets of the Portfolio not reasonably practicable.
The proceeds of redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account in the Portfolio remains open for up to one year
following complete redemption, and all costs during the period will be borne by
the Portfolio.
The Company reserves the right to redeem upon not less than 30 days'
written notice the shares in an account of the Portfolio that has a value of
$1,000 or less. Reductions in value that result solely from market activity will
not trigger an involuntary redemption. However, any shareholder affected by the
exercise of this right will be allowed to make additional investments prior to
the date fixed for redemption to avoid liquidation of the account.
The Company also reserves the right, following 30 days' notice to
shareholders, to redeem all shares in accounts without certified Social Security
or taxpayer identification numbers. A shareholder may avoid involuntary
redemption by providing the Company with a taxpayer identification number during
the 30-day notice period.
10
<PAGE>
Redemption by Mail
1. Write a letter of instruction. Indicate the dollar amount or number of
shares to be redeemed. Refer to the shareholder's Portfolio account number and
give Social Security or taxpayer identification number (where applicable).
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $50,000 or more, the
signature(s) must be guaranteed by a commercial bank that is a member of the
Federal Deposit Insurance Corporation, a trust company, a member firm of a
domestic stock exchange or a foreign branch of any of the foregoing. In
addition, signatures may be guaranteed by other Eligible Guarantor Institutions,
i.e., other banks, other brokers and dealers, municipal securities brokers and
dealers, government securities brokers and dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. The Transfer Agent, however, may reject redemption
instructions if the guarantor is neither a member of nor a participant in a
signature guarantee program (currently known as "STAMPsm"). Signature guarantees
by notaries public are not acceptable. Further documentation, such as copies of
corporate resolutions and instruments of authority, may be requested from
corporations, administrators, executors, personal representatives, trustees or
custodians to evidence the authority of the person or entity making the
redemption request.
4. Mail the letter to the Transfer Agent at the address set forth under
"Purchasing Shares."
Checks for redemption proceeds will normally be mailed the day following
receipt of the request in proper form, although the Company reserves the right
to take up to seven days. Unless other instructions are given in proper form, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. The Custodian may benefit from the use of redemption proceeds until
the check issued to a redeeming shareholder for such proceeds has cleared.
When proceeds of a redemption are to be paid to someone other than the
shareholder, either by wire or check, the signature(s) on the letter of
instruction must be guaranteed regardless of the amount of the redemption.
Redemption by Expedited Redemption Service
If Expedited Redemption Service has been elected on the Purchase
Application on file with the Transfer Agent, redemption of shares may be
requested by telephoning the Transfer Agent on any day the Company and State
Street Bank and Trust Company are open for business.
1. Telephone the request to the Transfer Agent by calling toll free from
any continental state: 1-800-854-8525, or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchasing Shares."
Proceeds of Expedited Redemptions of $1,000 or more will be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request for the Portfolio is received by the Transfer Agent by the
close of regular trading on the Exchange (currently 4:00 p.m. eastern time) on a
day the Company and State Street Bank and Trust Company are open for business,
the redemption proceeds will be transmitted to the shareholder's bank the
following business day. A check for proceeds of less than $1,000 will be mailed
to the shareholder's address of record.
The Portfolio uses procedures designed to give reasonable assurance that
telephone instructions are genuine, including recording telephone calls, testing
a caller's identity and sending written confirmation of telephone transactions.
If the Portfolio does not follow such procedures, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. The Portfolio will not
be liable for acting upon instructions communicated by telephone that it
reasonably believes to be genuine.
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Share Price
Net asset value per share for the Portfolio is determined by Scudder Fund
Accounting Corporation on each day the Exchange is open for trading. The net
asset value of shares of the Portfolio is determined at the close of regular
trading on the Exchange, which is currently 4:00 p.m. (eastern time). The net
asset value per share of the Portfolio is computed by dividing the value of the
total assets of the Portfolio, less all liabilities, by the total number of
outstanding shares of the Portfolio.
Shareholder Benefits
Account Services
Shareholders will be sent a Statement of Account from the Distributor, as
agent of the Company, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Company at the address and telephone number
on the cover of this Prospectus with any questions relating to their investment
in shares of the Portfolio.
Shareholder Services
The Company offers the following shareholder services. See the Statement of
Additional Information for further details about these services or call or write
the Company.
Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in the Portfolio. A monthly summary of accounts can be
provided, showing for each account the account number, the month-end share
balance and the dividends and distributions paid during the month.
Shareholder Reports. The fiscal year of the Portfolio ends on December 31
of each year. The Portfolio sends to its shareholders, at least semi-annually,
reports showing the investments in the Portfolio and other information
(including unaudited financial statements) pertaining to the Portfolio. An
annual report, containing financial statements audited by the Portfolio's
independent accountants, is sent to shareholders each year.
Shareholder inquiries should be addressed to Scudder Institutional Fund,
Inc., 345 Park Avenue, New York, New York 10154.
12
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INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
345 Park Avenue
New York, New York 10154
1-800-854-8525
Institutional International Equity Portfolio (the
"Portfolio") is a series of Scudder
Institutional Fund, Inc.
(the "Company"), a no-load, open-end, diversified management investment company.
The Portfolio seeks long-term growth of capital
primarily through a diversified portfolio of
marketable foreign equity securities.
- --------------------------------------------------------------------------------
Statement of Additional Information
April 3, 1996
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Institutional International Equity
Portfolio dated April 3, 1996, as may be amended from time to time, a copy of
which may be obtained without charge by writing to Scudder Investor Services,
Inc., Two International Place, Boston, Massachusetts 02110-4103.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Page
i
TABLE OF CONTENTS
Page
THE PORTFOLIO'S INVESTMENT OBJECTIVE AND POLICIES.....................................................................1
General Investment Objective and Policies....................................................................1
Risk Factors.................................................................................................2
Investment Restrictions.....................................................................................11
PURCHASING SHARES....................................................................................................13
REDEEMING SHARES.....................................................................................................13
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................13
PERFORMANCE INFORMATION..............................................................................................14
Average Annual Total Return.................................................................................14
Cumulative Total Return.....................................................................................14
Total Return................................................................................................15
Capital Change..............................................................................................15
Comparison of Portfolio Performance.........................................................................15
SHAREHOLDER BENEFITS.................................................................................................16
COMPANY ORGANIZATION.................................................................................................16
INVESTMENT ADVISER...................................................................................................17
Personal Investments by Employees of the Adviser............................................................18
DIRECTORS AND OFFICERS...............................................................................................18
REMUNERATION.........................................................................................................20
DISTRIBUTOR..........................................................................................................21
TAXES................................................................................................................21
PORTFOLIO TRANSACTIONS...............................................................................................24
Brokerage Commissions.......................................................................................24
Portfolio Turnover..........................................................................................25
NET ASSET VALUE......................................................................................................25
ADDITIONAL INFORMATION...............................................................................................26
Experts.....................................................................................................26
Other Information...........................................................................................26
FINANCIAL STATEMENTS.................................................................................................27
APPENDIX
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</TABLE>
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THE PORTFOLIO'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment Objective and Policies" and
"Additional Information About Policies
and Investments" in the Portfolio's Prospectus)
General Investment Objective and Policies
The investment objective of the Portfolio is to seek long-term growth
of capital primarily through a diversified portfolio of marketable foreign
equity securities. These securities are selected primarily to permit the
Portfolio to participate in non-United States companies and economies with
prospects for growth. The Portfolio invests in companies, wherever organized,
which in the judgment of the Portfolio's investment adviser, have their
principal activities and interests outside the United States. The Portfolio
intends to diversify investments among several countries and to have represented
in the portfolio, in substantial proportions, business activities in not less
than five different countries. To the extent consistent with the Portfolio's
objective of long-term growth of capital, as described above, it is the policy
of the Portfolio to provide shareholders with participation in the economies of
a number of countries other than the U.S. The Portfolio may invest in securities
of companies incorporated in the U.S. and having their principal activities and
interests outside of the U.S. The investment objective of the Portfolio is
nonfundamental and can be changed without the approval of the holders of a
majority of the Portfolio's outstanding shares, as defined in the Investment
Company Act of 1940 (the "1940 Act") and a rule thereunder. There is no
assurance that the Portfolio will achieve its investment objective. Except as
otherwise indicated, the Portfolio's policies are not fundamental and may be
changed without a vote of shareholders.
The Portfolio generally invests at least 90% of its total assets in
equity securities of established companies, listed on recognized exchanges,
which the Portfolio's investment adviser, Scudder, Stevens & Clark, Inc. (the
"Adviser"), believes have favorable characteristics. The Adviser expects this
condition to continue, although the Portfolio may invest in other securities.
When the Adviser believes that it is appropriate to do so in order to
achieve the Portfolio's investment objective of long-term capital growth, the
Portfolio may invest up to 10% of its total assets in debt securities. Such debt
securities include debt securities of foreign governments, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (ECU). In determining the location of the principal activities and
interests of a company, the Adviser takes into account such factors as the
location of the company's assets, personnel, sales and earnings. In selecting
securities for the Portfolio, the Adviser seeks to identify companies whose
securities prices do not adequately reflect their established positions in their
fields. In analyzing companies for investment, the Adviser ordinarily looks for
one or more of the following characteristics: above-average earnings growth per
share, high return on invested capital, healthy balance sheets and overall
financial strength, strong competitive advantages, strength of management and
general operating characteristics which will enable the companies to compete
successfully in the marketplace. Investment decisions are made without regard to
arbitrary criteria as to minimum asset size, debt-equity ratios or dividend
history of portfolio companies.
The Portfolio may invest in any type of security including, but not
limited to shares, preferred or common; bonds and other evidences of
indebtedness; and other securities of issuers wherever organized, and not
excluding evidences of indebtedness of governments and their political
subdivisions. The Portfolio, in view of its investment objective, intends under
normal conditions to maintain a portfolio consisting primarily of a diversified
list of equity securities.
When the Adviser determines that exceptional conditions exist abroad,
the Portfolio may, for temporary defensive purposes, invest all or a portion of
its assets in Canadian or U.S. Government obligations or currencies, or
securities of companies incorporated in and having their principal activities in
Canada or the U.S.
Foreign securities such as those purchased by the Portfolio may be
subject to foreign government taxes which could reduce the yield on such
securities, although a shareholder of the Portfolio may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her proportionate share of such foreign taxes paid by
the Fund. (See "TAXES.")
From time to time, the Portfolio may be a purchaser of restricted debt
or equity securities (i.e., securities which may require registration under the
Securities Act of 1933, or an exemption therefrom, in order to be sold in the
<PAGE>
ordinary course of business) in a private placement. The Portfolio has
undertaken not to purchase or acquire any such securities if, solely as a result
of such purchase or acquisition, more than 10% of the value of the Portfolio's
total assets would be invested in restricted securities or otherwise illiquid
(securities subject to legal restrictions on resales to institutions, or
contractual restrictions on resale) and more than 10% of its total assets would
be invested in securities that are not readily marketable.
The Portfolio reserves the right in the future, without prior
shareholder approval, to pursue its investment objective by investing all of its
investable assets in a separate registered investment company having the same
investment objective and substantially similar policies and restrictions as the
Portfolio. The new structure (commonly known as "master-feeder") could enable
the Portfolio to benefit, directly or indirectly, from certain economies of
scale, based on the premise that certain of the expenses of operating an
investment portfolio are relatively fixed and that a larger investment portfolio
may eventually achieve a lower ratio of operating expenses to average net
assets.
Risk Factors
Foreign Securities. The Portfolio is intended to provide individual and
institutional investors with an opportunity to invest a portion of their assets
in securities of a diversified group of companies, wherever organized, which do
business primarily outside the U.S., and foreign governments. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future. Because of the
Portfolio's investment policy, the Portfolio is not intended to provide a
complete investment program for an investor.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Portfolio'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 Portfolio will endeavor to achieve the
most favorable net results on its portfolio transactions. There is generally
less government supervision and regulation of securities exchanges, brokers and
listed companies than in the U.S. It may be more difficult for the Portfolio's
agents to keep currently informed about corporate actions 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 the
Portfolio 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 Portfolio 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 Portfolio as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Portfolio may incur costs in connection with conversions
between various currencies. Although the Portfolio 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
2
<PAGE>
foreign currency to the Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer. The
Portfolio 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. The market value of the
Portfolio's debt securities, and correspondingly the Portfolio's share price,
will vary inversely with changes in prevailing interest rates.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Portfolio's objective of long-term capital growth, the
Portfolio may invest up to 10% of its total assets in debt securities including
bonds of foreign governments, supranational organizations and private issuers,
including bonds denominated in the ECU. Portfolio debt investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Portfolio 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 Adviser.
Moody's considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. The market value of the Portfolio's debt
securities may vary inversely with changes in prevailing interest rates.
High Yield/High Risk Bonds. The Portfolio may also purchase, to a limited
extent, debt securities which are rated below investment-grade, that is, rated
below Baa by Moody's or below BBB by S&P and unrated securities, which usually
entail greater risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories. The lower the ratings of such debt securities, the
greater their risks. The Portfolio will invest no more than 5% of its total
assets in securities rated BB or lower by Moody's or Ba by S&P, and may invest
in securities which are rated D by S&P. 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.
An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. 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 Portfolio's net
asset value. In addition, investments in high yield zero coupon or pay-in-kind
bonds, rather than income-bearing high yield securities, may be more speculative
and may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Portfolio to accurately value high yield securities in
its portfolio and to dispose of those securities. 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 the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the
Portfolio's investment objective by investment in such securities may be more
dependent on the Adviser's credit analysis than is the case for higher quality
bonds. Should the rating of a portfolio security be downgraded, the Adviser will
determine whether it is in the best interest of the Portfolio to retain or
dispose of such security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
3
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significantly depress the prices of outstanding securities of this type. For
more information regarding tax issues related to high yield securities, see
"TAXES."
Strategic Transactions and Derivatives. The Portfolio may, but is not required
to, utilize various other investment strategies as described below to hedge
various market risks (such as interest rates, currency exchange rates, and broad
or specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Portfolio's portfolio, or
to enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Portfolio
may purchase and sell exchange-listed and over-the-counter put and call options
on securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Portfolio'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 Portfolio to utilize
these Strategic Transactions successfully will depend on the Adviser's ability
to predict pertinent market movements, which cannot be assured. The Portfolio
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Portfolio, 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 Portfolio can realize on its
investments or cause the Portfolio to hold a security it might otherwise sell.
The use of currency transactions can result in the Portfolio incurring losses as
a result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. The use of options and futures transactions entails certain other
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of
the Portfolio creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Portfolio'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 Portfolio 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
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in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Portfolio assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Portfolio'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 Portfolio the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Portfolio's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Portfolio 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 Portfolio is authorized to purchase and sell exchange
listed options and over-the-counter options ("OTC options"). Exchange listed
options are issued by a regulated intermediary such as the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Portfolio's ability to close out its position as a purchaser or
seller of an OCC or exchange listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Portfolio will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. The Portfolio 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 Portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, the
Portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, the Adviser must assess the
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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 Portfolio will engage in OTC
option transactions only with U.S. government securities dealers recognized by
the Federal Reserve Bank of New York as "primary dealers" or broker/dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of A-1 from S&P or P-1 from Moody's or an equivalent rating from any
nationally recognized statistical rating organization ("NRSRO") or, in the case
of OTC currency transactions, are determined to be of equivalent credit quality
by the Adviser. The staff of the SEC currently takes the position that OTC
options purchased by the Portfolio, and portfolio securities "covering" the
amount of the Portfolio'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 Portfolio's limitation on investing no more than 10% of its
total assets in illiquid securities.
If the Portfolio sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Portfolio's income. The sale of put options can
also provide income.
The Portfolio may purchase and sell call options on securities
including U.S. Treasury and agency securities, mortgage-backed securities,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments that are traded on U.S. and foreign securities
exchanges and in the over-the-counter markets, and on securities indices,
currencies and futures contracts. All calls sold by the Portfolio must be
"covered" (i.e., the Portfolio 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 Portfolio will receive
the option premium to help protect it against loss, a call sold by the Portfolio
exposes the Portfolio 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 Portfolio to hold a security or
instrument which it might otherwise have sold.
The Portfolio 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 Portfolio will not sell put options if, as a result, more
than 50% of the Portfolio'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
Portfolio may be required to buy the underlying security at a disadvantageous
price above the market price.
General Characteristics of Futures. The Portfolio may enter into financial
futures contracts or purchase or sell put and call options on such futures as a
hedge against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Portfolio, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Portfolio's use of financial futures and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the Commodity Futures Trading Commission
and will be entered into only for bona fide hedging, risk management (including
duration management) or other portfolio management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the
Portfolio 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 Portfolio. If the Portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
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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 Portfolio will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Portfolio'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 Portfolio 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 Portfolio may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Portfolio may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The Portfolio's dealings in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Portfolio, which will generally
arise in connection with the purchase or sale of its 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 Portfolio will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Portfolio 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 Portfolio has or in
which the Portfolio expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Portfolio may also engage
in proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a commitment or option to sell a
currency whose changes in value are generally considered to be correlated to a
currency or currencies in which some or all of the Portfolio's portfolio
securities are or are expected to be denominated, in exchange for U.S. dollars.
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The amount of the commitment or option would not exceed the value of the
Portfolio's securities denominated in correlated currencies. For example, if the
Adviser considers that the Austrian schilling is correlated to the German
deutschemark (the "D-mark"), the Portfolio holds securities denominated in
schillings and the Adviser believes that the value of schillings will decline
against the U.S. dollar, the Adviser may enter into a commitment or option to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Portfolio 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 Portfolio is engaging in proxy hedging. If the Portfolio enters into a
currency hedging transaction, the Portfolio 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 Portfolio 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 Portfolio may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Portfolio to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Portfolio may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. The Portfolio expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolio intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Portfolio may be obligated to pay. Interest rate swaps involve the exchange by
the Portfolio with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Portfolio 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 Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, the Adviser and the Portfolio 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 Portfolio will
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not enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or has an equivalent rating from a NRSRO or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Portfolio 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 Portfolio 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 Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Portfolio'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 Portfolio segregate liquid,
high grade assets with its custodian to the extent Portfolio 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 Portfolio to pay or deliver securities or assets must be covered at all
times by the securities, instruments or currency required to be delivered, or,
subject to any regulatory restrictions, an amount of cash or liquid, high grade
securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by the
Portfolio will require the Portfolio to hold the securities subject to the call
(or securities convertible into the needed securities without additional
consideration) or to segregate liquid, high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Portfolio on an index will require the Portfolio to own portfolio
securities which correlate with the index or to segregate liquid, high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Portfolio requires the Portfolio to
segregate liquid, high grade assets equal to the exercise price.
Except when the Portfolio 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 Portfolio to
buy or sell currency will generally require the Portfolio to hold an amount of
that currency or liquid securities denominated in that currency equal to the
Portfolio's obligations or to segregate liquid high grade assets equal to the
amount of the Portfolio's obligation.
OTC options entered into by the Portfolio, 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 Portfolio sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by the
Portfolio, 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 Portfolio sells a call
option on an index at a time when the in-the-money amount exceeds the exercise
price, the Portfolio will segregate, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess. OCC issued and exchange
listed options sold by the Portfolio other than those above generally settle
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with physical delivery, or with an election of either physical delivery or cash
settlement and the Portfolio will segregate an amount of assets equal to the
full value of the option. OTC options settling with physical delivery, or with
an election of either physical delivery or cash settlement will be treated the
same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Portfolio
must deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Portfolio's net
obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Portfolio 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 Portfolio 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 Portfolio. Moreover, instead of segregating assets
if the Portfolio held a futures or forward contract, it could purchase a put
option on the same futures or forward contract with a strike price as high or
higher than the price of the contract held. Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation would
need to be segregated.
The Portfolio's activities involving Strategic Transactions may be
limited by the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), for qualification as a regulated investment
company. (See "TAXES.")
Repurchase Agreements. The Portfolio may enter into repurchase agreements with
any member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
as high as that of other obligations the Portfolio may purchase or to be at
least equal to that of issuers of commercial paper rated within the two highest
grades assigned by Moody's or S&P.
A repurchase agreement provides a means for the Portfolio to earn
income on funds for periods as short as overnight. It is an arrangement under
which the purchaser (i.e., the Portfolio) acquires a security ("Obligation") and
the seller agrees, at the time of sale, to repurchase the Obligation at a
specified time and price. Securities subject to a repurchase agreement are held
in a segregated account and the value of such securities kept at least equal to
the repurchase price on a daily basis. The repurchase price may be higher than
the purchase price, the difference being income to the Portfolio, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to the Portfolio together with the repurchase price upon repurchase. In
either case, the income to the Portfolio is unrelated to the interest rate on
the Obligation itself. Obligations will be held by the Custodian or in the
Federal Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Portfolio to the seller of the Obligation subject to the
repurchase agreement and is therefore subject to the Portfolio's investment
restriction applicable to loans. It is not clear whether a court would consider
the Obligation purchased by the Portfolio subject to a repurchase agreement as
being owned by the Portfolio or as being collateral for a loan by the Portfolio
to the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Portfolio may encounter delay
and incur costs before being able to sell the security. Delays may involve loss
of interest or decline in price of the Obligation. If the court characterizes
the transaction as a loan and the Portfolio has not perfected a security
interest in the Obligation, the Portfolio may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Portfolio would be at risk of losing some
or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Portfolio, the Adviser seeks to
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minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the Obligation, in which case the
Portfolio may incur a loss if the proceeds to the Portfolio of the sale to a
third party are less than the repurchase price. However, if the market value of
the Obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Portfolio will direct the seller of
the Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Portfolio will be unsuccessful in
seeking to enforce the seller's contractual obligation to deliver additional
securities.
Investment Restrictions
In connection with its investment objective and policies as set forth
in the Prospectus, the Company has adopted the following investment
restrictions, on behalf of the Portfolio, none of which may be changed without
the approval of the holders of a majority of the Portfolio's outstanding shares,
as defined in the 1940 Act.
As a matter of fundamental policy, the Portfolio may not:
(1) with respect to 75% of its total assets, taken at market
value, purchase more than 10% of the voting securities of any
one issuer, or invest more than 5% of the value of its total
assets in the securities of any one issuer, except obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and except securities of other investment
companies (except that if the Portfolio chooses to participate
in the master-feeder structure, as described in the section
titled "General Investment Objective and Policies," it may
purchase up to 100% of the voting securities of any one issuer
and may invest up to 100% of its investment securities in a
single issuer without restriction);
(2) borrow money, except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Portfolio maintains
asset coverage of 300% for all borrowings;
(3) act as an underwriter of securities issued by others, except
to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of the
Portfolio;
(4) make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objectives and investment policies may be
deemed to be loans;
(5) purchase or sell real estate (except that the Portfolio may
invest in (i) securities of companies which deal in real
estate or mortgages, and (ii) securities secured by real
estate or interests therein, and that the Portfolio reserves
freedom of action to hold and to sell real estate acquired as
a result of the Portfolio's ownership of securities); and
(6) purchase or sell physical commodities or contracts relating to
physical commodities.
The Portfolio will not as a matter of nonfundamental policy:
(a) purchase or retain securities of any open-end investment company,
or securities of closed-end investment companies except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchases, or except when
such purchase, though not made in the open market, is part of a
plan of merger, consolidation, reorganization or acquisition of
assets; in any event the Portfolio may not purchase more than 3%
of the outstanding voting securities of another investment
company, may not invest more than 5% of its assets in another
investment company, and may not invest more than 10% of its
assets in other investment companies (except that if the
Portfolio chooses to participate in the master-feeder structure,
as described in the section titled "General Investment Objective
and Policies," it may invest up to 100% of its investment
securities in an investment company without restriction);
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(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer, director
or trustee of the Portfolio or a member, officer, director or
trustee of the investment adviser of the Portfolio if one or more
of such individuals owns beneficially more than one-half of one
percent (1/2%) of the outstanding shares or securities or both
(taken at market value) of such issuer and such individuals
owning more than one-half of one percent (1/2%) of such shares or
securities together own beneficially more than 5% of such shares
or securities or both;
(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right to
obtain securities equivalent in kind and amount to the securities
sold and, if the right is conditional, the sale is made upon the
same conditions, except in connection with arbitrage transactions
and except that the Portfolio may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities;
(e) invest more than 10% of its total assets in securities which are
not readily marketable or otherwise illiquid, the disposition of
which is restricted under Federal securities laws, or in
repurchase agreements not terminable within 7 days, and the
Portfolio will not invest more than 10% of its total assets in
restricted securities;
(f) other than as may be necessary to participate in a master-feeder
arrangement, purchase securities of any issuer with a record of
less than three years continuous operations, including
predecessors, and in equity securities which are not readily
marketable except U.S. Government securities, and obligations
issued or guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the investments
of the Portfolio in all such issuers to exceed 5% of the total
assets of the Portfolio taken at market value;
(g) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Portfolio
at any time do not exceed 20% of its net assets; or sell put
options on securities if, as a result, the aggregate value of the
obligations underlying such put options would exceed 50% of the
Portfolio's net assets;
(h) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate
initial margin with respect to all futures contracts entered into
on behalf of the Portfolio and the premiums paid for options on
futures contracts does not exceed 5% of the fair market value of
the Portfolio'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;
(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own
or invest in such interests);
(j) borrow money in excess of 5% of its total assets (taken at market
value) except for temporary or emergency purposes or borrow other
than from banks;
(k) purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of
the Portfolio's total net assets or more than 2% of its net
assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);
(l) invest more than 10% of its total assets in debt securities
(including convertible securities) or more than 5% of its total
assets in securities rated BB/Ba or below by Moody's or S&P or
the equivalent;
(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Portfolio's total assets at the
time the loan is made; all loans of portfolio securities will be
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fully collateralized and marked to market daily. The Portfolio
has no current intention of making loans of portfolio securities
that would amount to greater than 5% of the Portfolio's total
assets; or
(n) purchase or sell real estate limited partnership interests.
In addition to the foregoing restrictions, it is not the policy of the
Portfolio to concentrate its investments in any particular industry and the
Portfolio's management does not intend to make acquisitions in particular
industries which would increase the percentage of the market value of the
Portfolio's assets above 25% for any one industry. The Portfolio may not deviate
from such policy without a vote of a majority of the outstanding shares as
provided by the 1940 Act.
Whenever any investment restriction states a maximum percentage of the
Portfolio's assets, it is intended that if the percentage limitation is met at
the time the action is taken; subsequent percentage changes resulting from
fluctuating asset values will not be considered a violation of such
restrictions.
PURCHASING SHARES
(See "Transaction Information--Purchasing Shares" in the Portfolio's Prospectus)
There is a $1,000 minimum initial investment in the Portfolio, with a
minimum account size of $1,000. The minimum subsequent investment for the
Portfolio is $1,000. Investment minimums may be waived for Directors and
officers of the Company and certain other affiliates and entities. The Portfolio
and Scudder Investor Services, Inc. (the "Distributor") reserve the right to
reject any purchase order. All funds will be invested in full and fractional
shares.
Shares of the Portfolio may be purchased by writing or calling Scudder
Service Corporation, a subsidiary of the Adviser (the "Transfer Agent"). Due to
the desire of the Company to afford ease of redemption, certificates will not be
issued to indicate ownership in the Portfolio. Orders for shares of the
Portfolio will be executed at the net asset value per share next determined
after an order has become effective.
Checks drawn on a non-member bank or a foreign bank may take
substantially longer to be converted into federal funds and, accordingly, may
delay the execution of an order. Checks must be payable in U.S. dollars and will
be accepted subject to collection at full face value.
By investing in the Portfolio, a shareholder appoints the Transfer
Agent to establish an open account to which all shares purchased will be
credited with any dividends and capital gains distributions that are paid in
additional shares. See "Distribution and Performance Information--Dividends and
Capital Gains Distributions" in the Portfolio's Prospectus.
REDEEMING SHARES
(See "Transaction Information--Redeeming Shares" in the Portfolio's Prospectus)
Payment of redemption proceeds may be made in securities, subject to
regulation by some state securities commissions. The Company may suspend the
right of redemption with respect to the Portfolio during any period when (i)
trading on the New York Stock Exchange (the "Exchange") is restricted or the
Exchange is closed, other than customary weekend and holiday closings, (ii) the
SEC has by order permitted such suspension or (iii) an emergency, as defined by
rules of the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of the Portfolio not reasonably
practicable.
A shareholder's account remains open for up to one year following
complete redemption and all costs during the period will be borne by the
Portfolio. This permits an investor to resume investments.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and Performance
Information--Dividends and Capital Gains
Distributions" in the Portfolio's Prospectus.)
The Portfolio intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The
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Portfolio may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Portfolio may retain all or part of such gain for reinvestment
after paying the related federal income taxes for which the shareholders may
then be asked to claim a credit against their federal income tax liability. (See
"TAXES.")
If the Portfolio does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Portfolio may be subject to that excise tax. (See "TAXES.") In certain
circumstances, the Portfolio may determine that it is in the interest of
shareholders to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of
Portfolio shares may be utilized by the Portfolio, to the extent permissible, as
part of the Portfolio's dividends paid deduction on its federal tax return.
The Portfolio intends to distribute its investment company taxable
income and any net realized capital gains in December to avoid federal excise
tax, although an additional distribution may be made, if necessary.
Both types of distributions will be made in shares of the Portfolio and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Portfolio issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
(See "Distribution and Performance Information--Performance Information"
in the Portfolio's Prospectus.)
From time to time, quotations of the Portfolio's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures may be calculated in the
following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for periods of one year and the life of the Portfolio, where applicable,
all ended on the last day of a recent calendar quarter. Average annual total
return quotations reflect changes in the price of the Portfolio's shares, if
any, and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Portfolio shares. Average annual total
return is calculated by finding the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000.
T = Average Annual Total Return.
n = number of years.
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Portfolio's shares
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<PAGE>
and assume that all dividends and capital gains distributions during the period
were reinvested in Portfolio shares. Cumulative total return is calculated by
finding the cumulative rates of return of a hypothetical investment over such
periods, according to the following formula (cumulative total return is then
expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return.
P = a hypothetical initial investment of $1,000.
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Capital Change
Capital change measures the return from invested capital including
reinvested capital gains distributed. Capital change does not include the
reinvestment of income dividends.
Quotations of the Portfolio's performance are based on historical
earnings, show the performance of a hypothetical investment, and are not
intended to indicate future performance of the Portfolio. An investor's shares
when redeemed may be worth more or less than their original cost. Performance of
the Portfolio will vary based on changes in market conditions and the level of
the Portfolio's expenses.
Comparison of Portfolio Performance
Because some or all of the Portfolio's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Portfolio's investment performance.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Portfolio. Such
historical information is not indicative of future fluctuations in the value of
the U.S. dollar against these currencies. In addition, marketing materials may
cite country and economic statistics and historical stock market performance for
any of the countries in which the Portfolio invests, including, but not limited
to, the following: population growth, gross domestic product, inflation rate,
average stock market price-earnings ratios and the total value of stock markets.
Sources for such statistics may include official publications of various foreign
governments and exchanges.
From time to time, in marketing and other portfolio literature, the
performance of the Portfolio may be compared to the performance of broad groups
of mutual funds with similar investment goals, as tracked by independent
organizations. Among these organizations, Lipper Analytical Services, Inc.
("Lipper") may be cited. When Lipper's tracking results are used, the Portfolio
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. For instance, the Portfolio will be compared
with funds within Lipper's international equity fund category. Rankings may be
listed among one or more of the asset-size classes as determined by Lipper.
Since the assets in all funds are always changing, the Portfolio may be
ranked within one Lipper asset-size class at one time and in another Lipper
asset-size class at some other time. Footnotes in advertisements and other
marketing literature will include the time period and Lipper asset-size class,
as applicable, for the ranking in question.
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SHAREHOLDER BENEFITS
(See "Shareholders Benefits" in the Portfolio's Prospectus)
Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in any Portfolio. In addition to the copy of the regular
Statement of Account furnished to the registered holder after each transaction,
a monthly summary of accounts can be provided. The monthly summary will show for
each account the account number, the month-end share balance and the dividends
and distributions paid during the month. All costs of this service will be borne
by the Company. For information on the special monthly summary of accounts,
contact the Company.
COMPANY ORGANIZATION
(See "Company Organization" in the Portfolio's Prospectus)
The Company was formed on January 2, 1986 as a corporation under the
laws of the State of Maryland. The authorized capital stock of the Company
consists of 25,000,000,000 shares having a par value of $.001 per share, of
which 5,000,000,000 shares each have been designated for the Government
Portfolio, Federal Portfolio and Cash Portfolio, 2,000,000,000 shares have been
designated for the Tax-Free Portfolio and 100,000,000 have been designated for
the Institutional International Equity Portfolio. The Company is authorized to
issue full and fractional shares in separate series. The Directors have created
28 series, constituting the Government Portfolio, the Federal Portfolio, Cash
Portfolio, Tax-Free Portfolio, Institutional International Equity Portfolio,
Institutional Prime Portfolio, Institutional Municipal Income Portfolio,
Institutional Intermediate Cash Portfolio, Institutional Bond Index Portfolio,
Institutional Cash Plus Portfolio, Institutional Global Equity Portfolio,
Institutional Emerging Markets Equity Portfolio, Institutional Global Small
Company Equity Portfolio, Institutional Latin America Equity Portfolio,
Institutional Japanese Equity Portfolio, Institutional Pacific Basin Equity
Portfolio, Institutional Growth and Income Portfolio, Institutional Quality
Growth Portfolio, Institutional Value Equity Portfolio, Institutional Small
Company Equity Portfolio, Institutional Defensive Limited Volatility Bond
Portfolio, Institutional Intermediate Limited Volatility Bond Portfolio,
Institutional Active Value Bond Portfolio, Institutional Long Duration Bond
Portfolio, Institutional Mortgage Investment Portfolio, Institutional Global
Bond Portfolio, Institutional International Bond Portfolio, and Institutional
Emerging Markets Fixed Income Portfolio. The Directors have reserved authority
to create, in the future, other series representing shares of additional
portfolios.
On any matter submitted to a vote of shareholders, all shares then
entitled to vote will be voted by Portfolio unless otherwise required by the
1940 Act, in which case all shares will be voted in the aggregate. For example,
a change in a Portfolio's fundamental investment policies would be voted upon
only by shareholders of the Portfolio involved. Additionally, approval of the
Investment Advisory Agreements is a matter to be determined separately by each
Portfolio. Approval by the shareholders of one Portfolio is effective as to that
Portfolio whether or not sufficient votes are received from the shareholders of
the other Portfolios to approve the proposal as to those Portfolios. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority," when referring to approvals to be obtained from shareholders of a
Portfolio, means the vote of the lesser of (i) 67% or more of the voting
securities of the Portfolio represented at a meeting if the holders of more than
50% of the outstanding voting securities of the Portfolio are present in person
or represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Portfolio. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the outstanding shares are present in person
or represented by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.
Each share of a Portfolio represents an equal proportional interest in
that Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Portfolio
as are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shares of a Portfolio are entitled to
receive the assets attributable to that Portfolio that are available for
distribution, and a distribution of any general assets not attributable to a
particular Portfolio that are available for distribution in such manner and on
such basis as the Directors in their sole discretion may determine.
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Shareholders are not entitled to any pre-emptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company.
INVESTMENT ADVISER
(See "Company Organization--Investment Adviser" in the Portfolio's Prospectus)
The Company retains Scudder, Stevens & Clark, Inc. (the "Adviser") as
investment adviser on behalf of the Portfolio pursuant to an Investment Advisory
Agreement (the "Agreement"). The Adviser is one of the most experienced
investment counsel firms in the U.S. It was established in 1919 as a partnership
and was restructured as a Delaware corporation in 1985. The principal source of
the Adviser's income is professional fees received from providing continuing
investment advice, and the firm derives no income from banking, brokerage, or
underwriting of securities. A subsidiary of the Adviser, Scudder Investor
Services, Inc. (the "Distributor"), acts as principal underwriter for shares of
registered open-end investment companies. The Adviser provides investment
counsel for many individuals and institutions, including insurance companies,
endowments, industrial corporations and financial and banking organizations. As
of December 31, 1995, the Adviser and its affiliates had in excess of $100
billion under their supervision.
The Adviser maintains a research department with more than 50
professionals, which conducts continuous studies of the factors that affect
various industries, companies and individual securities in the U.S. as well as
abroad. In this work the Adviser utilizes reports, statistics and other
investment information from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Portfolio and for other
clients of the Adviser. Investment decisions, however, are based primarily on
investigations and critical analyses by the Adviser's own research specialists
and portfolio managers.
The Adviser may give advice and take action with respect to any of its
other clients, which may differ from advice given or from the time or nature of
action taken with respect to the Portfolio. If these clients and the Portfolio
are simultaneously buying or selling a security with a limited market, the price
may be adversely affected. In addition, the Adviser may, on behalf of other
clients, furnish financial advice or be involved in tender offers or merger
proposals relating to companies in which the Portfolio invests. The best
interests of the Portfolio may or may not be consistent with the achievement of
the objectives of the other persons for whom the Adviser is providing advice or
for whom they are acting. Where a possible conflict is apparent, the Adviser
will follow whatever course of action is in its judgment in the best interests
of the Portfolio. The Adviser may consult independent third persons in reaching
its decision.
Under the Agreement, it is the responsibility of the Adviser, subject
to the supervision of the Board of Directors, to manage the Portfolio's
investments in conformity with the stated policies of the Portfolio by providing
supervision of its investments, including the acquisition, holding or disposal
of securities for the Portfolio, and by effecting purchase and sale orders for
securities of the Portfolio. Under the Agreement, the Adviser also furnishes the
Portfolio with certain bookkeeping, accounting and certain administrative
services which are not furnished by the Custodian or Scudder Fund Accounting
Corporation, a subsidiary of the Adviser, office space and equipment, and the
services of the officers and employees of the Company. The Adviser has
authorized any of its managing directors, officers and employees who have been
elected as Directors or officers of the Company to serve in the capacities to
which they have been elected.
The Portfolio will bear all expenses not specifically assumed by the
Adviser under the terms of the Agreement. Such expenses will include without
limitation: (a) organization expenses of the Portfolio; (b) clerical salaries;
(c) fees and expenses incurred by the Portfolio in connection with membership in
investment company organizations; (d) brokerage and other expenses of executing
portfolio transactions; (e) payment for portfolio pricing services to a pricing
agent, if any; (f) legal, auditing or accounting expenses; (g) trade association
dues; (h) taxes or governmental fees; (i) the fees and expenses of the transfer
agent of the Portfolio; (j) the cost of preparing share certificates or any
other expenses, including clerical expenses of issue, redemption or repurchase
of shares of the Portfolio; (k) the expenses and fees for registering and
qualifying securities for sale; (l) the fees and expenses of directors of the
Company who are not employees or affiliates of the Adviser or any of its
affiliates; (m) travel expenses of all officers, directors and employees; (n)
insurance premiums; (o) the cost of preparing and distributing reports and
notices to shareholders; (p) public and investor relations expenses; or (q) the
fees or disbursements of custodians of the Portfolio's assets, including
expenses incurred in the performance of any obligations enumerated by the
Articles of Incorporation or By-Laws insofar as they govern agreements with any
such custodian. No sales or promotional expenses are incurred by the Company,
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but expenses incurred in complying with laws relating to the issue or sale of
the Portfolio's shares are not deemed sales or promotional expenses.
For these services the Portfolio pays the Adviser a fee equal to 0.90%
of the Portfolio's average daily net assets. Management fees are computed daily
and paid monthly. The Adviser has agreed to maintain the total annualized
expenses of the Portfolio at no more than 0.95% of the average daily net assets
of the Portfolio until April 30, 1997.
The Agreement provides that if, in any fiscal year, the "total
expenses" of the Portfolio ("total expenses" generally excludes taxes, interest,
brokerage commission and other portfolio transaction expenses, other
expenditures that are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the management
fee) exceed the expense limitations applicable to the Portfolio imposed by the
securities regulations of any state, the Adviser will pay or reimburse the
Portfolio for the excess. The Agreement, however, limits such payment or
reimbursement to the amount of the annual management fee otherwise payable by
the Portfolio. It is believed that currently the most restrictive state annual
expense limitation is 2.5% of the first $30,000,000 of average daily net assets,
2% of the next $70,000,000 and 1.5% of average daily net assets over
$100,000,000.
The Agreement will continue in effect with respect to the Portfolio if
specifically approved annually by a majority of the Directors of the Company,
including a majority of the Directors who are not parties to such contract or
"interested persons" of any such party. The Agreement may be terminated without
penalty by either of the parties on 60 days' written notice and must terminate
in the event of its assignment. The Agreement may be amended or modified only if
approved by vote of the holders of the majority of the Portfolio's outstanding
shares as defined in the 1940 Act.
The Agreement provides that the Adviser is not liable for any act or
omission in the course of or in connection with rendering services under the
Agreement in the absence of willful misfeasance, bad faith or gross negligence
of its obligations or duties.
The Adviser places orders for the purchase and sale of securities for
the Portfolio. The Company will not deal with the Adviser in any transaction in
which the Adviser acts as principal.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Portfolio. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
DIRECTORS AND OFFICERS
The principal occupations of the Directors and executive officers of
the Company for the past five years are listed below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- -------------- ---------------------- -----------------------
Daniel Pierce (62)+*# President and Chairman of the Board and Vice President, Director
Director Managing Director of and Assistant Treasurer
Scudder, Stevens & Clark,
Inc.
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<PAGE>
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- -------------- ---------------------- -----------------------
David S. Lee (62)+*# Chairman of the Managing Director of President, Director and
Board and Director Scudder, Stevens & Clark, Assistant Treasurer
Inc.
Edgar R. Fiedler (66)# Director Vice President and Economic --
50114 Manly Counselor, The Conference
Chapel Hill, NC 27514 Board, Inc.
Peter B. Freeman (63) Director Corporate Director and --
100 Alumni Avenue Trustee
Providence, RI 02906
Robert W. Lear (78) Director Executive-in-Residence, --
429 Silvermine Road Visiting Professor, Columbia
New Canaan, CT 06840 University Graduate School
of Business
K. Sue Cote (34)+ Vice President Principal of Scudder, --
Stevens & Clark, Inc.
Jerard K. Hartman (63)++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
Thomas W. Joseph (56)+ Vice President and Principal of Scudder, Vice President,
Assistant Secretary Stevens & Clark, Inc. Director, Treasurer and
Assistant Clerk
Kathryn L. Quirk (43)++ Vice President Managing Director of Vice President
Scudder, Stevens & Clark,
Inc.
Thomas F. McDonough (49)+ Vice President and Principal of Scudder, Clerk
Assistant Secretary Stevens & Clark, Inc.
Pamela A. McGrath (42)+ Vice President Managing Director of --
and Treasurer Scudder, Stevens & Clark,
Inc.
Irene McC. Pelliconi# (65)++ Secretary Vice President of Scudder, --
Stevens & Clark, Inc.
* Messrs. Lee and Pierce are considered by the Company to be persons who are "interested persons" of the
Adviser or of the Company (within the meaning of the 1940 Act).
** All the Directors and officers have been associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Messrs. Pierce, Fiedler and Lee are members of the Executive Committee.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
</TABLE>
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<PAGE>
Directors of the Company not affiliated with the Adviser receive from
the Company an annual fee and a fee for each Board of Directors and Board
Committee meeting attended and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Directors who are affiliated with the
Adviser do not receive compensation from the Company, but the Company may
reimburse such Directors for all out-of-pocket expenses relating to attendance
at meetings.
The Directors and officers of the Company, as a group, owned less than
1% of the outstanding shares of the Portfolio as of the commencement of
operations.
REMUNERATION
Several of the officers and Directors of the Company may be officers or
employees of the Adviser, Scudder Fund Accounting Corporation, Scudder Investor
Services, Inc., Scudder Service Corporation or Scudder Trust Company, from whom
they receive compensation, as a result of which they may be deemed to
participate in the fees paid by the Company. The Portfolio pays no direct
remuneration to any officer of the Company. However, each of the Company's
Directors who is not affiliated with the Adviser will be compensated for all
expenses relating to Company business (specifically including travel expenses
relating to Company business). Each of these unaffiliated Directors receives
from the Company compensation of $150 per Portfolio for each Director's meeting
attended and each Board Committee meeting attended and an annual Director's fee,
payable quarterly, of $500 for each Portfolio with average daily net assets less
than $100 million, and $1500 for each Portfolio with average daily net assets in
excess of $100 million.
The following Compensation Table, provides in tabular form, the following data.
Column (1) All Directors who receive compensation from the Company.
Column (2) Aggregate compensation received by a Director from all Portfolios of
the Company.* Columns (3) and (4) Pension or retirement benefits accrued or
proposed to be paid by the Company. Column (5) Total compensation received by a
Director from the Company plus compensation received from all funds managed by
the Adviser for which a Director serves. The total number of funds from which a
Director receives such compensation is also provided in column (5). Generally,
compensation received by a Director for serving on the board of a closed-end
fund is greater than the compensation received by a Director for serving on the
board of an open-end fund.
<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1995**
<S> <C> <C> <C> <C> <C>
========================= ============================= ================== ================= ====================
(1) (2) (3) (4) (5)
Pension or Total Compensation
Retirement From Company and
Benefits Accrued Estimated Company Complex
As Part of Annual Benefits Paid to Director
Name of Person, Position Aggregate Compensation from Company Expenses Upon Retirement
Company*
========================= ============================= ================== ================= ====================
Edgar R. Fiedler,*** $22,400 N/A N/A $33,570
Director (6 Funds)
Peter B. Freeman, $11,766 N/A N/A $126,750
Director (31 Funds)
Robert W. Lear, $11,766 N/A N/A $40,850
Director (10 Funds)
* Scudder Institutional Fund, Inc. consists of Institutional Government Portfolio, Institutional Federal
Portfolio, Institutional Cash Portfolio, Institutional Tax-Free Portfolio and Institutional International
Equity Portfolio.
** Institutional International Equity Portfolio commenced operations on April 3, 1996.
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<PAGE>
*** Mr. Fiedler received $22,400 through a deferred compensation program. As of December 31, 1995, Mr. Fiedler
had a total of $206,003 accrued in a deferred compensation program for serving on the Board of Directors of
the Company. Mr. Fiedler also as of December 31, 1995 had a total of $208,215 accrued in a deferred
compensation program for serving on the Board of Directors for Scudder Fund, Inc. (which has five active
funds).
</TABLE>
DISTRIBUTOR
(See "Company Organization--Distributor" in the Portfolio's Prospectus)
Pursuant to a contract with the Portfolio, Scudder Investor Services,
Inc. (the "Distributor"), a subsidiary of the Adviser, serves as the Company's
principal underwriter in connection with a continuous offering of shares of the
Portfolio. The Distributor receives no remuneration for its services as
principal underwriter and is not obligated to sell any specific amount of
Company shares. As principal underwriter, it accepts purchase orders for shares
of the Portfolio. In addition, the Underwriting Agreement obligates the
Distributor to pay certain expenses in connection with the offering of the
shares of the Portfolio. After the Prospectuses and periodic reports have been
prepared, set in type and mailed to shareholders, the Distributor will pay for
the printing and distribution of copies thereof used in connection with the
offering to prospective investors. The Distributor will also pay for
supplemental sales literature and advertising costs.
TAXES
(See "Distribution and Performance Information--Taxes"
in the Portfolio's Prospectus.)
The Prospectus describes generally the tax treatment of distributions
by the Portfolio. This section of the Statement includes additional information
concerning federal taxes.
The Portfolio has elected to be treated as a regulated investment
company under Subchapter M of the Code, or a predecessor statute. As a regulated
investment company, the Portfolio is required to distribute to its shareholders
at least 90 percent of its investment company taxable income (including net
short-term capital gain) and generally is not subject to federal income tax to
the extent that it distributes annually its investment company taxable income
and net realized capital gains in the manner required under the Code.
The Portfolio is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Portfolio's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gains
for prior years that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Portfolio.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Portfolio for reinvestment,
requiring federal income taxes to be paid thereon by the Portfolio, the
Portfolio intends to elect to treat such capital gains as having been
distributed to shareholders. As a result, each shareholder will report such
capital gains as long-term capital gains, will be able to claim a proportionate
share of federal income taxes paid by the Portfolio on such gains as a credit
against the shareholder's federal income tax liability, and will be entitled to
increase the adjusted tax basis of the shareholder's Portfolio shares by the
difference between the shareholder's pro rata share of such gains and the
shareholder's tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of the Portfolio's gross income. If any such dividends
constitute a portion of the Portfolio's gross income, a portion of the income
distributions of the Portfolio may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
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<PAGE>
extent the shares of the Portfolio with respect to which the dividends are
received are treated as debt-financed under federal income tax law and is
eliminated if either those shares or the shares of the Portfolio are deemed to
have been held by the Portfolio or the shareholders, as the case may be, for
less than 46 days.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Portfolio have been held by
such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares may result in tax consequences (gain
or loss) to the shareholder and are also subject to these reporting
requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Portfolio result in a reduction in the net asset
value of the Portfolio's shares. Should a distribution reduce the net asset
value below a shareholder's cost basis, such distribution would nevertheless be
taxable to the shareholder as ordinary income or capital gain as described
above, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should consider the tax implications
of buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of capital upon
the distribution, which will nevertheless be taxable to them.
The Portfolio intends to qualify for and may make the election
permitted under Section 853 of the Code so that shareholders may (subject to
limitations) be able to claim a credit or deduction on their federal income tax
returns for, and will be required to include in gross income (in addition to
distributions actually received), their pro rata portion of qualified taxes paid
by the Portfolio to foreign countries (which taxes relate primarily to
investment income). The Portfolio may make an election under Section 853 of the
Code, provided that more than 50% of the value of the total assets of the
Portfolio at the close of the taxable year consists of securities in foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code.
If the Portfolio does not make the election permitted under section 853
any foreign taxes paid or accrued will represent an expense to the Portfolio
which will reduce its investment company taxable income. Absent this election,
shareholders will not be able to claim either a credit or a deduction for their
pro rata portion of such taxes paid by the Portfolio, nor will shareholders be
required to treat as part of the amounts distributed to them their pro rata
portion of such taxes paid.
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<PAGE>
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Portfolio will be subject to tax under Section 1234 of the Code. In general,
no loss will be recognized by the Portfolio upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e. long-term or short-term) will generally depend, in the
case of a lapse or sale of the option, on the Portfolio's holding period for the
option, and in the case of the exercise of a put option, on the Portfolio's
holding period for the underlying property. The purchase of a put option may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of any stock in the Portfolio's portfolio similar to the
stocks on which the index is based. If the Portfolio writes an option, no gain
is recognized upon its receipt of a premium. If the option lapses or is closed
out, any gain or loss is treated as short-term capital gain or loss. If a call
option is exercised, the character of the gain or loss depends on the holding
period of the underlying stock.
Positions of the Portfolio 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 Portfolio's risk of loss with respect to such
stock could be treated as a "straddle" which is governed by Section 1092 of the
Code, the operation of which may cause deferral of losses, adjustments in the
holding periods of stocks or securities and conversion of short-term capital
losses into long-term capital losses. An exception to these straddle rules
exists for certain "qualified covered call options" on stock written by the
Portfolio.
Many futures and forward contracts entered into by the Portfolio and
listed nonequity options written or purchased by the Portfolio (including
options on debt securities, options on futures contracts, options on securities
indices and options on currencies), will be governed by Section 1256 of the
Code. Absent a tax election to the contrary, gain or loss attributable to the
lapse, exercise or closing out of any such position generally will be treated as
60% long-term and 40% short-term, and on the last trading day of the Portfolio's
fiscal year, all outstanding Section 1256 positions will be marked to market
(i.e., treated as if such positions were closed out at their closing price on
such day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term. 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
Portfolio will be treated as ordinary income or loss.
Subchapter M of the Code requires the Portfolio to realize less than
30% of its annual gross income from the sale or other disposition of stock,
securities and certain options, futures and forward contracts held for less than
three months. The Portfolio's options, futures and forward transactions may
increase the amount of gains realized by the Portfolio that are subject to this
30% limitation. Accordingly, the amount of such transactions that the Portfolio
may undertake may be limited.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Portfolio accrues receivables or
liabilities denominated in a foreign currency and the time the Portfolio
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of debt
securities denominated in a foreign currency and on disposition of certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of the
Portfolio's investment company taxable income to be distributed to its
shareholders as ordinary income.
If the Portfolio invests in stock of certain foreign investment
companies, the Portfolio 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 Portfolio's holding period for
the stock. The distribution or gain so allocated to any taxable year of the
Portfolio, other than the taxable year of the excess distribution or
disposition, would be taxed to the Portfolio 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 Portfolio's investment company taxable income and, accordingly,
would not be taxable to the Portfolio to the extent distributed by the Portfolio
as a dividend to its shareholders.
23
<PAGE>
Proposed regulations have been issued which may allow the Portfolio to
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 Portfolio would report
as ordinary income the amount by which the fair market value of the foreign
company's stock exceeds the Portfolio's adjusted basis in these shares. No mark
to market losses would be recognized. 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 Portfolio 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.
Investments by the Portfolio in original issue discount obligations
will result in income to the Portfolio equal to a portion of the excess of the
face value of the obligations over issue price (the "original issue discount")
each year that the obligations are held, even though the Portfolio receives no
cash interest payments. This income is included in determining the amount of
income which the Portfolio must distribute to maintain its status as a regulated
investment company and to avoid federal income and excise taxes. If the
Portfolio invests in certain high yield original issue discount obligations
issued by corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such event, dividends of investment company taxable income
received from the Portfolio by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
the Portfolio in a written notice to shareholders.
The Portfolio will be required to report to the IRS all distributions
of investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Portfolio shares, except in the case of
certain exempt shareholders. Under the backup withholding provisions of Section
3406 of the Code, distributions of investment company taxable income and capital
gains and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Portfolio is notified by the IRS or a
broker that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Portfolio may be subject to state and local taxes
on distributions received from the Portfolio and on redemptions of the
Portfolio's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Portfolio, including the possibility
that such a shareholder may be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under an applicable income tax treaty) on amounts
constituting ordinary income received by him or her, where such amounts are
treated as income from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
To the maximum extent feasible, the Adviser places orders for portfolio
transactions for the Portfolio through the Distributor which in turn places
orders on behalf of the Portfolio with issuers, underwriters or other brokers
and dealers. The Distributor receives no commissions, fees or other remuneration
from the Portfolio for this service. Allocation of brokerage is supervised by
the Adviser.
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<PAGE>
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Portfolio is to obtain the most favorable net
results taking into account such factors as price, commission where applicable
(negotiable in the case of U.S. national securities exchange transactions but
generally fixed in the case of foreign exchange transactions) size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Adviser seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Portfolio to reported commissions paid by others. The
Adviser reviews on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the Custodian for appraisal
purposes, or who supply research, market and statistical information to the
Portfolio. The term "research, market and statistical information" includes
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Adviser is not authorized when placing
portfolio transactions for the Portfolio to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might have charged for
executing the same transaction solely on account of the receipt of research,
market or statistical information. The Adviser will not place orders with
brokers or dealers on the basis that the broker or dealer has or has not sold
shares of the Portfolio. Except for implementing the policy stated above, there
is no intention to place portfolio transactions with particular brokers or
dealers or groups thereof. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Portfolio and to the Adviser, it is the
opinion of the Adviser that such information will only supplement the Adviser's
own research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Portfolio, and not all such
information will be used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio.
The Directors intend to review whether the recapture for the benefit of
the Portfolio of some portion of the brokerage commissions or similar fees paid
by the Portfolio on portfolio transactions is legally permissible and advisable.
Portfolio Turnover
The Portfolio's average annual portfolio turnover rate is the ratio of
the lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. A higher rate
involves greater brokerage transaction expenses to the Portfolio 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 Portfolio whenever
necessary, in management's opinion, to meet the Portfolio's objective. Under
normal investment conditions, it is anticipated that the portfolio turnover rate
will not exceed 100% for the initial fiscal year.
NET ASSET VALUE
The net asset value of shares of the Portfolio is computed as of the
close of regular trading on the Exchange on each day the Exchange is open for
trading. The Exchange is scheduled to be closed on the following holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. Net asset value per share is determined by
dividing the value of the total assets of the Portfolio, less all liabilities,
by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
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<PAGE>
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Portfolio's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Short-term
securities with remaining maturities of sixty days or less are valued by the
amortized cost method, which the Board believes approximates market value. If it
is not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Company's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Portfolio is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Portfolio will be included in the
Prospectus and the Financial Statement is included in this Statement of
Additional Information in reliance on the report of Price Waterhouse LLP,
independent accountants, and given upon their authority as experts in accounting
and auditing.
Other Information
The CUSIP number of the Portfolio is 811161-88-4.
The Portfolio has a fiscal year end of December 31.
The law firm of Sullivan and Cromwell is counsel to the Company and the
law firm of Dechert Price and Rhoads acts as special counsel to the Portfolio.
Price Waterhouse LLP are the independent accountants for the Portfolio.
26
<PAGE>
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Portfolio. The Portfolio pays SFAC an annual fee equal to
0.065% of the first $150 million of average daily net assets, 0.040% of the next
$850 million, and 0.020% of such assets in excess of $1 billion, plus holding
and transaction charges for this service.
Scudder Service Corporation (the "Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Portfolio and as such
performs the customary services of a transfer agent and dividend disbursing
agent. These services include, but are not limited to: (i) receiving for
acceptance in proper form orders for the purchase or redemption of Portfolio
shares and promptly effecting such orders; (ii) recording purchases of Portfolio
shares and, if requested, issuing stock certificates; (iii) reinvesting
dividends and distributions in additional shares or transmitting payments
therefor; (iv) receiving for acceptance in proper form transfer requests and
effecting such transfers; (v) responding to shareholder inquiries and
correspondence regarding shareholder account status; (vi) reporting abandoned
property to the various states; and (vii) recording and monitoring daily the
issuance in each state of shares of the Portfolio. The Service Corporation
applies a minimum annual charge of $220,000 for servicing all Portfolios of the
Company. An activity fee is charged on a monthly basis for the shareholder
accounts serviced. The difference between the activity fees charged and the
annual $220,000 minimum is allocated among all the Portfolios based on relative
net assets.
The Portfolio's Prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Portfolio has filed with the SEC under the Securities Act
of 1933 and reference is hereby made to the Registration Statement for further
information with respect to the Portfolio 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.
The Portfolio employs Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, as Custodian.
Costs of $27,500 incurred by the Portfolio in conjunction with its
organization are amortized over the five year period beginning April 3, 1996.
No Portfolio of the Company shall be liable for the obligations of any
other Portfolio of the Company.
FINANCIAL STATEMENTS
The Statement of Assets and Liabilities as of April 1, 1996 and the
Report of Independent Accountants are included herein.
27
<PAGE>
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
<PAGE>
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during 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.
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
April 1, 1996
Assets
Cash................................................ $1,200
Deferred organization expenses (Note)............... 27,500
--------
Total assets........................................ 28,700
--------
Liabilities
Accrued liabilities (Note).......................... 27,500
--------
Total liabilities................................... 27,500
--------
Net Assets............................................ $1,200
========
Net Assets consist of:
Shares of beneficial interest, at par............... 0
Additional paid-in capital.......................... 1,200
--------
Net Assets............................................ $1,200
========
Net asset value, offering price per share
(Applicable to 100 shares of $.001 par value
Capital Stock outstanding; 100,000,000 shares
authorized)........................................... $12.00
========
The accompanying note is an integral part of the financial statement.
Institutional International Equity Portfolio (the "Portfolio") is a series of
Scudder Institutional Fund, Inc. (the "Company"), a no-load, open-end,
diversified, management investment company. The Company was formed on January 2,
1986 as a corporation under the laws of the State of Maryland. The authorized
capital stock of the Company consists of 25,000,000,000 shares having a par
value of $.001 per share, of which 5,000,000,000 shares each have been
designated for the Government Portfolio, Federal Portfolio and Cash Portfolio,
2,000,000,000 shares have been designated for the Tax-Free Portfolio and
100,000,000 have been designated for the International Equity Portfolio. The
Company is authorized to issue full and fractional shares in separate series.
The Portfolio has had no operations to date other than matters relating to its
organization as a diversified series and the sale and issuance of 100 shares of
its common stock for $1,200 to Scudder, Stevens, & Clark, Inc., the investment
adviser.
Costs incurred by the Portfolio in connection with its organization, estimated
at $27,500, will be amortized on a straight-line basis over a five-year period
beginning at the commencement of operations of the Portfolio. In the event that
any of the initial shares of the Portfolio are redeemed during the amortization
period, the redemption proceeds will be reduced by any unamortized organization
expense in the same proportion as the number of shares being redeemed bears to
the number of initial shares outstanding at the time of such redemption.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of Institutional
International Equity Portfolio:
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of
Institutional International Equity Portfolio, which constitutes part of the
Scudder Institutional Fund, Inc., at April 1, 1996 in conformity with generally
accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit of this financial statement in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
April 2, 1996
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
PART C. - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
<TABLE>
<CAPTION>
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement
For Institutional Government Portfolio:
Financial Highlights for the period June 3, 1986 (commencement of operations) to
December 31, 1986 and for the eight fiscal years ended December 31, 1994
For Institutional Federal Portfolio:
Financial Highlights for the period May 9, 1986 (commencement of operations) to
December 31, 1986 and for the eight fiscal years ended December 31, 1994
For Institutional Cash Portfolio:
Financial Highlights for the period June 18, 1986 (commencement of operations) to
December 31, 1986 and for the eight fiscal years ended December 31, 1994
For Institutional Tax-Free Portfolio:
Financial Highlights for the period May 12, 1986 (commencement of operations) to
December 31, 1986 and for the eight fiscal years ended December 31, 1994
(Incorporated by reference to Post-Effective Amendment No. 13 to the Registration
Statement.)
For Institutional International Equity Portfolio:
Financial Highlights (to be filed by amendment).
Included in Part B of this Registration Statement
For Institutional Government Portfolio:
Statement of Net Assets as of December 31, 1994
Statement of Operations for the fiscal year ended December 31, 1994
Statements of Changes in Net Assets for the two fiscal years ended December 31,
1993 and 1994
Financial Highlights for the five years ended December 31, 1994
Notes to Financial Statements
Report of Independent Accountants
For Institutional Federal Portfolio:
Statement of Net Assets as of December 31, 1994
Statement of Operations for the fiscal year ended December 31, 1994
Statements of Changes in Net Assets for the two fiscal years ended December 31,
1993 and 1994
Financial Highlights for the five years ended December 31, 1994
Part C - Page 1
<PAGE>
Notes to Financial
Statements Report of Independent Accountants
For Institutional Cash Portfolio:
Statement of Net Assets as of December 31, 1994
Statement of Operations for the fiscal year ended December 31, 1994
Statements of Changes in Net Assets for the two fiscal years ended December 31,
1993 and 1994
Financial Highlights for the five years ended December 31, 1994
Notes to Financial Statements
Report of Independent Accountants
For Institutional Tax-Free Portfolio:
Statement of Net Assets as of December 31, 1994
Statement of Operations for the fiscal year ended December 31, 1994
Statements of Changes in Net Assets for the two fiscal years ended December 31,
1993 and 1994
Financial Highlights for the five years ended December 31, 1994
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference to Post-Effective Amendment No. 13 to the Registration
Statement.)
For Institutional International Equity Portfolio:
Statement of Assets and Liabilities as of April 1, 1996 is filed herein.
b. Exhibits:
1. (a) Articles of Incorporation.
(Incorporated by reference to Exhibit 1(a) to original
Registration Statement filed on January 10, 1986.)
(b) Articles Supplementary.
(Incorporated by reference to Exhibit 1(b) to Post-Effective
Amendment No. 9 to this Registration Statement filed on
March 3, 1988.)
(c) Articles of Amendment.
(Incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 9 to this Registration Statement filed on
April 29, 1991.)
(d) Articles Supplementary to the Articles of Incorporation.
(Incorporated by reference to Exhibit 1(d) to Post-Effective
Amendment No. 14 to this Registration Statement filed on January
19, 1996.)
2. (a) By-laws.
(Incorporated by reference to Exhibit 2 to original
Registration Statement filed on January 10, 1986.)
Part C - Page 2
<PAGE>
(b) Amended and Restated By-laws.
(Incorporated by reference to Exhibit 2(b) to Post Effective
Amendment No. 14 to this Registration Statement filed on January
19, 1996.).
3. Not Applicable
4. Specimen stock certificate.
(Incorporated by reference to Exhibit 4 to original
Registration Statement filed on January 10, 1986.)
5. (a)(i) Investment Advisory Agreement on behalf of Institutional Government
Portfolio.
(Incorporated by reference to Exhibit 5(a)(i) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(ii) Investment Advisory Agreement on behalf of Institutional Treasury
Portfolio.
(Incorporated by reference to Exhibit 5(a)(ii) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(iii) Investment Advisory Agreement on behalf of Institutional Cash
Portfolio.
(Incorporated by reference to Exhibit 5(a)(iii) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(iv) Investment Advisory Agreement on behalf of Institutional Tax-Free
Portfolio.
(Incorporated by reference to Exhibit 5(a)(iv) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(v) Investment Advisory Agreement on behalf of Institutional Prime
Portfolio.
(Incorporated by reference to Exhibit 5(a)(v) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(vi) Investment Advisory Agreement on behalf of Institutional Municipal
Income Portfolio.
(Incorporated by reference to Exhibit 5(a)(vi) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(vii) Investment Advisory Agreement on behalf of Institutional
Intermediate Portfolio.
(Incorporated by reference to Exhibit 5(a)(vii) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(viii) Investment Advisory Agreement on behalf of Institutional Bond Index
Portfolio.
(Incorporated by reference to Exhibit 5(a)(viii) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(a)(ix) Form of Investment Advisory Agreement on behalf of
Institutional InternationalEquity Portfolio is filed
herein.
6. (a) Interim Distribution Contract.
(Incorporated by reference to Exhibit 6(a) to Post-Effective
Amendment No. 4 filed on March 1, 1989.)
Part C - Page 3
<PAGE>
(b) Underwriting Agreement dated January 18, 1989 (with form of Dealer
Contract Exhibit).
(Incorporated by reference to Exhibit 6(b) to Post-Effective
Amendment No. 4 filed on March 1, 1989.)
7. Not Applicable.
8. (a) Custodian Contract.
(Incorporated by reference to Exhibit 8(a) to Pre-Effective
Amendment No. 1 filed on April 16, 1986.)
(b) Transfer Agency and Service Agreement dated January 1, 1990.
(Incorporated by reference to Exhibit 8(b) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(c)(i) Sub-Custodian Agreement with State Street London Limited.
(Incorporated by reference to Exhibit 8(c)(i) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(c)(ii) Sub-Custodian Agreement with Irving Trust.
(Incorporated by reference to Exhibit 8(c)(ii) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(c)(iii) Sub-Custodian Agreement with Bankers Trust Company.
(Incorporated by reference to Exhibit 8(c)(iii) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(c)(iv) Sub-Custodian Agreement with Bankers Trust Company.
(Incorporated by reference to Exhibit 8(c)(iv) to Post-Effective
Amendment No. 7 filed on March 1, 1990.)
(c)(v) Fee Schedule for Exhibit 8(a).
(Incorporated by reference to Exhibit 8(c)(v) to Post-Effective
Amendment No. 13 filed on April 28, 1995.)
(c)(vi) Form of Custodian Contract between the Registrant, on
behalf of Institutional International Equity Portfolio,
and Brown Brothers Harriman & Co., is filed herein.
(c)(vii) Fee Schedule for Exhibit 8(c)(vi) is filed herein.
9. (a) Application to be filed by amendment.
(b)(i) Fund Accounting Services Agreement between the Registrant, on
behalf of Institutional Cash Portfolio, and Scudder Fund Accounting
Corporation dated August 1, 1994.
(Incorporated by reference to Exhibit 9(b)(i) to Post-Effective
Amendment No. 13 filed on April 28, 1995.)
(b)(ii) Fund Accounting Services Agreement between the
Registrant, on behalf of Institutional Government
Portfolio, and Scudder Fund Accounting Corporation dated
August 1, 1994.
(Incorporated by reference to Exhibit 9(b)(ii) to Post-Effective
Amendment No. 13 filed on April 28, 1995.)
Part C - Page 4
<PAGE>
(b)(iii) Fund Accounting Services Agreement between the
Registrant, on behalf of Institutional Federal
Portfolio, and Scudder Fund Accounting Corporation dated
August 1, 1994.
(Incorporated by reference to Exhibit 9(b)(iii) to Post-Effective
Amendment No. 13 filed on April 28, 1995.)
(b)(iv) Fund Accounting Services Agreement between the
Registrant, on behalf of Institutional Tax-Free
Portfolio, and Scudder Fund Accounting Corporation dated
August 18, 1994.
(Incorporated by reference to Exhibit 9(b)(iv) to Post-Effective
Amendment No. 13 filed on April 28, 1995.)
(b)(v) Form of Fund Accounting Services Agreement between the
Registrant, on behalf of Institutional International
Equity Portfolio, and Scudder Fund Accounting Corporation is
filed herein.
10. Not Applicable.
11. Consent of Independent Accountants is filed herein.
12. Not Applicable.
13. Purchase Agreement and Investment Letter of Lazard Freres & Co.
(Incorporated by reference to Exhibit 13 to Pre-Effective Amendment
No. 1 filed on April 16, 1986.)
14. Not Applicable.
15. Not Applicable.
16. (a) Schedules for Computations of Performance Quotations.
(Incorporated by reference to Exhibit 16 to Post-Effective
Amendment No. 4 filed on March 1, 1989.)
(b) Schedules for Computations of Performance Quotations.
(Incorporated by reference to Exhibit 16(b) to Post-Effective
Amendment No. 13 filed on April 28, 1995.)
(c) Schedules for Computations of Performance Quotations to be filed by
amendment.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
-------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities.
- -------- --------------------------------
Set forth below is a table showing the number of record
holders of each class of securities of Scudder Institutional
Fund, Inc. as of December 31, 1995:
<TABLE>
<CAPTION>
<C> <C>
(1) (2)
Title of Class Number of Record Shareholders
Institutional Government Portfolio 59
Institutional Federal Portfolio 30
Institutional Cash Portfolio 39
Institutional Tax-Free Portfolio 22
Part C - Page 5
<PAGE>
Institutional Prime Portfolio 1
Institutional Municipal Income Portfolio 1
Institutional Intermediate Cash Portfolio 1
Institutional Bond Index Portfolio 1
</TABLE>
Item 27. Indemnification.
- -------- ----------------
As permitted by Sections 17(h) and 17(i) of the Investment
Company Act of 1940, as amended (the "1940 Act"), pursuant to
Article IV of the Registrant's By-Laws (filed as Exhibit No. 2
to the Registration Statement), officers, directors, employees
and representatives of the Funds may be indemnified against
certain liabilities in connection with the Funds, and pursuant
to Section 12 of the Underwriting Agreement dated January 18,
1989 (filed as Exhibit No. 6(b) to the Registration
Statement), Scudder Investor Services, Inc. (formerly "Scudder
Fund Distributors, Inc."), as principal underwriter of the
Registrant, may be indemnified against certain liabilities
that it may incur. Said Article IV of the By-Laws and Section
12 of the Underwriting Agreement are hereby incorporated by
reference in their entirety.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be
permitted to directors, officers and controlling persons of
the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or
controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant
by such director, officer or controlling person or the
principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser 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 28.
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Stephen R. Beckwith Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Trustee, Scudder Funds Trust (investment company)*
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Director, Inverlatin Dollar Income Fund, Inc. (investment company) Georgetown, Grand
Cayman, Cayman Islands
Part C - Page 6
<PAGE>
Director, ProMexico Fixed Income Dollar Fund, Inc. (investment company) Georgetown,
Grand Cayman, Cayman Islands
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Partner, George Birdsong Co., Rye, NY
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (Director only on Scudder Global Fund,
a series of Scudder Global Fund, Inc.) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Scudder Investor Services, Inc. (broker/dealer)**
President & Trustee, AARP Cash Investment Funds (investment company)**
President & Trustee, AARP Growth Trust (investment company)**
President & Trustee, AARP Income Trust (investment company)**
President & Trustee, AARP Tax Free Income Trust (investment company)**
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)*
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)*
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Part C - Page 7
<PAGE>
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)++
Vice President, Scudder Variable Life Investment Fund (investment company)*
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
President & Director, SFA, Inc. (advertising agency)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Douglas M. Loudon Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President & Trustee, Scudder Equity Trust (investment company)*
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Securities Trust (investment company)*
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Chairman, World Capital Fund (investment company) Luxembourg ##
Managing Director, Kankaku - Scudder Capital Asset Management Corporation (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
President, The Japan Fund, Inc. (investment company)**
Trustee, Scudder, Stevens & Clark Supplemental Retirement Income Plan
Trustee, Scudder, Stevens & Clark Profit Sharing Plan**
Chairman & Director, The World Capital Fund (investment company) Luxembourg
Chairman & Director, Scudder, Stevens & Clark (Luxembourg), S.A., Luxembourg#
Chairman, Canadian High Income Fund (investment company) #
Chairman, Hot Growth Companies Fund (investment company) #
Vice President & Director, Scudder Precious Metals, Inc. xxx
Director, Berkshire Farm & Services for Youth
Board of Governors & President, Investment Counsel Association
of America
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Juris Padegs Secretary & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, The Brazil Fund, Inc. (investment company)**
Vice President & Trustee, Scudder Equity Trust (investment company)*
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Part C - Page 8
<PAGE>
Trustee, Scudder Funds Trust (investment company)*
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder International Fund, Inc.
(investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Assistant Secretary & Director, Scudder New Asia Fund, Inc. (investment
company)**
Trustee, Scudder Securities Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder Tax Free Trust (investment company)*
Chairman & Director, The Korea Fund, Inc. (investment company)**
Vice President & Director, The Argentina Fund, Inc. (investment company)**
Secretary, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser),
Toronto, Ontario, Canada
Vice President & Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Assistant Secretary, SFA, Inc. (advertising agency)*
Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)**
Assistant Treasurer & Director, Kankaku - Scudder Capital Asset Management (investment
adviser)**
Chairman & Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Chairman & Supervisory Director, Sovereign High Yield Investment Company N.V.
(investment company) +
Director, President Investment Trust Corporation (Joint Venture)***
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Director, Vice President & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Vice President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman, Scudder, Stevens & Clark Overseas Corporationoo
Director, Scudder Trust (Cayman) Ltd. (trust services company)xxx
Director, ICI Mutual Insurance Company, Inc., Washington, D.C.
Director, Baltic International USA
Director, Baltic International Airlines (a limited liability company) Riga, Latvia
Daniel Pierce Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Trustee, California Tax Free Trust (investment company)*
President & Trustee, Scudder Equity Trust (investment company)**
Director, The First Iberian Fund, Inc. (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
President & Trustee, Scudder Investment Trust (investment company)*
Vice President & Trustee, Scudder Municipal Trust (investment company)*
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Securities Trust (investment company)**
Trustee, Scudder State Tax Free Trust (investment company)*
Part C - Page 9
<PAGE>
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Director, The Brazil Fund, Inc. (until 7/94) (investment company)**
Vice President & Assistant Treasurer, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
President & Director, Scudder Service Corporation (in-house transfer agent)*
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman, Assistant Treasurer & Director, Scudder, Stevens & Clark, Inc. (investment
adviser)**
President & Director, Scudder Precious Metals, Inc. xxx
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
Director, Scudder Fund Accounting Corporation (in-house fund accounting agent)*
Director, Scudder Realty Holdings Corporation (a real estate holding company)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Incorporator, Scudder Trust Company (a trust company)+++
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)*
Vice President, AARP Growth Trust (investment company)*
Vice President, AARP Income Trust (investment company)*
Vice President, AARP Tax Free Income Trust (investment company)*
Edmond D. Villani President & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
Trustee, Scudder Securities Trust (investment company)*
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Supervisory Director, Scudder Mortgage Fund (investment company) +
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, IBJ Global Investment Manager S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
Part C - Page 10
<PAGE>
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# 11, rue Aldringen, L-1118 Luxembourg, Grand-Duchy of Luxembourg
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon
</TABLE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
The Japan Fund, Inc.
<TABLE>
<CAPTION>
(b)
(1) (2)
(3)
<S> <C> <C>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
------------------ ------------------------------- -----------------------
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Mark S. Casady Vice President and Director None
Two International Place
Boston, MA 02110
Linda Coughlin Director None
345 Park Avenue
New York, NY 10154
Part C - Page 11
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
------------------ ------------------------------- -----------------------
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Coleen Downs Dinneen Assistant Clerk None
Two International Place
Boston, MA 02110
Paul J. Elmlinger Vice President None
345 Park Avenue
New York, NY 10154
Cuyler W. Findlay Senior Vice President None
345 Park Avenue
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Vice President, Director, Vice President and
Two International Place Treasurer and Assistant Clerk Assistant Secretary
Boston, MA 02110
Dudley H. Ladd Senior Vice President and None
Two International Place Director
Boston, MA 02110
David S. Lee President, Assistant Chairman of the Board and
Two International Place Treasurer and Director Director
Boston, MA 02110
Douglas M. Loudon Senior Vice President None
345 Park Avenue
New York, NY 10154
Thomas F. McDonough Clerk Vice President and
Two International Place Assistant Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Juris Padegs Vice President and Director None
345 Park Avenue
New York, NY 10154
Daniel Pierce Vice President, Director President and Director
Two International Place and Assistant Treasurer
Boston, MA 02110
Part C - Page 12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
------------------ ------------------------------- -----------------------
Kathryn L. Quirk Vice President None
345 Park Avenue
New York, NY 10154
Edmund J. Thimme Vice President and Director None
345 Park Avenue
New York, NY 10154
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(c)
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other Compensation
Underwriter Commissions and Repurchases Commissions
----------------- ---------------- --------------- ------------ -------------------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
All accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
thereunder are maintained at the offices of the Custodian, the
Transfer Agent, the Distributor or the Registrant. Documents
required by paragraphs (b)(4), (5), (6), (7), (9), (10), and
(11) and (f) of Rule 31a-1 (the "Rule"), will be kept at the
offices of the Registrant, 345 Park Avenue, New York, New
York; certain documents required to be kept under paragraphs
(b)(1) and (b)(2)(iv) of the Rule will be kept at the offices
of Scudder Service Corporation, Two International Place,
Boston, Massachusetts 02110-4103; documents required to be
kept under paragraph (d) of the Rule will be kept at the
offices of Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103; and the remaining
accounts, books and other documents required by the Rule will
be kept at State Street Bank and Trust Company, 1776 Heritage
Drive, North Quincy, Massachusetts 02171 (on behalf of
Institutional Government Portfolio, Institutional Federal
Portfolio, Institutional Cash Portfolio and Institutional
Tax-Free Portfolio) and at Brown Brothers Harriman & Co., 40
Water Street, Boston, Massachusetts 02109 (on behalf of
Institutional International Equity Portfolio).
Item 31. Management Services.
- -------- ---------------------------------
Inapplicable.
Item 32. Undertakings.
- -------- ---------------------------------
The Registrant hereby undertakes to file a post-effective
amendment, using reasonably current financial statements of
Institutional International Equity Portfolio, within four to
six months from the effective date of the Registrant's
Registration Statement under the 1933 Act.
Part C - Page 13
<PAGE>
The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of such Fund's
latest annual report to shareholders upon request and without
change.
The Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the question of
removal of a Director or Directors when requested to do so by
the holders of at least 10% of the Registrant's outstanding
shares and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification
for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
trustee, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will unless in the opinion of its counsel the
matter has been settled by controlling precedent, submits to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Part C - 14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts on the 2nd day of April, 1996.
SCUDDER INSTITUTIONAL FUND, INC.
By /s/David S. Lee
------------------------------
David S. Lee,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/David S. Lee
- --------------------------------------
David S. Lee Chairman of the Board (Principal April 2, 1996
Executive Officer) and Director
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce President and Director April 2, 1996
- --------------------------------------
Edgar R. Fiedler Director April , 1996
- --------------------------------------
Peter B. Freeman Director April , 1996
/s/Robert W. Lear
- --------------------------------------
Robert W. Lear Director April 2, 1996
/s/Pamela A. McGrath
- --------------------------------------
Pamela A. McGrath Vice President and Treasurer April 2, 1996
(Principal Financial and Accounting
Officer)
</TABLE>
<PAGE>
File No. 33-2648
File No. 811-4555
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 15
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 13
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER INSTITUTIONAL FUND, INC.
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
EXHIBIT INDEX
Exhibit 5(a)(ix)
Exhibit 8(c)(vi)
Exhibit 8(c)(vii)
Exhibit 9(b)(v)
Exhibit 11
EXHIBIT 5(a)(ix)
SCUDDER INSTITUTIONAL FUND, INC.
345 Park Avenue
New York, New York 10154
April __, 1996
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Institutional International Equity Portfolio
Ladies and Gentlemen:
Scudder Institutional Fund, Inc. (the "Corporation"), has been established
as a Maryland corporation to engage in the business of an investment company.
Pursuant to the Corporation's Articles of Incorporation, as amended from
time-to-time (the "Articles"), the Board of Directors has divided the
Corporation's capital shares, par value $.001 per share, (the "Shares") into
separate series, or funds, including Institutional International Equity
Portfolio (the "Fund"). Series may be abolished and dissolved, and additional
series established, from time to time by action of the Directors.
The Corporation, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Corporation on behalf of the
Fund agrees with you as follows:
1. Delivery of Documents. The Corporation engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Corporation's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Corporation under the Investment Company
Act of 1940, as amended, (the "1940 Act") and the Securities Act of 1933, as
amended. Copies of the documents referred to in the preceding sentence have been
furnished to you by the Corporation. The Corporation has also furnished you with
copies properly certified or authenticated of each of the following additional
documents related to the Corporation and the Fund:
<PAGE>
(a) The Articles dated December 30, 1985, as amended to date.
(b) By-Laws of the Corporation as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Directors of the Corporation selecting you as investment
manager and approving the form of this Agreement.
(d) Articles Supplementary dated April 24, 1995 relating to the establishment
of the Fund.
The Corporation will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of the
rights to use and sublicense the use of the "Scudder" and "Scudder, Stevens &
Clark," trademarks (together, the "Scudder Marks"), you hereby grant the
Corporation a nonexclusive right and sublicense to use (i) the "Scudder" name
and mark as part of the Corporation's name (the "Fund Name"), and (ii) the
Scudder Marks in connection with the Corporation's investment products and
services, in each case only for so long as this Agreement, any other investment
management agreement between you and the Corporation, or any extension, renewal
or amendment hereof or thereof remains in effect, and only for so long as you
are a licensee of the Scudder Marks, provided however, that you agree to use
your best efforts to maintain your license to use and sublicense the Scudder
Marks. The Corporation agrees that it shall have no right to sublicense or
assign rights to use the Scudder Marks, shall acquire no interest in the Scudder
Marks other than the rights granted herein, that all of the Corporation's uses
of the Scudder Marks shall inure to the benefit of Scudder Trust Company as
owner and licensor of the Scudder Marks (the "Trademark Owner"), and that the
Corporation shall not challenge the validity of the Scudder Marks or the
Trademark Owner's ownership thereof. The Corporation further agrees that all
services and products it offers in connection with the Scudder Marks shall meet
commercially reasonable standards of quality, as may be determined by you or the
Trademark Owner from time to time, provided that you acknowledge that the
services and products the Corporation rendered during the one-year period
preceding the date of this Agreement are acceptable. At your reasonable request,
the Corporation shall cooperate with you and the Trademark Owner and shall
execute and deliver any and all documents necessary to maintain and protect
(including but not limited to in connection with any trademark infringement
action) the Scudder Marks and/or enter the Corporation as a registered user
thereof. At such time as this Agreement or any other investment management
2
<PAGE>
agreement shall no longer be in effect between you (or your successor) and the
Corporation, or you no longer are a licensee of the Scudder Marks, the
Corporation shall (to the extent that, and as soon as, it lawfully can) cease to
use the Fund Name or any other name indicating that it is advised by, managed by
or otherwise connected with you (or any organization which shall have succeeded
to your business as investment manager) or the Trademark Owner. In no event
shall the Corporation use the Scudder Marks or any other name or mark
confusingly similar thereto (including, but not limited to, any name or mark
that includes the name "Scudder") if this Agreement or any other investment
advisory agreement between you (or your successor) and the Fund is terminated.
3. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Corporation's Board
of Directors. In connection therewith, you shall use reasonable efforts to
manage the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Corporation or
counsel to you. You shall also make available to the Corporation promptly upon
request all of the Fund's investment records and ledgers as are necessary to
assist the Corporation to comply with the requirements of the 1940 Act and other
applicable laws. To the extent required by law, you shall furnish to regulatory
authorities having the requisite authority any information or reports in
connection with the services provided pursuant to this Agreement which may be
requested in order to ascertain whether the operations of the Corporation are
being conducted in a manner consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
3
<PAGE>
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Corporation's Board of Directors periodic reports
on the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Corporation's officers or Board of Directors
shall reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Corporation administrative
services on behalf of the Fund necessary for operating as an open-end investment
company and not provided by persons not parties to this Agreement including, but
not limited to, preparing reports to and meeting materials for the Corporation's
Board of Directors and reports and notices to Fund shareholders; supervising,
negotiating contractual arrangements with, to the extent appropriate, and
monitoring the performance of, accounting agents, custodians, depositories,
transfer and pricing agents, accountants, attorneys, printers, underwriters,
brokers and dealers, insurers and other persons in any capacity deemed to be
necessary or desirable to Fund operations; preparing and making filings with the
Securities and Exchange Commission (the "SEC") and other regulatory and
self-regulatory organizations, including, but not limited to, preliminary and
definitive proxy materials, post-effective amendments to the Registration
Statement, semi-annual reports on Form N-SAR and notices pursuant to Rule 24f-2
under the 1940 Act; overseeing the tabulation of proxies by the Fund's transfer
agent; assisting in the preparation and filing of the Fund's federal, state and
local tax returns; preparing and filing the Fund's federal excise tax return
pursuant to Section 4982 of the Code; providing assistance with investor and
public relations matters; monitoring the valuation of portfolio securities, the
calculation of net asset value and the calculation and payment of distributions
to Fund shareholders; monitoring the registration of Shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; assisting in establishing the accounting policies of the Fund;
assisting in the resolution of accounting issues that may arise with respect to
the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and the Fund's other agents as necessary in connection therewith;
4
<PAGE>
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent and the custodian with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Corporation as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Corporation's Board of Directors. Nothing in this Agreement shall
be deemed to shift to you or to diminish the obligations of any agent of the
Fund or any other person not a party to this Agreement which is obligated to
provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Directors, officers and executive employees of the Corporation (including the
Fund's share of payroll taxes) who are affiliated persons of you, and you shall
make available, without expense to the Fund, the services of such of your
directors, officers and employees as may duly be elected officers of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law. You shall provide at your expense the portfolio management
services described in section 3 hereof and the administrative services described
in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 5. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Directors and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Corporation; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
5
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connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Corporation business) of Directors,
officers and employees of the Corporation who are not affiliated persons of you;
brokerage commissions or other costs of acquiring or disposing of any portfolio
securities of the Fund; expenses of printing and distributing reports, notices
and dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Directors and officers of the Corporation; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Directors and officers of the Corporation who are directors,
officers or employees of you to the extent that such expenses relate to
attendance at meetings of the Board of Directors of the Corporation or any
committees thereof or advisors thereto held outside of Boston, Massachusetts or
New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Corporation on behalf of the Fund shall have adopted a
plan in conformity with Rule 12b-1 under the 1940 Act, or (iii) the Corporation
on behalf of the Fund shall have adopted a non-Rule 12b-1 shareholder servicing
plan, providing that the Fund (or some other party) shall assume some or all of
such expenses. You shall be required to pay such of the foregoing sales expenses
as are not required to be paid by the principal underwriter pursuant to the
underwriting agreement or are not permitted to be paid by the Fund (or some
other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Corporation on behalf of the Fund shall pay you on the last day of each month
the unpaid balance of a fee equal to the excess of (a) 1/12 of 0.90 of 1 percent
of the average daily net assets as defined below of the Fund for such month;
over (b) the greater of (i) the amount by which the Fund's expenses exceed the
lowest applicable expense limitation (as more fully described below) or (ii) any
compensation waived by you from time to time (as more fully described below).
You shall be entitled to receive during any month such interim payments of your
fee hereunder as you shall request, provided that no such payment shall exceed
75 percent of the amount of your fee then accrued on the books of the Fund and
6
<PAGE>
unpaid.
The "average daily net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Articles and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 6.
You agree that your gross compensation for any fiscal year shall not be
greater than an amount which, when added to the other expenses of the Fund,
shall cause the aggregate expenses of the Fund to equal the maximum expenses
under the lowest applicable expense limitation established pursuant to the
statutes or regulations of any jurisdiction in which the Shares of the Fund may
be qualified for offer and sale. Except to the extent that such amount has been
reflected in reduced payments to you, you shall refund to the Fund the amount of
any payment received in excess of the limitation pursuant to this section 6 as
promptly as practicable after the end of such fiscal year, provided that you
shall not be required to pay the Fund an amount greater than the fee paid to you
in respect of such year pursuant to this Agreement. As used in this section 6,
"expenses" shall mean those expenses included in the applicable expense
limitation having the broadest specifications thereof, and "expense limitation"
means a limit on the maximum annual expenses which may be incurred by an
investment company determined (i) by multiplying a fixed percentage by the
average, or by multiplying more than one such percentage by different specified
amounts of the average, of the values of an investment company's net assets for
a fiscal year or (ii) by multiplying a fixed percentage by an investment
company's net investment income for a fiscal year. The words "lowest applicable
expense limitation" shall be construed to result in the largest reduction of
your compensation for any fiscal year of the Fund; provided, however, that
nothing in this Agreement shall limit your fees if not required by an applicable
statute or regulation referred to above in this section 6.
7
<PAGE>
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Corporation.
8. Limitation of Liability of Manager. As an inducement to your undertaking
to render services pursuant to this Agreement, the Corporation agrees that you
shall not be liable under this Agreement for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall be deemed
to protect or purport to protect you against any liability to the Corporation,
the Fund or its shareholders to which you would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of your
duties, or by reason of your reckless disregard of your obligations and duties
hereunder. Any person, even though also employed by you, who may be or become an
employee of and paid by the Fund shall be deemed, when acting within the scope
of his or her employment by the Fund, to be acting in such employment solely for
the Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall remain
in force until July 31, 1997, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Directors who are not
8
<PAGE>
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Directors of the Corporation, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Corporation's Board of Directors on 60
days' written notice to you, or by you on 60 days' written notice to the
Corporation. This Agreement shall terminate automatically in the event of its
assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of a majority of the outstanding voting
securities of the Fund and by the Corporation's Board of Directors, including a
majority of the Directors who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the State
of Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, or in a manner which would cause the Fund to
9
<PAGE>
fail to comply with the requirements of Subchapter M of the Code.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Corporation, whereupon this letter shall become a binding
contract effective as of the date of this Agreement.
Yours very truly,
SCUDDER INSTITUTIONAL FUND, INC.
on behalf of Institutional International
Equity Portfolio
By: ______________________________
President
The foregoing Agreement is hereby accepted as of the date thereof.
SCUDDER, STEVENS & CLARK, INC.
By: ______________________________
Managing Director
10
EXHIBIT 8(c)(vi)
CUSTODIAN AGREEMENT
Dated as of
April __, 1996
Between
SCUDDER INSTITUTIONAL FUND, INC.
and
BROWN BROTHERS HARRIMAN & CO.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
APPOINTMENT OF CUSTODIAN
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
2.1. Safekeeping................................................... 2
2.2. Manner of Holding Securities.................................. 2
2.3. Registered Name; Nominee...................................... 2
2.4. Purchases by the Fund......................................... 3
2.5. Exchanges of Securities....................................... 4
2.6. Sales of Securities........................................... 4
2.7. Depositary Receipts........................................... 5
2.8. Exercise of Rights; Tender Offers............................. 5
2.9. Stock Dividends, Rights, Etc.................................. 5
2.10. Options....................................................... 6
2.11. Futures and Forward Contracts................................. 6
2.12. Borrowings.................................................... 7
2.13. Bank Accounts................................................. 7
2.14. Interest-Bearing Deposits..................................... 8
2.15. Foreign Exchange Transactions.................................. 8
2.16. Securities Loans............................................... 9
2.17. Collections.................................................... 9
2.18. Dividends, Distributions and
Redemptions................................................ 10
2.19. Proxies; Communications Relating to
Portfolio Securities....................................... 10
2.20. Bills......................................................... 11
2.21. Nondiscretionary Details...................................... 11
2.22. Deposit of Fund Assets in Securities
Systems.................................................... 11
2.23. Other Transfers............................................... 12
2.24. Establishment of Segregated Accounts.......................... 13
2.25. Custodian Advances............................................ 13
i
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TABLE OF CONTENTS
-----------------
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
3.1. Proper Instructions and Special
Instructions.................................................14
3.2. Authorized Persons..............................................15
3.3 Persons Having Access to Assets of the Fund.....................15
3.4. Actions of Custodian Based on Proper
Instructions and Special Instructions........................15
ARTICLE IV
SUBCUSTODIANS
4.1. Domestic Subcustodians..........................................16
4.2. Foreign Subcustodians and Interim
Subcustodians................................................16
4.3. Termination of a Subcustodian...................................18
4.4. Agents..........................................................18
ARTICLE V
STANDARD OF CARE; INDEMNIFICATION
5.1. Standard of Care................................................19
5.2. Liability of Custodian for Actions of
Other Persons................................................20
5.3. Indemnification.................................................21
5.4. Investment Limitations..........................................22
5.5. Fund's Right to Proceed.........................................22
ARTICLE VI
RECORDS
6.1. Preparation of Reports..........................................23
6.2. Custodian's Books and Records...................................23
6.3. Opinion of Fund's Independent Certified
Public Accountants...........................................24
6.4. Reports of Custodian's Independent
Certified Public Accountants.................................24
6.5. Calculation of Net Asset Value..................................24
6.6. Information Regarding Foreign
Subcustodians and Foreign Depositories......................26
ii
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TABLE OF CONTENTS
-----------------
ARTICLE VII
CUSTODIAN FEES
ARTICLE VIII
TERMINATION
ARTICLE IX
MISCELLANEOUS
9.1. Execution of Documents.......................................... 29
9.2. Entire Agreement................................................ 29
9.3. Waivers and Amendments.......................................... 29
9.4. Captions........................................................ 29
9.5. Governing Law................................................... 29
9.6. Notices......................................................... 29
9.7. Successors and Assigns.......................................... 30
9.8. Counterparts.................................................... 30
9.9. Representative Capacity; Nonrecourse
Obligations.................................................. 30
Appendix A Procedures Relating to Custodian's Security Interest
Appendix B Subcustodians, Foreign Countries, and Foreign Depositories
iii
<PAGE>
Form of Custodian Agreement
---------------------------
CUSTODIAN AGREEMENT dated as of April __, 1996, between Scudder
Institutional Fund, Inc. (the "Fund"), a Maryland corporation, and Brown
Brothers Harriman & Co. (the "Custodian"), a New York limited partnership. The
Fund is entering into this Agreement on behalf of Institutional International
Equity Portfolio. In the event the Fund establishes one or more additional
series after the date hereof, with respect to which the Fund desires to have the
Custodian render services as Custodian hereunder, the Fund shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series shall become a Fund or Funds hereunder. The Custodian
shall then treat the assets of each series as a separate Fund hereunder, and any
reference to Fund shall refer to a series of the Fund as the context shall
require.
In consideration of the mutual covenants and agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
The Fund hereby employs and appoints the Custodian as a custodian for the
term of and subject to the provisions of this Agreement. The Fund agrees to
deliver to the Custodian all securities, cash and other assets owned by it, and
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Fund from time to time, and
the cash consideration received by it for such new or treasury shares of capital
stock of the Fund as may be issued or sold from time to time.
The Custodian shall not be under any duty or obligation to require the Fund
to deliver to it any securities, cash or other assets owned by the Fund and
shall have no responsibility or liability for or on account of securities, cash
or other assets not so delivered. The Fund will deposit with the Custodian
copies of the Articles of Incorporation and By-Laws (or comparable documents) of
the Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the Custodian
in the performance of its duties.
<PAGE>
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
The Custodian shall have and perform, or cause to be performed in
accordance with this Agreement, the powers and duties set forth in this Article
II. Pursuant to and in accordance with Article IV, the Custodian may appoint one
or more Subcustodians (as that term is defined in Article IV) to exercise the
powers and perform the duties of the Custodian set forth in this Article II and,
except as the context shall otherwise require, references to the Custodian in
this Article II shall include any Subcustodian so appointed.
2.1. Safekeeping. The Custodian shall keep safely the cash, securities and
other assets of the Fund that have been delivered to the Custodian and from time
to time shall accept delivery of cash, securities and other assets for
safekeeping.
2.2. Manner of Holding Securities. (a) The Custodian shall hold securities
of the Fund (i) by physical possession of the share certificates or other
instruments representing such securities in registered or bearer form, or the
broker's receipts or confirmations for forward contracts, futures contracts,
options and similar contracts and securities, or (ii) in book-entry form by a
Securities System (as that term is defined in section 2.22) or (iii) by a
Foreign Depository (as that term is defined in section 4.2(a)).
(b) The Custodian shall identify securities and other assets held by it
hereunder as being held for the account of the Fund and shall require each
Subcustodian to identify securities and other assets held by such Subcustodian
as being held for the account of the Custodian for the Fund (or, if authorized
by Special Instructions, for customers of the Custodian) or for the account of
another Subcustodian for the Fund (or, if authorized by Special Instructions,
for customers of such Subcustodian); provided that if assets are held for the
account of the Custodian or a Subcustodian for customers of the Custodian or
such Subcustodian, the records of the Custodian shall at all times indicate the
Fund and other customers of the Custodian for which such assets are held in such
account and their respective interests therein.
2.3. Registered Name; Nominee. (a) The Custodian shall hold registered
securities and other assets of the Fund (i) in the name of the Custodian
(including any Subcustodian), the Fund, a Securities System, a Foreign
Depository or any nominee of any such person or (ii) in street certificate form,
so-called, and in any case with or without any indication of fiduciary capacity,
provided that such securities and other assets of the Fund are held in an
account of the Custodian containing only assets of the Fund or only assets held
as fiduciary or custodian for customers.
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<PAGE>
(b) Except with respect to securities or other assets which under local
custom and practice generally accepted by Institutional Clients are held in the
investor's name, the Custodian shall not hold registered securities or other
assets in the name of the Fund, and shall require each Subcustodian not to hold
registered securities or other assets in the name of the Fund, unless the
Custodian or such Subcustodian promptly notifies the Fund that such registered
securities are being held in the Fund's name and causes the Securities System,
Foreign Depository, issuer or other relevant person to direct all correspondence
and payments to the address of the Custodian or such Subcustodian, as the case
may be.
2.4. Purchases by the Fund. Upon receipt of Proper Instructions (as that
term is defined in section 3.1(a)) and insofar as funds are available for the
purpose (or as funds are otherwise provided by the Custodian at its discretion
pursuant to section 2.25), the Custodian shall pay for and receive securities or
other assets purchased for the account of the Fund, payment being made only upon
receipt of the securities or other assets (a) by the Custodian, or (b) by credit
to an account which the Custodian may have with a Securities System, clearing
corporation of a national securities exchange, Foreign Depository or other
financial institution approved by the Fund. Notwithstanding the foregoing, upon
receipt of Proper Instructions: (i) in the case of repurchase agreements entered
into by the Fund in a transaction involving a Securities System or a Foreign
Depository, the Custodian may release funds to the Securities System or Foreign
Depository prior to the receipt of advice from the Securities System or Foreign
Depository that the securities underlying such repurchase agreement have been
transferred by book entry into the Account (as defined in section 2.22) of the
Custodian maintained with such Securities System or similar account with a
Foreign Depository, provided that the instructions of the Custodian to the
Securities System or Foreign Depository require that the Securities System or
Foreign Depository, as the case may be, may make payment of such funds to the
other party to the repurchase agreement only upon transfer by book-entry of the
securities underlying the repurchase agreement into the Account, (ii) in the
case of futures and forward contracts, options and similar securities, foreign
currency purchased from third parties, time deposits, foreign currency call
account deposits, and other bank deposits, and transactions pursuant to sections
2.10, 2.11, 2.13, 2.14 and 2.15, the Custodian may make payment therefor prior
to delivery of the contract, currency, option or security without receiving an
instrument evidencing said contract, currency, option, security or deposit, and
(iii) in the case of the purchase of securities or other assets the settlement
of which occurs outside the United States of America, the Custodian may make
payment therefor and receive delivery thereof in accordance with local custom
and practice generally accepted by Institutional Clients (as defined below) in
the country in which settlement occurs, provided that in every case the
Custodian shall be subject to the standard of care set forth in Article V and to
any Special Instructions given in accordance with section 3.1(b). Except in the
3
<PAGE>
cases provided for in the immediately preceding sentence, in any case where
payment for purchase of securities or other assets for the account of the Fund
is made by the Custodian in advance of receipt of the securities or other assets
so purchased in the absence of Proper Instructions to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities or other
assets to the same extent as if the securities or other assets had been received
by the Custodian. For purposes of this Agreement, "Institutional Clients" means
U.S. registered investment companies, or major, U.S.-based commercial banks,
insurance companies, pension funds or substantially similar financial
institutions which, as a substantial part of their business operations, purchase
or sell securities and make use of custodial services.
2.5. Exchanges of Securities. Upon receipt of Proper Instructions, the
Custodian shall exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization, recapitalization,
split-up of shares, change of par value, conversion or other event, and to
deposit any such securities in accordance with the terms of any reorganization
or protective plan. Without Proper Instructions, the Custodian may surrender
securities in temporary form for definitive securities, may surrender securities
for transfer into a name or nominee name as permitted in section 2.3, and may
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued are to be delivered to the Custodian.
2.6. Sales of Securities. Upon receipt of Proper Instructions, the
Custodian shall make delivery of securities or other assets which have been sold
for the account of the Fund, but only against payment therefor (a) in cash, by a
certified check, bank cashier's check, bank credit, or bank wire transfer, or
(b) by credit to the account of the Custodian with a Securities System, clearing
corporation of a national securities exchange, Foreign Depository or other
financial institution approved by the Fund by Proper Instructions. However, (i)
in the case of delivery of physical certificates or instruments representing
securities, the Custodian may make delivery to the broker acting as agent for
the buyer of the securities, against receipt therefor, for examination in
accordance with "street delivery" custom, provided that the Custodian shall have
taken reasonable steps to ensure prompt collection of the payment for, or the
return of, such securities by the broker or its clearing agent and (ii) in the
case of the sale of securities or other assets the settlement of which occurs
outside the United States of America, such securities shall be delivered and
paid for in accordance with local custom and practice generally accepted by
Institutional Clients in the country in which settlement occurs, provided that
in every case the Custodian shall be subject to the standard of care set forth
in Article V and to any Special Instructions given in accordance with section
3.1(b). Except in the cases provided for in the immediately preceding sentence,
in any case where delivery of securities or other assets for the account of the
4
<PAGE>
Fund is made by the Custodian in advance of receipt of payment for the
securities or other assets so sold in the absence of Proper Instructions to so
deliver in advance, the Custodian shall be absolutely liable to the Fund for
such payment to the same extent as if such payment had been received by the
Custodian.
2.7. Depositary Receipts. Upon receipt of Proper Instructions, the
Custodian shall surrender securities to the depositary used by an issuer of
American Depositary Receipts, European Depositary Receipts, Global Depositary
Receipts, International Depositary Receipts and other types of Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Custodian that the depositary has
acknowledged receipt of instructions to issue ADRs with respect to such
securities in the name of the Custodian, or a nominee of the Custodian, for
delivery to the Custodian in Boston, Massachusetts, or at such other place as
the Custodian may from time to time designate.
Upon receipt of Proper Instructions, the Custodian shall surrender ADRs to
the issuer thereof against a written receipt therefor adequately describing the
ADRs surrendered and written evidence satisfactory to the Custodian that the
issuer of the ADRs has acknowledged receipt of instructions to cause its
depositary to deliver the securities underlying such ADRs to the Custodian.
2.8. Exercise of Rights; Tender Offers. Upon receipt of Proper
Instructions, the Custodian shall (a) deliver to the issuer or trustee thereof,
or to the agent of either, warrants, puts, calls, futures contracts, options,
rights or similar securities for the purpose of being exercised or sold,
provided that the new securities and cash, if any, acquired by such action are
to be delivered to the Custodian, and (b) deposit securities upon invitations
for tenders of securities, provided that the consideration is to be paid or
delivered or the tendered securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the Custodian
shall take all necessary action, unless otherwise directed to the contrary by
Proper Instructions, to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions or similar rights of security ownership
of which the Custodian receives notice or otherwise becomes aware, and shall
promptly notify the Fund of any such action in writing by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.
2.9. Stock Dividends, Rights, Etc. The Custodian shall receive and collect
all stock dividends, rights and other items of like nature and shall deal with
the same as it would other deposited assets or as directed in Proper
Instructions.
5
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2.10. Options and Swaps. Upon receipt of Proper Instructions or
instructions from a third party properly given under any Procedural Agreement,
the Custodian shall (a) receive and retain confirmations or other documents (to
the extent confirmations or other documents are provided to the Custodian)
evidencing the purchase, sale or writing of an option or swap of any type on or
in respect of a security, securities index, currency or similar form of property
by the Fund; (b) deposit and maintain in a segregated account, either physically
or by book-entry in a Securities System or Foreign Depository or with a broker,
dealer or other party designated by the Fund, securities, cash or other assets
in connection with options transactions or swap agreements entered into by the
Fund; (c) transfer securities, cash or other assets to a Securities System,
Foreign Depository, broker, dealer or other party or organization, as margin
(including variation margin) or other security for the Fund's obligations in
respect of an option or swap; and (d) pay, release and/or transfer such
securities, cash or other assets only in accordance with a notice or other
communication evidencing the expiration, termination, exercise of any such
option or default under any such option or swap furnished by The Options
Clearing Corporation, the securities or options exchange on which such option is
traded, or such other organization, party, broker or dealer as may be
responsible for handling such options or swap transactions or have authority to
give such notice or communication under a Procedural Agreement. Subject to the
standard of care set forth in Article V (and to its safekeeping duties set forth
in section 2.1), the Custodian shall not be responsible for the sufficiency of
assets held in any segregated account established and maintained in accordance
with Proper Instructions or instructions from a third party properly given under
any Procedural Agreement or for the performance by the Fund or any third party
of its obligations under any Procedural Agreement. For purposes of this
Agreement, a "Procedural Agreement" is a procedural agreement relating to
options, swaps (including caps, floors and similar arrangements), futures
contracts, forward contracts or borrowings by the Fund to which the Fund, the
Custodian and a third party are parties.
2.11. Futures and Forward Contracts. Upon receipt of Proper Instructions or
instructions from a third party properly given under any Procedural Agreement,
the Custodian shall (a) receive and retain confirmations or other documents (to
the extent confirmations or other documents are provided to the Custodian)
evidencing the purchase or sale of a futures contract or an option on a futures
contract by the Fund or the entry into a forward contract by the Fund; (b)
deposit and maintain in a segregated account, either physically or by book entry
in a Securities System or Foreign Depository, for the benefit of any futures
commission merchant, or pay to such futures commission merchant, securities,
cash or other assets designated by the Fund as initial, maintenance or variation
"margin" deposits intended to secure the Fund's performance of its obligations
under any futures contracts purchased or sold or any options on futures
contracts written, purchased or sold by the Fund or any forward contracts
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entered into, in accordance with the provisions of any Procedural Agreement
designed to comply with the rules of the Commodity Futures Trading Commission
and/or any contract market, or any similar organization or organizations on
which such contracts or options are traded; and (c) pay, release and/or transfer
securities, cash or other assets into or out of such margin accounts only in
accordance with any such agreements or rules. Subject to the standard of care
set forth in Article V, the Custodian shall not be responsible for the
sufficiency of assets held in any such margin account established and maintained
in accordance with Proper Instructions or instructions from a third party
properly given under any Procedural Agreement or for the performance by the Fund
or any third party of its obligations under any Procedural Agreement.
2.12. Borrowings. Upon receipt of Proper Instructions or instructions from
a third party properly given under any Procedural Agreement, the Custodian shall
deliver securities of the Fund to lenders or their agents, or otherwise
establish a segregated account as agreed to by the Fund and the Custodian, as
collateral for borrowings effected by the Fund, but only against receipt of the
amounts borrowed (or to adjust the amount of such collateral in accordance with
the Procedural Agreement), provided that if such collateral is held in
book-entry form by a Securities System or Foreign Depository, such collateral
may be transferred by book-entry to such lender or its agent against receipt by
the Custodian of an undertaking by such lender to pay such borrowed money to or
upon the order of the Fund on the next business day following such transfer of
collateral.
2.13. Bank Accounts. The Custodian shall open and operate one or more
accounts in the name of the Fund on the Custodian's books subject only to draft
or order by the Custodian. All funds received by the Custodian from or for the
account of the Fund shall be deposited in said account(s). The responsibilities
of the Custodian to the Fund for deposits accepted on the Custodian's books
shall be that of a U.S. bank for a similar deposit.
Upon receipt of Proper Instructions, the Custodian may open and operate
additional accounts in such other banks or trust companies, including any
Subcustodian, as may be designated by the Fund in such instructions (any such
bank or trust company other than the Custodian so designated by the Fund being
referred to hereafter as a "Banking Institution"), provided that any such
account shall be in the name of the Custodian for the account of the Fund (or,
if authorized by Special Instructions, for the account of the Custodian's
customers generally) and subject only to the Custodian's draft or order;
provided that if assets are held in such an account for the account of the
Custodian's customers generally, the records of the Custodian shall at all times
indicate the Fund and other customers for which such assets are held in such
account and their respective interests therein. Such accounts may be opened with
Banking Institutions in the United States and in other countries and may be
denominated in U.S. Dollars or such other currencies as the Fund may determine.
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So long as the Custodian exercises reasonable care and diligence in executing
Proper Instructions, the Custodian shall have no responsibility for the failure
of any Banking Institution to make payment from such an account upon demand.
2.14. Interest-Bearing Deposits. The Custodian shall place interest-bearing
fixed term and call deposits with such banks and in such amounts as the Fund may
authorize pursuant to Proper Instructions. Such deposits may be placed with the
Custodian or with Subcustodians or other Banking Institutions as the Fund may
determine. Deposits may be denominated in U.S. Dollars or other currencies, as
the Fund may determine, and need not be evidenced by the issuance or delivery of
a certificate to the Custodian, provided that the Custodian shall include in its
records with respect to the assets of the Fund, appropriate notation as to the
amount and currency of each such deposit, the accepting Banking Institution and
all other appropriate details, and shall retain such forms of advice or receipt
evidencing such deposits as may be forwarded to the Custodian by the Banking
Institution in question. The responsibility of the Custodian for such deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit. With respect to interest-bearing deposits other than those accepted on
the Custodian's books, (a) the Custodian shall be responsible for the collection
of income as set forth in section 2.17, and (b) so long as the Custodian
exercises reasonable care and diligence in executing Proper Instructions, the
Custodian shall have no responsibility for the failure of any Banking
Institution to make payment in accordance with the terms of such an account.
Upon receipt of Proper Instructions, the Custodian shall take such reasonable
steps as the Fund deems necessary or appropriate to cause such deposits to be
insured to the maximum extent possible by the Federal Deposit Insurance
Corporation and any other applicable deposit insurers.
2.15. Foreign Exchange Transactions. (a) Upon receipt of Proper
Instructions, the Custodian shall settle foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future delivery on behalf
and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may direct pursuant to Proper Instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or Banking Institution with which the contract or
option is made, the safekeeping of all certificates and other documents and
agreements received by the Custodian evidencing or relating to such foreign
exchange transactions and the maintenance of proper records as set forth in
section 6.2. In connection with such transactions, upon receipt of Proper
Instructions, the Custodian shall be authorized to make free outgoing payments
of cash in the form of U.S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract has been
delivered or that the option has been delivered or received. The Custodian shall
have no authority to select third party foreign exchange dealers and, so long as
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the Custodian exercises reasonable care and diligence in executing Proper
Instructions, shall have no responsibility for the failure of any such dealer to
settle any such contract or option in accordance with its terms. The Fund shall
reimburse the Custodian for any interest charges or reasonable out-of-pocket
expenses incurred by the Custodian resulting from the failure or delay of third
party foreign exchange dealers to deliver foreign exchange, other than interest
charges and expenses occasioned by or resulting from the negligence, misfeasance
or misconduct of the Custodian.
(b) The Custodian shall not be obligated to enter into foreign exchange
transactions as principal. However, if the Custodian has made available to the
Fund its services as principal in foreign exchange transactions, upon receipt of
Proper Instructions, the Custodian shall enter into foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
on behalf of and for the account of the Fund with the Custodian as principal.
The responsibility of the Custodian with respect to foreign exchange contracts
and options executed with the Custodian as principal shall be that of a U.S.
bank with respect to a similar contract or option.
2.16. Securities Loans. Upon receipt of Proper Instructions, the Custodian
shall deliver securities of the Fund, in connection with loans of securities by
the Fund, to the borrower thereof in accordance with the terms of a written
securities lending agreement to which the Fund is a party or which is otherwise
approved by the Fund.
2.17. Collections. The Custodian shall promptly collect, receive and
deposit in the account or accounts referred to in section 2.13 all income,
payments of principal and other payments with respect to the securities and
other assets held hereunder, promptly endorse and deliver any instruments
required to effect such collections and in connection therewith deliver the
certificates or other instruments representing securities to the issuer thereof
or its agent when securities are called, redeemed, retired or otherwise become
payable; provided that the payment is to be made in such form and manner and at
such time, which may be after delivery by the Custodian of the instrument
representing the security, as is in accordance with the terms of the instrument
representing the security, such Proper Instructions as the Custodian may
receive, governmental regulations, the rules of the Securities System or Foreign
Depository in which such security is held or, with respect to securities
referred to in clause (iii) of the second sentence of section 2.4, in accordance
with local custom and practice generally accepted by Institutional Clients in
the market where payment or delivery occurs, but in all events subject to the
standard of care set forth in Article V. The Custodian shall promptly execute
ownership and other certificates and affidavits for all federal, state and
foreign tax purposes in connection with receipt of income or other payments with
respect to securities or other assets of the Fund or in connection with transfer
of securities or
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other assets. Pursuant to Proper Instructions, the Custodian shall take such
other actions, which may involve an investment decision, as the Fund may request
with respect to the collection or receipt of funds or the transfer of
securities. Except in the cases provided for in the first sentence of this
section, in any case where delivery of securities for the account of the Fund is
made by the Custodian in advance of receipt of payment with respect to such
securities in the absence of Proper Instructions to so deliver in advance, the
Custodian shall be absolutely liable to the Fund for such payment to the same
extent as if such payment had been received by the Custodian. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and the Custodian may agree in writing if any amount
payable with respect to securities or other assets of the Fund is not received
by the Custodian when due.
2.18. Dividends, Distributions and Redemptions. Upon receipt of Proper
Instructions, or upon receipt of instructions from the Fund's shareholder
servicing agent or agent with comparable duties (the "Shareholder Servicing
Agent") (given by such person or persons and in such manner on behalf of the
Shareholder Servicing Agent as the Fund shall have authorized by Proper
Instructions), the Custodian shall release funds or securities, insofar as
available, to the Shareholder Servicing Agent or as such Shareholder Servicing
Agent shall otherwise instruct (a) for the payment of dividends or other
distributions to Fund shareholders or (b) for payment to the Fund shareholders
who have delivered to such Shareholder Servicing Agent a request for repurchase
or redemption of their shares of capital stock of the Fund.
2.19. Proxies; Communications Relating to Portfolio Securities. The
Custodian shall, as promptly as is appropriate under the circumstances, deliver
or mail to the Fund all forms of proxies and all notices of meetings and any
other notices, announcements or information (including, without limitation,
information relating to pendency of calls and maturities of securities and
expirations of rights in connection therewith, notices of exercise of call and
put options written by the Fund, and notices of the maturity of futures
contracts (and options thereon) purchased or sold by the Fund) affecting or
relating to securities owned by the Fund that are received by the Custodian.
Upon receipt of Proper Instructions, the Custodian shall execute and deliver or
cause its nominee to execute and deliver such proxies or other authorizations as
may be required. Neither the Custodian nor its nominees shall vote upon any of
such securities or execute any proxy to vote thereon or give any consent or take
any other action with respect to securities or other assets of the Fund (except
as otherwise herein provided) unless ordered to do so by Proper Instructions.
The Custodian shall notify the Fund on or before ex-date (or if later
within 24 hours after receipt by the Custodian of the notice of such corporate
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action) of all corporate actions affecting portfolio securities of the Fund
received by the Custodian from the issuers of the securities involved, from
third parties proposing a corporate action, from subcustodians, or from commonly
utilized sources (including proprietary sources) providing corporate action
information, a list of which will be provided by the Custodian to the Fund from
time to time upon request. Information as to corporate actions shall include
information as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, tender offers, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
ex-, record and pay dates and the amounts or other terms thereof. If the Fund
desires to take action with respect to any corporate action, the Fund shall
notify the Custodian within such period as will give the Custodian (including
any Subcustodian) a sufficient amount of time to take such action.
2.20. Bills. Upon receipt of Proper Instructions, the Custodian shall pay
or cause to be paid, insofar as funds are available for the purpose, bills,
statements, or other obligations of the Fund (including but not limited to
interest charges, taxes, advisory fees, compensation to Fund officers and
employees, and other operating expenses of the Fund).
2.21. Nondiscretionary Details. Without the necessity of express
authorization from the Fund, the Custodian shall (a) attend to all
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, cash or other assets of
the Fund held by the Custodian except as otherwise directed from time to time by
the Board of Directors of the Fund, and (b) make payments to itself or others
for minor expenses of handling securities or other assets and for other similar
items relating to the Custodian's duties under this Agreement, provided that all
such payments shall be accounted for to the Fund.
2.22. Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by the Fund in (a) The Depository Trust
Company, (b) the Participants Trust Company, (c) any book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31
CFR Part 350, or the book-entry regulations of federal agencies substantially in
the form of Subpart O, or (d) any other domestic clearing agency registered with
the Securities and Exchange Commission (the "SEC") under Section 17A of the
Securities Exchange Act of 1934, as amended, which acts as a securities
depository and whose use the Fund has previously approved by Special
Instructions (as that term is defined in section 3.1(b)) (each of the foregoing
being referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following provisions:
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(i) The Custodian may deposit and/or maintain securities held hereunder in
a Securities System, provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not include
any assets of the Custodian other than assets held as a fiduciary, custodian, or
otherwise for customers;
(ii) The records of the Custodian with respect to securities of the Fund
which are maintained in a securities System shall identify by book entry those
securities belonging to the Fund;
(iii) The Custodian shall pay for securities purchased for the account of
the Fund only upon (A) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (B) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities sold for the
account of the Fund only upon (1) receipt of advice from the Securities System
that payment for such securities has been transferred to the Account, and (2)
the making of an entry on the records of the Custodian to reflect such transfer
and payment for the account of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian and be provided
to the Fund at its request. The Custodian shall furnish the Fund confirmation of
each transfer to or from the account of the Fund in the form of a written advice
or notice and shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the account of
the Fund on the next business day;
(iv) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal accounting
control and procedures for safeguarding securities deposited in the Securities
System; and the Custodian shall send to the Fund such reports on its own systems
of internal accounting control as the Fund may reasonably request from time to
time; and
(v) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any such Securities System on behalf of the Fund as promptly as
practicable and shall take all actions reasonably practicable to safeguard the
securities of the Fund that had been maintained with such Securities System.
2.23. Other Transfers. The Custodian shall deliver securities, cash, and
other assets of the Fund to a Subcustodian as necessary to effect transactions
authorized by Proper Instructions. Upon receipt of Proper Instructions in
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writing in advance, the Custodian shall make such other disposition of
securities, cash or other assets of the Fund in a manner other than or for
purposes other than as enumerated in this Agreement, provided that such written
Proper Instructions relating to such disposition shall include a statement of
the purpose for which the delivery is to be made, the amount of funds and/or
securities to be delivered and the name of the person or persons to whom
delivery is to be made.
2.24. Establishment of Segregated Accounts. Upon receipt of Proper
Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other assets of the
Fund, including securities maintained by the Custodian in a Securities System,
said account to be maintained (a) for the purposes set forth in sections 2.10,
2.11, 2.12 and 2.15; (b) for the purposes of compliance by the Fund with the
procedures required by Release No. 10666 under the Investment Company Act of
1940, as amended (the "1940 Act"), or any subsequent release or releases of the
SEC relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as set forth, from time to time, in
Special Instructions.
2.25. Custodian Advances. (a) In the event that the Custodian is directed
by Proper Instructions to make any payment or transfer of funds on behalf of the
Fund for which there would be, at the close of business on the date of such
payment or transfer, insufficient funds held by the Custodian on behalf of the
Fund, the Custodian may, in its discretion without further Proper Instructions,
provide an advance ("Advance") to the Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Proper Instructions to make any payment or transfer of funds on behalf of the
Fund as to which it is subsequently determined that the Fund has overdrawn its
cash account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable on demand by the Custodian, unless otherwise agreed by the Fund
and the Custodian, and shall accrue interest from the date of the Advance to the
date of payment by the Fund at a rate agreed upon in writing from time to time
by the Custodian and the Fund. It is understood that any transaction in respect
of which the Custodian shall have made an Advance, including but not limited to
a foreign exchange contract or other transaction in respect of which the
Custodian is not acting as a principal, is for the account of and at the risk of
the Fund, and not, by reason of such Advance, deemed to be a transaction
undertaken by the Custodian for its own account and risk. The Custodian and the
Fund acknowledge that the purpose of Advances is to finance temporarily the
purchase or sale of securities for prompt delivery or to meet redemptions or
emergency expenses or cash needs that are not reasonably foreseeable by the
Fund. The Custodian shall promptly notify the Fund in writing (an "Notice of
Advance") of any Advance by facsimile transmission or in such other manner as
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the Fund and the Custodian may agree in writing. At the request of the
Custodian, the Fund shall pledge, assign and grant to the Custodian a security
interest in certain specified securities of the Fund, as security for Advances
provided to the Fund, under the terms and conditions set forth in Appendix A
attached hereto.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
3.1. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used in this Agreement, the term "Proper
Instructions" shall mean: (i) a tested telex from the Fund or the Fund's
investment manager or adviser, or a written request, direction, instruction or
certification (which may be given by facsimile transmission) signed or initialed
on behalf of the Fund by, one or more Authorized Persons (as that term is
defined in section 3.2); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication (other than facsimile
transmission) effected directly between electro-mechanical or electronic devices
or systems (including, without limitation, computers) by the Fund or the Fund's
investment manager or adviser or by one or more Authorized Persons on behalf of
the Fund; provided that communications of the types described in clauses (ii)
and (iii) above purporting to be given by an Authorized Person shall be
considered Proper Instructions only if the Custodian reasonably believes such
communications to have been given by an Authorized Person with respect to the
transaction involved. Instructions given in the form of Proper Instructions
under clause (i) shall be deemed to be Proper Instructions if they are
reasonably believed by the Custodian to be genuine. Proper Instructions in the
form of oral communications shall be confirmed by the Fund in the manner set
forth in clauses (i) or (iii) above, but the lack of such confirmation shall in
no way affect any action taken by the Custodian in reliance upon such oral
instructions prior to the Custodian's receipt of such confirmation. The Fund,
the Custodian and any investment manager or adviser of the Fund each is hereby
authorized to record any telephonic or other oral communications between the
Custodian and any such person. Proper Instructions may relate to specific
transactions or to types or classes of transactions, provided that Proper
Instructions may take the form of standing instructions only if they are in
writing.
(b) Special Instructions. As used in this Agreement, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the instrument
containing the Proper Instructions or on a separate instrument relating thereto,
and (ii) delivered by hand, facsimile transmission, mail or courier service or
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in such other manner as the Fund and the Custodian agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
3.2. Authorized Persons. Concurrently with the execution of this Agreement
and from time to time thereafter, as appropriate, the Fund shall deliver to the
Custodian a certificate, duly certified by the Secretary or Assistant Secretary
of the Fund, setting forth: (a) the names, titles, signatures and scope of
authority of all persons authorized to give Proper Instructions or any other
notice, request, direction, instruction, certificate or instrument on behalf of
the Fund (each an "Authorized Person"); and (b) the names, titles and signatures
of those persons authorized to issue Special Instructions. Such certificate may
be accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar certificate to the contrary. Upon
delivery of a certificate which deletes the name(s) of a person previously
authorized to give Proper Instructions or to issue Special Instructions, such
persons shall no longer be considered an Authorized Person or authorized to
issue Special Instructions.
3.3. Persons Having Access to Assets of the Fund. Notwithstanding anything
to the contrary in this Agreement, the Custodian shall not deliver any assets of
the Fund held by the Custodian to or for the account of any Authorized Person,
director, officer, employee or agent of the Fund, provided that nothing in this
section 3.3 shall prohibit (a) any Authorized Person from giving Proper
Instructions, or any person authorized to issue Special Instructions from
issuing Special Instructions, provided such action does not result in delivery
of or access to assets of the Fund prohibited by this section 3.3; or (b) the
Fund's independent certified public accountants from examining or reviewing the
assets of the Fund held by the Custodian. The Fund shall provide a list of such
persons to the Custodian, and the Custodian shall be entitled to rely upon such
list and any modifications thereto that are provided to the Custodian from time
to time by the Fund.
3.4. Actions of Custodian Based on Proper Instructions and Special
Instructions. So long as and to the extent that the Custodian acts in accordance
with Proper Instructions or Special Instructions, as the case may be, and the
terms of this Agreement, the Custodian shall not be responsible for the title,
validity or genuineness of any property, or evidence of title thereof, received
or delivered by it pursuant to this Agreement.
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ARTICLE IV
SUBCUSTODIANS
The Custodian may, from time to time, in accordance with the relevant
provisions of this Article IV, appoint one or more Domestic Subcustodians,
Foreign Subcustodians and Interim Subcustodians (as such terms are defined
below) to act on behalf of the Fund. For purposes of this Agreement, all duly
appointed Domestic Subcustodians, Foreign Subcustodians and Interim
Subcustodians are referred to collectively as "Subcustodians."
4.1. Domestic Subcustodians. The Custodian may, at any time and from time
to time, at its own expense, appoint any 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 and the rules and regulations thereunder, to act on behalf of the Fund
as a subcustodian for purposes of holding cash, securities and other assets of
the Fund and performing other functions of the Custodian within the United
States (a "Domestic Subcustodian"), provided that the Custodian shall notify the
Fund in writing of the identity and qualifications of any proposed Domestic
Subcustodian at least 30 days prior to appointment of such Domestic
Subcustodian, and the Fund may, in its sole discretion, by written notice to the
Custodian executed by an Authorized Person disapprove of the appointment of such
Domestic Subcustodian. If following notice by the Custodian to the Fund
regarding appointment of a Domestic Subcustodian and the expiration of 30 days
after the date of such notice, the Fund shall have failed to notify the
Custodian of its disapproval thereof, the Custodian may, in its discretion,
appoint such proposed Domestic Subcustodian as its subcustodian.
4.2 Foreign Subcustodians and Interim Subcustodians.
(a) Foreign Subcustodians. The Custodian may, at any time and from time to
time, at its own expense, appoint: (i) any bank, trust company or other entity
meeting the requirements of an "eligible foreign custodian" under section 17(f)
of the 1940 Act and the rules and regulations thereunder or exempted therefrom
by order of the SEC, or (ii) any 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
and the rules and regulations thereunder to act on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other assets of the
Fund and performing other functions of the Custodian in countries other than the
United States of America (a "Foreign Subcustodian"); provided that prior to the
appointment of any Foreign Subcustodian, the Custodian shall have obtained
written confirmation of the approval of the Board of Directors of the Fund
(which approval may be withheld in the sole discretion of such Board of
Directors) with respect to (A) the identity and qualifications of any proposed
Foreign Subcustodian, (B) the country or countries in which, and the securities
depositories or clearing agencies (meeting the requirements of an "eligible
foreign custodian" under section 17(f) of the 1940 Act and the rules and
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regulations thereunder or exempted therefrom by order of the SEC) through which,
any proposed Foreign Subcustodian is authorized to hold Securities, cash and
other assets of the Fund (each a "Foreign Depository") and (C) the form and
terms of the subcustodian agreement to be entered into between such proposed
Foreign Subcustodian and the Custodian. In addition, the Custodian may utilize
directly any Foreign Depository, provided the Board of Directors shall have
approved in writing the use of such Foreign Depository by the Custodian. Each
such duly approved Foreign Subcustodian and the countries where and the Foreign
Depositories through which it may hold securities and other assets of the Fund
and the Foreign Depositories that the Custodian may utilize shall be listed in
Appendix B, as it may be amended from time to time in accordance with the
provisions of section 9.3. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Foreign Subcustodian is authorized to act, in order
that there shall be sufficient time for the Custodian to effect the appropriate
arrangements with a proposed Foreign Subcustodian, including obtaining approval
as provided in this section 4.2(a). The Custodian shall not agree to any
material amendment to any subcustodian agreement entered into with a Foreign
Subcustodian, or agree to permit any material changes thereunder, or waive any
material rights under such agreement, except upon prior approval pursuant to
Special Instructions. The Custodian shall promptly provide the Fund with notice
of any such amendment, change, or waiver, whether or not material, including a
copy of any such amendment. For purposes of this subsection, a material
amendment, change or waiver means an amendment, change or waiver that may
reasonably be expected to have an adverse effect on the Fund in any material
way, including but not limited to the Fund's or the Board's obligations under
the 1940 Act, including Rule 17f-5 thereunder.
(b) Interim Subcustodians. In the event that the Fund shall invest in a
security or other asset to be held in a country in which no Foreign Subcustodian
is authorized to act (whether because the Custodian has not appointed a Foreign
Subcustodian in such country and entered into a subcustodian agreement with it
or because the Board of Directors of the Fund has not approved the Foreign
Subcustodian appointed by the Custodian in such country and the related
subcustodian agreement), the Custodian shall promptly notify the Fund in writing
by facsimile transmission or in such other manner as the Fund and Custodian
shall agree in writing that no Foreign Subcustodian is approved in such country
and the Custodian shall, upon receipt of Special Instructions, appoint any
person designated by the Fund in such Special Instructions to hold such security
or other asset. Any person appointed as a Subcustodian pursuant to this section
4.2(b) is hereinafter referred to herein as an "Interim Subcustodian." Each
Interim Custodian and the securities or assets of the Fund that it is authorized
to hold shall be set forth in Appendix B.
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In the absence of such Special Instructions, such security or other asset
shall be held by such agent as the Custodian may appoint unless and until the
Fund shall instruct the Custodian to move the security or other asset into the
possession of the Custodian or a Subcustodian.
4.3. Termination of a Subcustodian. The Custodian shall (a) cause each
Domestic Subcustodian and Foreign Subcustodian to, and (b) use its best efforts
to cause each Interim Subcustodian to, perform all of its obligations in
accordance with the terms and conditions of the subcustodian agreement between
the Custodian and such Subcustodian. In the event that the Custodian is unable
to cause such Subcustodian to fully perform its obligations thereunder, the
Custodian shall forthwith, upon the receipt of Special Instructions, exercise
its best efforts to recover any Losses (as hereinafter defined) incurred by the
Fund because of such failure to perform from such Subcustodian under the
applicable subcustodian agreement and, if necessary or desirable, terminate such
subcustodian and appoint a replacement Subcustodian in accordance with the
provisions of this Agreement. In addition to the foregoing, the Custodian (i)
may, at any time in its discretion, upon written notification to the Fund,
terminate any Domestic Subcustodian, Foreign Subcustodian or Interim
Subcustodian, and (ii) shall, upon receipt of Special Instructions, terminate
any Subcustodian with respect to the Fund, in each case in accordance with the
termination provisions of the applicable subcustodian agreement.
4.4. Agents. The Custodian may at any time or times in its discretion
appoint (and may at any time remove) any other bank, trust company, securities
depository or clearing agency that is itself qualified to act as a custodian
under the 1940 Act and the rules and regulations thereunder, as its agent (an
"Agent") to carry out such of the provisions of this Agreement as the Custodian
may from time to time direct, provided that the appointment of one or more
Agents (other than an agent appointed to the second paragraph of section 4.2(b))
shall not relieve the Custodian of its responsibilities under this Agreement.
Without limiting the foregoing, the Custodian shall be responsible for any
notices, documents or other information, or any securities, cash or other assets
of the Fund, received by any Agent on behalf of the Custodian or the Fund as if
the Custodian had received such items itself.
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ARTICLE V
STANDARD OF CARE; INDEMNIFICATION
5.1 Standard of Care
(a) General Standard of Care. The Custodian shall exercise reasonable care
and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all Losses suffered or incurred
by the Fund resulting from the failure of the Custodian to exercise such
reasonable care and diligence. For purposes of this Agreement, "Losses" means
any losses, damages, and expenses.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, securities depository or securities
system utilized by any such Subcustodian or the Custodian, or any nominee of the
Custodian or any Subcustodian, is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction; or (ii) any act
of God or war or action of any de facto or de jure government or other similar
circumstance beyond the control of the Custodian, unless, in each case, such
delay or nonperformance is caused by the negligence, misfeasance or misconduct
of such person.
(c) Mitigation by Custodian. Upon the occurrence of any event which causes
or may cause any Losses to the Fund (i) the Custodian shall, and shall cause any
applicable Domestic Subcustodian or Foreign Subcustodian to, and (ii) the
Custodian shall use its best efforts to cause any applicable Interim
Subcustodian to, use all commercially reasonable efforts and take all reasonable
steps under the circumstances to mitigate the effects of such event and to avoid
continuing harm to the Fund.
(d) Advice of Counsel. The Custodian shall be entitled to receive and act
upon advice of counsel on all matters. The Custodian shall be without liability
for any action reasonably taken or omitted in good faith pursuant to the advice
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund may agree to, such agreement not to be unreasonably withheld
or delayed; provided that with respect to the performance of any action or
omission of any action upon such advice, the Custodian shall be required to
conform to the standard of care set forth in section 5.1(a).
(e) Expenses. In addition to the liability of the Custodian under this
Article V, the Custodian shall be liable to the Fund for all reasonable costs
and expenses incurred by the Fund in connection with any claim by the Fund
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against the Custodian arising from the obligations of the Custodian hereunder
including, without limitation, all reasonable attorneys' fees and expenses
incurred by the Fund in asserting any such claim, and all reasonable expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim, provided that the Fund has recovered from
the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any Losses suffered by the Fund, insofar as such Losses arise from
the performance of the Custodian's duties hereunder by reason of the Custodian's
reliance upon records that were maintained for the Fund by entities other than
the Custodian prior to the Custodian's employment hereunder.
(g) Reliance on Certifications. The Secretary or an Assistant Secretary of
the Fund shall certify to the Custodian the names and signatures of the officers
of the Fund, the name and address of the Shareholder Servicing Agent, and any
instructions or directions to the Custodian by the Fund's Board of Directors or
shareholders. Any such certificate may be accepted and relied upon by the
Custodian as conclusive evidence of the facts set forth therein and may be
considered in full force and effect until receipt of a similar certificate to
the contrary.
5.2. Liability of Custodian for Actions of Other Persons.
(a) Domestic Subcustodians, Foreign Subcustodians and Agents. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian,
Foreign Subcustodian or Agent (other than an agent appointed pursuant to section
4.2(b)) to the same extent as if such action or omission were performed by the
Custodian itself pursuant to this Agreement. In the event of any Losses suffered
or incurred by the Fund caused by or resulting from the actions or omissions of
any Domestic Subcustodian, Foreign Subcustodian or Agent (other than an agent
appointed pursuant to section 4.2(b)) for which the Custodian would be directly
liable if such actions or omissions were those of the Custodian, the Custodian
shall promptly reimburse the Fund in the amount of any such Losses.
(b) Interim Subcustodians. Notwithstanding the provisions of section 5.1 to
the contrary, the Custodian shall not be liable to the Fund for any Losses
suffered or incurred by the Fund resulting from the actions or omissions of an
Interim Subcustodian or an agent appointed pursuant to section 4.2(b) unless
such Losses are caused by, or result from, the negligence, misfeasance or
misconduct of the Custodian; provided that in the event of any Losses (whether
or not caused by or resulting from the negligence, misfeasance or misconduct of
the Custodian), the Custodian shall take all reasonable steps to enforce such
rights as it may have against such Interim Subcustodian or agent to protect the
interests of the Fund.
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(c) Securities Systems and Foreign Depositories. Notwithstanding the
provisions of section 5.1 to the contrary, the Custodian shall not be liable to
the Fund for any Losses suffered or incurred by the Fund resulting from the use
by the Custodian or any Subcustodian of a Securities System or Foreign
Depository, unless such Losses are caused by, or result from, the negligence,
misfeasance or misconduct of the Custodian; provided that in the event of any
such Losses, the Custodian shall take all reasonable steps to enforce such
rights as it may have against the Securities System or Foreign Depository, as
the case may be, to protect the interests of the Fund.
(d) Reimbursement of Expenses. The Fund agrees to reimburse the Custodian
for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under this section 5.2,
provided that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Custodian.
5.3. Indemnification.
(a) Indemnification Obligations. Subject to the limitations set forth in
this Agreement, the Fund agrees to indemnify and hold harmless the Custodian and
its nominees for all Losses suffered or incurred by the Custodian or its nominee
(including Losses suffered under the Custodian's indemnity obligations to
Subcustodians) caused by or arising from actions taken by the Custodian in the
performance of its duties and obligations under this Agreement, provided that
such indemnity shall not apply to Losses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian or any Subcustodian,
Securities System, Foreign Depository or their respective nominees. In addition,
the Fund agrees to indemnify the Custodian against any liability incurred by
reason of taxes assessed to the Custodian, any Subcustodian, any Securities
System, any Foreign Depository, and their respective nominees, or other Losses
incurred by such persons, resulting from the fact that securities and other
property of the Fund are registered in the name of such persons, provided that
in no event shall such indemnification be applicable to income, franchise or
similar taxes which may be imposed or assessed against such persons.
(b) Notice of Litigation, Right to Prosecute, etc. The Fund shall not be
liable for indemnification under this section 5.3 unless the person seeking
indemnification shall have notified the Fund in writing (i) within such time
after the assertion of any claim as is sufficient for such person to determine
that it will seek indemnification from the Fund in respect of such claim or (ii)
promptly after the commencement of any litigation or proceeding brought against
such person, in respect of which indemnity may be sought; provided that in the
case of clause (i) of this section 5.3(b) the Fund shall not be liable for such
indemnification to the extent the Fund is disadvantaged by any such delay in
notification. With respect to claims in such litigation or proceedings for which
indemnity by the Fund may be sought and subject to applicable law and the ruling
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of any court of competent jurisdiction, the Fund shall be entitled to
participate in any such litigation or proceeding and, after written notice from
the Fund to the person seeking indemnification, the Fund may assume the defense
of such litigation or proceeding with counsel of its choice at its own expense
in respect of that portion of the litigation for which the Fund may be subject
to an indemnification obligation, provided that such person shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Fund has not acknowledged in writing its
obligation to indemnify such person with respect to such litigation or
proceeding. If the Fund is not permitted to participate in or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, such person shall reasonably prosecute such litigation
or proceeding. A person seeking indemnification hereunder shall not consent to
the entry of any judgment or enter into any settlement of any such litigation or
proceeding without providing the Fund with adequate notice of any such
settlement or judgment and without the Fund's prior written consent, which
consent shall not be unreasonably withheld or delayed. All persons seeking
indemnification hereunder shall submit written evidence to the Fund with respect
to any cost or expense for which they are seeking indemnification in such form
and detail as the Fund may reasonably request.
5.4. Investment Limitations. If the Custodian has otherwise complied with
the terms and conditions of this Agreement in performing its duties generally,
and more particularly in connection with the purchase, sale or exchange of
securities made by or for the Fund, the Custodian shall not be liable to the
Fund, and the Fund agrees to indemnify the Custodian and its nominees, for any
Losses suffered or incurred by the Custodian and its nominees arising out of any
violation of any investment or other limitation to which the Fund is subject.
5.5. Fund's Right to Proceed. Notwithstanding anything to the contrary
contained herein, the Fund shall have, at its election upon reasonable notice to
the Custodian, the right to enforce, to the extent permitted by any applicable
agreement and applicable law, the Custodian's rights against any Subcustodian,
Securities System, Foreign Depository or other person for Losses caused the Fund
by such Subcustodian, Securities System, Foreign Depository or other person, and
shall be entitled to enforce the rights of the Custodian with respect to any
claim against such Subcustodian, Securities System, Foreign Depository or other
person which the Custodian may have as a consequence of any such Losses, if and
to the extent that the Fund has not been made whole for such Losses. If the
Custodian makes the Fund whole for such Losses, the Custodian shall retain the
ability to enforce its rights directly against such Subcustodian, Securities
System, Foreign Depository or other person. Upon the Fund's election to enforce
any rights of the Custodian under this section 5.5, the Fund shall reasonably
prosecute all actions and proceedings directly relating to the rights of the
Custodian in respect of the Losses incurred by the Fund; provided that, so long
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as the Fund has acknowledged in writing its obligation to indemnify the
Custodian under section 5.3 hereof with respect to such claim, the Fund shall
retain the right to settle, compromise and/or terminate any action or proceeding
in respect of the Losses incurred by the Fund without the Custodian's consent;
and provided further that if the Fund has not made an acknowledgement of its
obligation to indemnify the Custodian, the Fund shall not settle, compromise or
terminate any such action or proceeding without the written consent of the
Custodian, which consent shall not be unreasonably withheld or delayed. The
Custodian agrees to cooperate with the Fund and take all actions reasonably
requested by the Fund in connection with the Fund's enforcement of any rights of
the Custodian. The Fund agrees to reimburse the Custodian for all reasonable
out-of-pocket expenses incurred by the Custodian in connection with the
fulfillment of its obligations under this section 5.5, provided that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
ARTICLE VI
RECORDS
6.1. Preparation of Reports. The Custodian shall, as reasonably requested
by the Fund, assist generally in the preparation of reports to Fund
shareholders, regulatory authorities and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by Proper Instructions.
6.2. Custodian's Books and Records. The Custodian shall maintain complete
and accurate records with respect to securities and other assets held for the
account of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including: (a)
journals or other records of original entry containing a detailed and itemized
daily record of all receipts and deliveries of securities (including certificate
and transaction identification numbers, if any), and all receipts and
disbursements of cash; (b) ledgers or other records reflecting (i) securities in
physical possession, (ii) securities in transfer, (iii) securities borrowed,
loaned or collateralizing obligations of the Fund, (iv) monies borrowed and
monies loaned (together with a record of the collateral therefor and
substitutions of collateral), and (v) dividends and interest received; and (c)
cancelled checks and bank records related thereto. The Custodian shall keep such
other books and records of the Fund as the Fund shall reasonably request. All
such books and records maintained by the Custodian shall be maintained in a form
acceptable to the Fund and in compliance with the rules and regulations of the
SEC (including, but not limited to, books and records required to be maintained
under Section 31(a) of the 1940 Act and the rules and regulations from time to
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time adopted thereunder), and any other applicable Federal, State and foreign
tax laws and administrative regulations. All such records will be the property
of the Fund and in the event of termination of this Agreement shall be delivered
to the successor custodian.
All books and records maintained by the Custodian pursuant to this
Agreement and any insurance policies and fidelity or similar bonds maintained by
the Custodian shall be made available for inspection and audit at reasonable
times by officers of, attorneys for, and auditors employed by, the Fund and the
Custodian shall promptly provide the Fund with copies of all reports of its
independent auditors regarding the Custodian's controls and procedures.
6.3. Opinion of Fund's Independent Certified Public Accountants. The
Custodian shall take all reasonable action as the Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Custodian's activities hereunder in
connection with the preparation of any periodic reports to or filings with the
SEC and with respect to any other requirements of the SEC.
6.4. Reports of Custodian's Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
6.5. Calculation of Net Asset Value. The Custodian shall compute and
determine the net asset value per share of capital stock of the Fund as of the
close of regular business on the New York Stock Exchange on each day on which
such Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (a) the
provisions of the By-Laws of the Fund and Articles of Incorporation, as they may
from time to time be amended and delivered to the Custodian, (b) the votes of
the Board of Directors of the Fund at the time in force and applicable, as they
may from time to time be delivered to the Custodian, and (c) Proper
Instructions. On each day that the Custodian shall compute the net asset value
per share of the Fund, the Custodian shall provide the Fund with written reports
which permit the Fund to verify that portfolio transactions have been recorded
in accordance with the Fund's instructions.
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In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (i) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account kept by the Custodian, (ii) as
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (iii) as to the sources of quotations to be used in computing the net
asset value, including those listed in Appendix C hereto, (iv) as to the fair
value to be assigned to any securities or other assets for which price
quotations are not readily available, and (v) as to the sources of information
with respect to "corporate actions" affecting portfolio securities of the Fund,
including those listed in Appendix C. (Information as to "corporate actions"
shall include information as to dividends, distributions, stock splits, stock
dividends, rights offerings, conversions, exchanges, recapitalizations, mergers,
redemptions, calls, maturity dates and similar transactions, including the ex-
and record dates and the amounts or other terms thereof.)
In like manner, the Custodian shall compute and determine the net asset
value as of such other times as the Board of Directors of the Fund, or any
valuation committee thereof, from time to time may reasonably request.
The Custodian shall be held to the standard of care set forth in Article V
with respect to the performance of its responsibilities under this Article VI.
The parties hereto acknowledge, however, that the Custodian's causing an error
or delay in the determination of net asset value may, but does not in and of
itself, constitute negligence, gross negligence or reckless or willful
misconduct. The Custodian's liability for any such negligence, gross negligence
or reckless or willful misconduct which results in an error in determination of
such net asset value shall be limited to the direct, out-of-pocket loss the
Fund, shareholder or former shareholder shall actually incur, measured by the
difference between the actual and the erroneously computed net asset value, and
any expenses incurred by the Fund in connection with correcting the records of
the Fund affected by such error (including charges made by the Fund's registrar
and transfer agent for making such corrections), communicating with shareholders
or former shareholders of the Fund affected by such error or responding to or
defending against any inquiry or proceeding with respect to such error made or
initiated by the SEC or other regulatory or self-regulatory body.
Without limiting the foregoing, the Custodian shall not be held accountable
or liable to the Fund, any shareholder or former shareholder thereof or any
other person for any delays or Losses any of them may suffer or incur resulting
from (A) the Custodian's failure to receive timely and suitable notification
concerning quotations or corporate actions relating to or affecting securities
of the Fund or (B) any errors in the computation of the net asset value based
upon or arising out of quotations or information as to corporate actions if
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received by the Custodian either (1) from a source which the Custodian was
authorized pursuant to the second paragraph of this section 6.5 to rely upon, or
(2) from a source which in the Custodian's reasonable judgment was as reliable a
source for such quotations or information as the sources authorized pursuant to
that paragraph. Nevertheless, the Custodian will use its best judgment in
determining whether to verify through other sources any information it has
received as to quotations or corporate actions if the Custodian has reason to
believe that any such information might be incorrect.
In the event of any error or delay in the determination of such net asset
value for which the Custodian may be liable, the Fund and the Custodian will
consult and make good faith efforts to reach agreement on what actions should be
taken in order to mitigate any Losses suffered by the Fund or its present or
former shareholders, in order that the Custodian's exposure to liability shall
be reduced to the extent possible after taking into account all relevant factors
and alternatives. Such actions might include the Fund or the Custodian taking
reasonable steps to collect from any shareholder or former shareholder who has
received any overpayment upon redemption of shares such overpaid amount or to
collect from any shareholder who has underpaid upon a purchase of shares the
amount of such underpayment or to reduce the number of shares issued to such
shareholder. It is understood that in attempting to reach agreement on the
actions to be taken or the amount of the loss which should appropriately be
borne by the Custodian, the Fund and the Custodian will consider such relevant
factors as the amount of the loss involved, the Fund's desire to avoid loss of
shareholder good will, the fact that other persons or entities could have
reasonably expected to have detected the error sooner than the time it was
actually discovered, the appropriateness of limiting or eliminating the benefit
which shareholders or former shareholders might have obtained by reason of the
error, and the possibility that other parties providing services to the Fund
might be induced to absorb a portion of the loss incurred.
Upon written notice from the Fund to the Custodian, the Custodian's
responsibilities under this Section 6.5 shall terminate, but this Agreement
shall otherwise continue in full force and effect. Upon such termination, the
fee schedule provided for under Article VII hereof shall be adjusted by the
parties in such manner as they may agree, and the Custodian will transfer such
of the Fund's books and records, and provide such other reasonable cooperation,
as the Fund may request in connection with the transfer of such
responsibilities.
6.6. Information Regarding Foreign Subcustodians and Foreign Depositories.
(a) The Custodian shall use reasonable efforts to assist the Fund in obtaining
the following with respect to any country in which any assets of the Fund are
held or proposed to be held:
(1) information concerning whether, and to what extent, applicable
foreign law would restrict the access afforded the Fund's independent
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public accountants to books and records kept by a foreign custodian or
foreign securities depository used, or proposed to be used, in that
country;
(2) information concerning whether, and to what extent, applicable
foreign law would restrict the Fund's ability to recover its assets in the
event of the bankruptcy of a foreign custodian or foreign securities
depository used, or proposed to be used, in that country;
(3) information concerning whether, and to what extent, applicable
foreign law would restrict the Fund's ability to recover assets that are
lost while under the control of a foreign custodian or foreign securities
depository used, or proposed to be used, in that country;
(4) information concerning the likelihood of expropriation,
nationalization, freezes or confiscation of the Fund's assets in that
country;
(5) information concerning whether difficulties in converting the
Fund's cash and cash equivalents held in that country into U.S. Dollars are
reasonably foreseeable, including without limitation as a result of
applicable foreign currency exchange regulations;
(6) information concerning the financial strength, general reputation
and standing and ability to perform custodial services of each foreign
custodian or foreign securities depository used, or proposed to be used, in
that country;
(7) information concerning whether each foreign custodian or foreign
securities depository used, or proposed to be used, in that country would
provide a level of safeguards for maintaining the Fund's assets not
materially different from that provided by the Custodian in maintaining the
Fund's securities in the United States;
(8) information concerning whether each foreign custodian or foreign
securities depository used, or proposed to be used, in that country has
offices in the United States in order to facilitate the assertion of
jurisdiction over and enforcement of judgments against such custodian or
depository;
(9) as to each foreign securities depository used, or proposed to be
used, in that country information concerning the number of participants in,
and operating history of, such depository; and
(10) such other information as may be requested by the Fund to ensure
compliance with Rule 17f-5 under the 1940 Act.
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(b) During the term of this Agreement, the Custodian shall use reasonable
efforts to provide the Fund with prompt notice of any material changes in the
facts or circumstances upon which any of the foregoing information or statements
were based.
(c) Upon request of the Fund, the Custodian shall deliver to the Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; and (ii) the countries in which and the Foreign
Depositories through which each such Foreign Subcustodian or the Custodian is
then holding cash, securities and other assets of the Fund.
ARTICLE VII
CUSTODIAN FEES
The Fund shall pay the Custodian a custody fee based on such fee schedule
as may from time to time be agreed upon in writing by the Custodian and the
Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with the following sentence, shall be billed to the
Fund in such a manner as to permit payment either by a direct cash payment to
the Custodian or by placing Fund portfolio transactions with the Custodian
resulting in an agreed-upon amount of commissions being paid to the Custodian
within an agreed-upon period of time. The Custodian shall be entitled to receive
reimbursement from the Fund on demand for its cash disbursements and expenses
(including cash disbursements and expenses of any Subcustodian or Agent for
which the Custodian has reimbursed such Subcustodian or Agent) permitted by this
Agreement, but excluding salaries and usual overhead expenses, upon receipt by
the Fund of reasonable evidence thereof.
ARTICLE VIII
TERMINATION
This Agreement shall continue in full force and effect until terminated by
either party by an instrument in writing delivered or mailed, postage prepaid,
to the other party, such termination to take effect not sooner than sixty (60)
days after the date of such delivery or mailing. In the event of termination,
the Custodian shall be entitled to receive prior to delivery of the securities,
cash and other assets held by it all accrued fees and unreimbursed expenses the
payment of which is contemplated by Article VII, upon receipt by the Fund of a
statement setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is agreed that
the cash, securities and other assets owned by the Fund and held by the
Custodian or any Subcustodian or Agent shall be delivered to the successor
custodian, and the Custodian agrees to cooperate with the Fund in execution of
documents and performance of other actions necessary or desirable in order to
28
<PAGE>
substitute the successor custodian for the Custodian under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1. Execution of Documents. Upon request, the Fund shall deliver to the
Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
9.2. Entire Agreement. This Agreement constitutes the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof.
9.3. Waivers and Amendments. No provision of this Agreement may be amended
or terminated except by a statement in writing signed by the party against which
enforcement of the amendment or termination is sought, provided that Appendix B
listing the Foreign Subcustodians and Foreign Depositories approved by the Fund
and Appendix C listing quotation and information sources may be amended from
time to time to add or delete one or more of such entities or sources by
delivery to the Custodian of a revised Appendix B or C executed by an Authorized
Person, such amendment to take effect immediately upon execution of the revised
Appendix B or C by the Custodian.
In connection with the operation of this Agreement, the Custodian and the
Fund may agree in writing from time to time on such provisions interpretative of
or in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
9.4. Captions. The section headings in this Agreement are for the
convenience of the parties and in no way alter, amend, limit or restrict the
contractual obligations of the parties set forth in this Agreement.
9.5. Governing Law. This instrument shall be governed by and construed in
accordance with the laws of the State of New York.
9.6. Notices. Notices and other writings delivered or mailed postage
prepaid to the Fund addressed to the Fund at 345 Park Avenue, New York, NY 10154
or to such other address as the Fund may have designated to the Custodian in
writing, or to the Custodian at 40 Water Street, Boston, Massachusetts 02109,
Attention: Manager, Securities Department, or to such other address as the
29
<PAGE>
Custodian may have designated to the Fund in writing, shall be deemed to have
been properly delivered or given hereunder to the respective addressee.
9.7. Successors and Assigns. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that neither party hereto may assign this
Agreement or any of its rights hereunder without the prior written consent of
the other party.
9.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
9.9. Representative Capacity; Nonrecourse Obligations. The Custodian agrees
that any claims by it against the Fund under this Agreement may be satisfied
only from the assets of the Fund; that the person executing this Agreement has
executed it on behalf of the Fund and not individually, and that the obligations
of the Fund arising out of this Agreement are not binding upon such person or
the Fund's shareholders individually but are binding only upon the assets and
property of the Fund; and that no shareholders, directors or officers of the
Fund may be held personally liable or responsible for any obligations of the
Fund arising out of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro
---------------------------
Name:
Title:
SCUDDER INSTITUTIONAL FUND, INC.
By:
---------------------------
Name: Daniel Pierce
Title: President
By:
---------------------------
Name: David S. Lee
Title: Chairman of the Board
30
<PAGE>
APPENDIX A TO THE
CUSTODIAN AGREEMENT BETWEEN
SCUDDER INSTITUTIONAL FUND, INC. AND
BROWN BROTHERS HARRIMAN & CO.
DATED AS OF April __, 1996
PROCEDURES RELATING TO CUSTODIAN'S SECURITY INTEREST
----------------------------------------------------
As security for any Advances (as defined in the Custodian Agreement) of the
Fund, the Fund shall pledge, assign and grant to the Custodian a security
interest in Collateral (as hereinafter defined), under the terms, circumstances
and conditions set forth in this Appendix A.
Section 1. Defined Terms. As used in this Appendix A the following terms
shall have the following respective meanings:
(a) "Business Day" shall mean any day that is not a Saturday, a Sunday or a
day on which the Custodian is closed for business.
(b) "Collateral" shall mean those securities having a fair market value (as
determined in accordance with the procedures set forth in the prospectus for the
Fund) equal to the aggregate of all Advance Obligations of the Fund that are (i)
identified in any Pledge Certificate executed on behalf of the Fund or (ii)
designated by the Custodian for the Fund pursuant to Section 3 of this Appendix
A. Such securities shall consist of marketable securities held by the Custodian
on behalf of the Fund or, if no such marketable securities are held by the
Custodian on behalf of the Fund, such other securities designated by the Fund in
the applicable Pledge Certificate or by the Custodian pursuant to Section 3 of
this Appendix A.
(c) "Advance Obligations" shall mean the amount of any outstanding
Advance(s) provided by the Custodian to the Fund together with all accrued
interest thereon.
(d) "Pledge Certificate" shall mean a Pledge Certificate in the form
attached as Exhibit 1 to this Appendix A, executed by a duly authorized officer
of the Fund and delivered by the Fund to the Custodian by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.
(e) "Release Certificate" shall mean a Release Certificate in the form
attached as Exhibit 2 to this Appendix A, executed by a duly authorized officer
of the Custodian and delivered by the Custodian to the Fund by facsimile
transmission or in such other manner as the Fund and the Custodian may agree in
writing.
31
<PAGE>
(f) "Written Notice" shall mean a written notice executed by a duly
authorized officer of the party delivering the notice and delivered by facsimile
transmission or in such other manner as the Fund and the Custodian shall agree
in writing.
Section 2. Pledge of Collateral. To the extent that any Advance Obligations
of the Fund are not satisfied by the close of business on the first Business Day
following the Business Day on which the Fund receives a Written Notice
requesting security for such Advance Obligation and stating the amount of such
Advance Obligation, the Fund shall pledge, assign and grant to the Custodian a
first priority security interest in Collateral specified by the Fund by
delivering to the Custodian a Pledge Certificate executed by the Fund describing
such Collateral. Such Written Notice may, in the discretion of the Custodian, be
included within or accompany the Notice of Advance (as defined in the Custodian
Agreement) relating to the applicable Advance Obligation.
Section 3. Failure to Pledge Collateral. In the event that the Fund shall
fail (a) to pay the Advance Obligation described in such Written Notice, (b) to
deliver to the Custodian a Pledge Certificate pursuant to Section 2, or (c) to
identify substitute securities pursuant to Section 6 upon the sale or maturity
of any securities identified as Collateral, the Custodian may, by Written Notice
to the Fund, specify Collateral which shall secure the applicable Advance
Obligation. The Fund hereby pledges, assigns and grants to the Custodian a first
priority security interest in any and all Collateral specified in such Written
Notice; provided that such pledge, assignment and grant of security shall be
deemed to be effective only upon receipt by the Fund of such Written Notice, and
provided further that if the Custodian specifies Collateral in which a first
priority security interest has already been granted, the security interest
pledged, assigned and granted hereunder shall be a security interest that is not
a first priority security interest.
Section 4. Delivery of Additional Collateral. If at any time the Custodian
shall notify the Fund by Written Notice that the fair market value of the
Collateral securing any Advance Obligation is less than the amount of such
Advance Obligation, the Fund shall deliver to the Custodian, within one Business
Day following the Fund's receipt of such Written Notice, an additional Pledge
Certificate describing additional Collateral. If the Fund shall fail to deliver
such additional Pledge Certificate, the Custodian may specify Collateral which
shall secure the unsecured amount of the applicable Advance Obligation in
accordance with Section 3 of this Appendix A.
Section 5. Release of Collateral. Upon payment by the Fund of any Advance
Obligation secured by the pledge of Collateral, the Custodian shall promptly
deliver to the Fund a Release Certificate pursuant to which the Custodian shall
32
<PAGE>
release Collateral from the lien under the applicable Pledge Certificate or
Written Notice pursuant to Section 3 having a fair market value equal to the
amount paid by the Fund on account of such Advance Obligation. In addition, if
at any time the Fund shall notify the Custodian by Written Notice that the Fund
desires that specified Collateral be released and (a) that the fair market value
of the Collateral securing any Advance Obligation exceeds the amount of such
Advance Obligation, or (b) that the Fund has delivered a Pledge Certificate
pursuant to Section 6 substituting Collateral in respect of such Advance
Obligation, the Custodian shall deliver to the Fund, within one Business Day
following the Custodian's receipt of such Written Notice, a Release Certificate
relating to the Collateral specified in such Written Notice.
Section 6. Substitution of Collateral. The Fund may substitute securities
for any securities identified as Collateral by delivery to the Custodian of a
Pledge Certificate executed by the Fund, indicating the securities pledged as
Collateral.
Section 7. Security for Fund Advance Obligations. The pledge of Collateral
by the Fund shall secure only Advance Obligations of the Fund. In no event shall
the pledge of Collateral by the Fund be deemed or considered to be security for
any other types of obligations of the Fund to the Custodian or for the Advance
Obligations or other types of obligations of any other fund.
Section 8. Custodian's Remedies. Upon (a) the Fund's failure to pay any
Advance Obligation of the Fund within thirty days after receipt by the Fund of a
Written Notice demanding security therefor, and (b) one Business Day's prior
Written Notice to the Fund, the Custodian may elect to enforce its security
interest in the Collateral securing such Advance Obligation, by taking title to
(at the then prevailing fair market value), or selling in a commercially
reasonable manner, so much of the Collateral as shall be required to pay such
Advance Obligation in full. Notwithstanding the provisions of any applicable
law, including, without limitation, the Uniform Commercial Code, the remedy set
forth in the preceding sentence shall be the only right or remedy to which the
Custodian is entitled with respect to the pledge and security interest granted
pursuant to any Pledge Certificate or Section 3. Without limiting the foregoing,
the Custodian hereby waives and relinquishes all contractual and common law
rights of set-off to which it may now or hereafter be or become entitled with
respect to any obligations of the Fund to the Custodian arising under this
Appendix A to the Custodian Agreement.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Appendix A to be
executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro
---------------------------
Name:
Title:
SCUDDER INSTITUTIONAL FUND, INC.
By:
---------------------------
Name: Daniel Pierce
Title: President
By:
---------------------------
Name: David S. Lee
Title: Chairman of the Board
34
<PAGE>
EXHIBIT 1
TO
Appendix A
PLEDGE CERTIFICATE
------------------
This Pledge Certificate is delivered pursuant to the Custodian Agreement
dated as of _____________________ (the "Agreement"), between
_____________________ (the "Fund") and Brown Brothers Harriman & Co. (the
"Custodian"). Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Agreement. Pursuant to [Section 2 or
Section 4] of Appendix A attached to the Agreement, the Fund hereby pledges,
assigns and grants to the Custodian a first priority security interest in the
securities listed on Schedule A attached to this Pledge Certificate
(collectively, the "Pledged Securities"). Upon delivery of this Pledge
Certificate, the Pledged Securities shall constitute Collateral, and shall
secure all Advance Obligations of the Fund described in that certain Written
Notice dated , 19 , delivered by the Custodian to the Fund. The pledge,
assignment and grant of security in the Pledged Securities hereunder shall be
subject in all respects to the terms and conditions of the Agreement, including,
without limitation, Sections 7 and 8 of Appendix A attached hereto.
IN WITNESS WHEREOF, the Fund has caused this Pledge Certificate to be
executed in its name, on behalf of the Fund this _____ day of ______, 19 __.
By: _____________________
Name: _____________________
Title: _____________________
35
<PAGE>
SCHEDULE A
TO
PLEDGE CERTIFICATE
Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
- ------ -------- ----------------- ------
36
<PAGE>
EXHIBIT 2
TO
Appendix A
RELEASE CERTIFICATE
-------------------
This Release Certificate is delivered pursuant to the Custodian Agreement
dated as of _________, 199_ (the "Agreement"), between _______________________
(the "Fund") and Brown Brothers Harriman & Co. (the "Custodian"). Capitalized
terms used herein without definition shall have the respective meanings ascribed
to them in the Agreement. Pursuant to Section 5 of Appendix A attached to the
Agreement, the Custodian hereby releases the securities listed on Schedule A
attached to this Release Certificate from the lien under the [Pledge Certificate
dated __________, 19 or the Written Notice delivered pursuant to Section 3 of
Appendix A dated ___________, 19 ].
IN WITNESS WHEREOF, the Custodian has caused this Release Certificate to be
executed in its name and on its behalf this ____ day of ______ 19__.
Brown Brothers Harriman & Co.
By: _____________________
Name: _____________________
Title: _____________________
37
<PAGE>
SCHEDULE A
TO
RELEASE CERTIFICATE
Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
- ------ -------- ----------------- ------
38
BROWN BROTHERS HARRIMAN & CO.
February, 1994
SCUDDER FEE SCHEDULE
SCHEDULE A
<TABLE>
<CAPTION>
MARKET ASSET CHARGE (BP) TRANSACTION CHARGE
<S> <C> <C>
Group 1 1.0 on first $100 million DTC: $10
United States .5 on all over $100 million Physical and Same Day
Money Market Transaction: $25
Group 2
Euroclear and Cedel* 3 35
Group 3
Canada 4 20
Group 4
Germany 5 30
Japan 5 30
Switzerland 5 50
United Kingdom 5 45
Group 5
Australia 6 50
Denmark 6 50
France 6 60
Netherlands 6 75
New Zealand 6 50
Group 6
Belgium 8 50
Finland 8 60
Hong Kong 8 75
Ireland 8 50
Italy 8 60
<PAGE>
BROWN BROTHERS HARRIMAN & CO.
Luxembourg 8 50
Norway 8 75
Singapore 8 75
Group 7
Austria 10 60
Malaysia 10 75
Spain 10 60
Group 8
Indonesia 15 75
Mexico 15 50
Thailand 15 75
Emerging Markets
Argentina 30 75
Brazil 25 50
Chile 35 75
China 35 60
Colombia 45 100
Greece 50 150
India 40 l00 per partial
Israel 25 150
Korea 22 50
Pakistan 35 100
Philippines 25 50
Poland 50 50
Portugal 25 125
Sri Lanka 20 50
Taiwan 25 75
Turkey 35 75
Uruguay 50 150
Venezuela 35 75
</TABLE>
<PAGE>
BROWN BROTHERS HARRIMAN & CO.
o Annual Minimum Custody Fee: $10,000 per account
o Automation: This schedule assumes machine readable trade instructions.
o For The Korea Fund, BBH&Co. will charge 14.5 basis points.
Out-of-Pocket Expenses
Out-of-pocket expenses including but not limited to communication expenses,
wire charges, telex, legal, telephone, postage and direct expenses including but
not limited to stamp duties, commissions, dividend and income collection
charges, taxes, certificate fees, special handling, transfer and registration
fees would be additional.
EXHIBIT 9(b)(v)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the ___ day of April, 1996 between Scudder
Institutional Fund, Inc. (the "Fund"), on behalf of Institutional International
Equity Portfolio (hereinafter called the "Portfolio"), a registered open-end
management investment company with its principal place of business in New York,
New York and Scudder Fund Accounting Corporation, with its principal place of
business in Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
as the Portfolio's fund accounting agent, and as such FUND ACCOUNTING
shall:
a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of
the Investment Company Act of 1940 (the "1940 Act") and Rules
31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state
laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required
to be maintained by the Fund's custodian or transfer agent and/or
books and records maintained by all other service providers
necessary for the Fund to conduct its business as a registered
open-end management investment company. All such books and
records shall be the property of the Fund and shall at all times
during regular business hours be open for inspection by, and
shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection, upon
request of duly authorized officers of the Fund, by employees or
agents of the Fund and employees and agents of the Securities and
Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's
net asset value and net income.
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the
Fund or by any regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's net asset value per share, and, if
applicable, its public offering price and/or its daily dividend
rates and money market yields, in accordance with Section 3 of
the Agreement and notify the Fund and such other persons as the
Fund may reasonably request of the net asset value per share, the
public offering price and/or its daily dividend rates and money
market yields.
<PAGE>
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Directors of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Directors of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Directors.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense
of the Portfolio and shall be without liability for any action taken or
thing done in good faith in reliance upon such advice.
<PAGE>
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Directors. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
The Fund agrees, on behalf of the Portfolio, to indemnify and hold
harmless FUND ACCOUNTING and its employees, agents and nominees from
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable attorneys' fees) incurred or assessed against
them in connection with the performance of this Agreement, except such
as may arise from their own negligent action, negligent failure to act
or willful misconduct. The foregoing notwithstanding, FUND ACCOUNTING
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform the
obligations of any person or organization designated by the Fund to be
the authorized agent of the Portfolio as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Portfolio's records arising from fire, flood, Acts of God, military
power, war, insurrection or nuclear fission, fusion or radioactivity
shall be limited to the use of FUND ACCOUNTING's best efforts to
recover the Portfolio's records determined to be lost, missing or
destroyed.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled
to recover its reasonable telephone, courier or delivery service, and
<PAGE>
all other reasonable out-of-pocket, expenses as incurred, including,
without limitation, reasonable attorneys' fees and reasonable fees for
pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: Scudder Institutional Fund, Inc.
Institutional International Equity
Portfolio
345 Park Avenue
New York, NY 10154
Attn: President, Secretary or Treasurer
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Directors.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
<PAGE>
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] SCUDDER INSTITUTIONAL FUND, INC.,
on behalf of Institutional International Equity Portfolio
By:_________________________
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
By:_________________________
Vice President
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 15 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated April
2, 1996, relating to the financial statement of the Institutional International
Equity Portfolio, which appears in such Statement of Additional Information. We
also consent to the references to us under the headings "Experts" and "Other
Information" in such Statement of Additional Information.
/s/Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 2, 1996
