Filed electronically with the Securities and Exchange
Commission on January 19, 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. 14
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT No. 12
Scudder Institutional Fund, Inc.
--------------------------------
(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
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
345 Park Avenue, New York, NY 10154
-----------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b),
_____ on __________ pursuant to paragraph (b),
_____ 60 days after filing pursuant to paragraph (a)(1),
_____ on __________ pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2)
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_____ 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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<TABLE>
<CAPTION>
PART A
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Item No. Item Caption Prospectus Caption
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<S> <C> <C>
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)
<TABLE>
<CAPTION>
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
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<S> <C> <C>
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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<TABLE>
<CAPTION>
PART A
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Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
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
SHAREHOLDER BENEFITS--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)
<TABLE>
<CAPTION>
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
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<S> <C> <C>
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
Legal Counsel
Dechert Price and Rhoads
Ten Post Office Square
Boston, Massachusetts 02109
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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
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 that is offered through Barrett Associates to its
clients ("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.
--------------------
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
----
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........................................... 8
Shareholder Benefits.............................................. 11
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) _____*
Other Expenses _____
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
------ -------
$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 _______________, 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 ____% and total operating expenses
____% for the initial fiscal period. To the extent that expenses fall
below the current expense limitation, 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 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. If the dollar
falls in value relative to the Japanese yen, for example, 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, restricted securities and repurchase agreements
maturing in more than seven days. The Portfolio may not invest more than 10% of
its total assets in restricted securities.
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'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. 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.
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 any net realized capital gains after utilization of capital loss
carryforwards, if any, in November or 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. The Portfolio forwards
to the Custodian the monies for dividends to be paid in cash on 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
6
<PAGE>
investment and are not intended to indicate future performance. "Total return"
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 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
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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 total annualized
expenses of the Portfolio at no more than 0.95% of the average daily net assets
of the Portfolio until __________.
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 Company. 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 wholly-owned subsidiary of the
Adviser, is responsible for determining the daily net asset value per share and
maintaining the general accounting records of the Portfolio.
Transaction Information
Purchasing Shares
There is a $1000 minimum initial investment in the Portfolio and a minimum
account size of $1000. The minimum subsequent investment for the Portfolio is
$1000. 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."
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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.
Initial Purchase by Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and your 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.
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 during any period when (i) trading on the New York Stock
Exchange (the "Exchange") is restricted or the Exchange is closed, other than
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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
$1000 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.
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 the
Custodian are open for business.
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<PAGE>
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., New York time) on
a day the Company and the Custodian 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.
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. (New York 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
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 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 Institutional International Equity 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.
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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 October 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.
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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 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.................................................15
COMPANY ORGANIZATION.................................................16
INVESTMENT ADVISER...................................................16
Personal Investments by Employees of the Adviser............18
DIRECTORS AND OFFICERS...............................................18
REMUNERATION.........................................................19
DISTRIBUTOR..........................................................20
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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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 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
<PAGE>
Securities Act of 1933, or an exemption therefrom, in order to be sold in the
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 (securities subject to
legal restrictions on resales to institutions, or contractual restrictions on
resale) and more than 10% of its net 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
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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.
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.
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 render them like equity securities. 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
significantly depress the prices of outstanding securities of this type. For
more information regarding tax issues related to high yield securities, see
"TAXES."
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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
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."
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A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the 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
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
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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
net 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
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.
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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 portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The 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.
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
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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
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
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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
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
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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
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
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<PAGE>
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 "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
"Investment Objective and Policies," it may invest up to 100%
of its investment securities in an investment company without
restriction);
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
11
<PAGE>
(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 net assets in securities which are
not readily marketable, 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 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
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<PAGE>
(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
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
13
<PAGE>
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 November or 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
and assume that all dividends and capital gains distributions during the period
were reinvested in Portfolio shares. Cumulative total return is calculated by
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<PAGE>
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.
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
15
<PAGE>
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 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.
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
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<PAGE>
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,
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 total annualized expenses
of the Portfolio at no more than 0.95% of the average daily net assets of the
Portfolio until _______________.
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
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<PAGE>
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>
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- ----------------- ---------------------- -----------------------
<S> <C> <C> <C>
Daniel Pierce (62)+*# President and Chairman of the Board and Vice President, Director
Director Managing Director of and Assistant Treasurer
Scudder, Stevens & Clark,
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 --
845 Third Avenue Counselor, The Conference
New York, NY 10022 Board, Inc.
18
<PAGE>
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, 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
Thomas W. Joseph (56)+ Vice President Principal of Scudder, Vice President,
Stevens & Clark, Inc. Director, Treasurer and
Assistant Clerk
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>
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
19
<PAGE>
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).
<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1995**
========================= ============================= ================== ================= ====================
(1) (2) (3) (4) (5)
Pension or
Retirement Total Compensation
Benefits Accrued Estimated From Company and
Name of Person, Aggregate Compensation As Part of Annual Benefits Company Complex
Position from Company* Company Expenses Upon Retirement Paid to Director
========================= ============================= ================== ================= ====================
<S> <C> <C> <C> <C>
Edgar R. Fiedler,*** $______ N/A N/A $______
Director (__ Funds)
Peter B. Freeman, $______ N/A N/A $______
Director (__ Funds)
Robert W. Lear, $______ N/A N/A $______
Director (__ 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].
*** Mr. Fiedler received $_______ through a deferred compensation program.
As of December 31, 1995, Mr. Fiedler had a total of $_______ 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
$_______ 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.
20
<PAGE>
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
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.
21
<PAGE>
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.
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.
22
<PAGE>
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.
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.
23
<PAGE>
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.
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
24
<PAGE>
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
"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
25
<PAGE>
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 Statements incorporated by reference 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 _______________.
The Portfolio has a fiscal year end of October 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.
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__________________________.
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.
26
<PAGE>
The Portfolio employs Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, as Custodian.
Costs of $______________ 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 3,] 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>
SCUDDER INSTITUTIONAL FUND, INC.
PART C. - OTHER INFORMATION
<TABLE>
<S> <C> <C> <C>
Item 24. Financial Statements and Exhibits
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 3, 1996 and related notes (to be
filed by amendment).
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 are filed
herein.
2. (a) By-laws.
(Incorporated by reference to Exhibit 2 to original Registration
Statement filed on January 10, 1986.)
(b) Amended and Restated By-laws are filed herein.
3. Not Applicable
Part C - Page 2
<PAGE>
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) Investment Advisory Agreement on behalf of Institutional
International Equity Portfolio to be filed by amendment.
6. (a) Interim Distribution Contract.
(Incorporated by reference to Exhibit 6(a) to Post-Effective
Amendment No. 4 filed on March 1, 1989.)
(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.
Part C - Page 3
<PAGE>
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) Custodian Contract between the Registrant, on behalf of
Institutional International Equity Portfolio, and Brown Brothers
Harriman & Co., to be filed by amendment.
(c)(vii) Fee Schedule for Exhibit 8(c)(vi) to be filed by amendment.
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.)
(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.)
Part C - Page 4
<PAGE>
(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) Fund Accounting Services Agreement between the Registrant, on
behalf of Institutional International Equity Portfolio, and Scudder
Fund Accounting Corporation to be filed by amendment.
10. Not Applicable.
11. Not Applicable.
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.
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:
(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
Institutional Prime Portfolio 1
Institutional Municipal Income Portfolio 1
Institutional Intermediate Cash Portfolio 1
Institutional Bond Index Portfolio 1
Part C - Page 5
<PAGE>
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
---- ------------------------------------
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
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
Part C - Page 6
<PAGE>
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 Corporation oo
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)**
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)**
Part C - Page 7
<PAGE>
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)**
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)**
Part C - Page 8
<PAGE>
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 Corporation oo
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)*
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)**
Part C - Page 9
<PAGE>
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 Corporation oo
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
++ 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
Part C - Page 10
<PAGE>
## 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
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.
(b)
(1) (2) (3)
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
Richard W. Desmond Vice President 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
---------------- ------------------------------- -----------------------
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
Kathryn L. Quirk Vice President None
345 Park Avenue
New York, NY 10154
Part C - Page 12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
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
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)
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
Scudder Investor None None None None
Services, Inc.
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.
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.
Part C - Page 13
<PAGE>
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 - Page 14
</TABLE>
<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(a) 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 18th day of January, 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
- --------- ----- ----
<C> <C>
/s/ David S. Lee
David S. Lee Chairman of the Board (Principal January 18, 1996
Executive Officer) and Director
/s/ Daniel Pierce
Daniel Pierce President and Director January 18, 1996
/s/ Edgar R. Fiedler
Edgar R. Fiedler Director January 19, 1996
Peter B. Freeman Director January , 1996
Robert W. Lear Director January , 1996
/s/ Pamela A. McGrath
Pamela A. McGrath Vice President and Treasurer January 18, 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. 14
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 12
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER INSTITUTIONAL FUND, INC.
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
EXHIBIT INDEX
Exhibit 1(d)
Exhibit 2(b)
SCUDDER INSTITUTIONAL FUND, INC.
ARTICLES SUPPLEMENTARY
TO THE ARTICLES OF INCORPORATION
SCUDDER INSTITUTIONAL FUND, INC., a Maryland corporation having The
Corporation Trust Incorporated as its resident agent and its principal office in
Maryland located at 32 South Street, Baltimore, Maryland 21202 (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority expressly vested in the Board of Directors
of the Corporation by ARTICLE FIFTH of the Articles of Incorporation of the
Corporation, as amended from time to time (the "Charter"), the Board of
Directors has duly classified one hundred million (100,000,000) shares of the
capital stock of the Corporation from the unissued and unclassified shares of
the Corporation to each of the following: Institutional Cash Plus Portfolio;
Institutional Global Equity Portfolio; Institutional Emerging Markets Equity
Portfolio; Institutional International 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 (together, the "New Classes").
Prior to such classification, the Corporation had an aggregate of
twenty-five billion (25,000,000,000) shares of capital stock, of which five
billion (5,000,000,000) shares of capital stock were designated as Institutional
Cash Portfolio; five billion (5,000,000,000) shares of capital stock were
designated as Institutional Government Portfolio; five billion (5,000,000,000)
shares of capital stock were designated as Institutional Federal Portfolio; two
billion (2,000,000,000) shares of capital stock were designated as Institutional
Tax-Free Portfolio, five billion (5,000,000,000) shares of capital stock were
designated as Institutional Prime Portfolio; one hundred million (100,000,000)
shares of capital stock were designated as Institutional Intermediate Cash
Portfolio; one hundred million (100,000,000) shares of capital stock were
designated as Institutional Bond Index Portfolio; one hundred million
(100,000,000) shares of capital stock were designated as Institutional Municipal
Income Portfolio (together, the "Existing Classes"), and two billion seven
hundred million shares were undesignated as to class. Such reclassification
shall not affect the number of authorized shares of the Corporation's Existing
Classes.
After giving effect to such classification, the Corporation has an
aggregate of twenty-five billion (25,000,000,000) shares of capital stock, of
which a total of two billion (2,000,000,000) shares of capital stock were
designated as New Classes, twenty-two billion three hundred million
(22,300,000,000) shares of capital stock were designated as Existing Classes,
and seven hundred million (700,000,000) shares of capital stock remain
unclassified.
SECOND: A description of the shares so classified, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions for
redemptions as set by the Board of Directors of the Corporation is as follows
(with each such class being herein referred to individually as a "Class," and
collectively as "Classes"):
1. Assets Belonging to Class. All consideration received by
the Corporation for the issue or sale of Shares of a particular Class,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall irrevocably
belong to that Class for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of account of the
Corporation. Such consideration, assets, income, earnings, profits and
proceeds, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be,
together with any General Items (as herein defined) allocated to that
Class as provided in the following sentence, are herein referred to as
"assets belonging to" that Class. In the event that there are any
assets, income, earnings, profits or proceeds thereof, funds or
payments which are not readily identifiable as belonging to any
<PAGE>
particular Class (collectively "General Items"), the Board of Directors
shall allocate such General Items to and among any one or more of the
Classes created from time to time in such manner and on such basis as
it, in its sole discretion, deems fair and equitable; and any General
Items so allocated to a particular Class shall belong to that Class.
Each such allocation by the Board of Directors shall be conclusive and
binding upon the stockholders of all Classes for all purposes.
2. Liabilities Belonging to Class. The assets belonging to
each particular Class shall be charged with the liabilities of the
Corporation in respect to that Class and with all expenses, costs,
charges and reserves attributable to that Class, and shall be so
recorded upon the books of account of the Corporation. Such
liabilities, expenses, costs, charges and reserves, together with any
General Items (as hereinafter defined) allocated to that Class as
provided in the following sentence, so charged to that Class are herein
referred to as "liabilities belonging to" that Class. In the event
there are any general liabilities , expenses, costs, charges or
reserves of the Corporation which are not readily identifiable as
belonging to any particular Class (collectively "General Items"), the
Board of Directors shall allocate and charge such General Items to and
among any one or more of the Classes created from time to time in such
manner and on such basis as the Board of Directors in its sole
discretion, deems fair and equitable; and any General Item so allocated
and charged to a particular Class shall belong to that Class. Each such
allocation by the Board of Directors shall be conclusive and binding
upon the stockholders of all Classes for all purposes.
3. Dividends. Dividends and distributions on Shares of a
particular Class may be paid to the holders of Shares of that Class at
such times, in such manner and from such of the income and capital
gains, accrued or realized, from the assets belonging to that Class,
after providing for actual and accrued liabilities belonging to that
Class, as the Board of Directors may determine.
4. Liquidation. In the event of the liquidation or
dissolution of the Corporation, the stockholders of each Class that has
been created shall be entitled to receive, as a Class, when and as
declared by the Board of Directors, the excess of the assets belonging
to that Class over the liabilities belonging to that Class. The assets
so distributable to the stockholders of any particular Class shall be
distributed among such stockholders in proportion to the number of
Shares of that Class held by them and recorded on the books of the
Corporation.
5. Voting. On each matter submitted to vote of the
stockholders, each holder of a Share shall be entitled to one vote for
each such Share standing in his name on the books of the Corporation
irrespective of the Class thereof and all Shares of all Classes shall
vote as a single class ("Single Class Voting"); provided however, that
(A) as to any matter with respect to which a separate vote of any Class
is required by the Investment Company Act of 1940 or would be required
under the Maryland General Corporation Law, such requirements as to a
separate vote by that Class shall apply in lieu of Single Class Voting
as described above; (B) in the event that the separate vote
requirements referred to in (A) above apply with respect to one or more
Classes, then, subject to (C) below, the Shares of all other Classes
shall vote as a single Class; and (C) as to any matter which does not
affect the interest of a particular Class, only the holders of Shares
of the one or more affected Classes shall be entitled to vote.
6. Equality. All Shares of each particular Class shall
represent an equal proportionate interest in the assets belonging to
that Class (subject to the liabilities belonging to that Class), and
each Share of any particular Class shall be equal to each other Share
of that Class; but the provisions of this sentence shall not restrict
any distinctions permissible pursuant to subsection (iii) of this
Article or otherwise under the Articles of Incorporation that may exist
with respect to stockholder elections to receive dividends or
distributions in cash or Shares of the same Class or that may otherwise
exist with respect to dividends and distributions on Shares of the same
Class.
THIRD: Except as otherwise provided by the express provisions of these
Articles Supplementary, nothing herein shall limit, by inference or otherwise,
the discretionary right of the Board of Directors to classify and reclassify and
issue any unissued shares of any Class or Classes and to fix or alter all terms
thereof to the full extent provided by the Charter of the Corporation.
2
<PAGE>
FOURTH: The Board of Directors of the Corporation, at a meeting duly
called, convened and held on April 20, 1995, adopted resolutions classifying the
capital stock that the Corporation has authority to issue and classifying the
authorized capital stock of the Corporation as set forth in these Articles
Supplementary.
IN WITNESS WHEREOF, Scudder Institutional Fund, Inc. has caused these
Articles Supplementary to be signed and acknowledged in its name and on its
behalf by its President and attested by its Assistant Secretary, on the 24th day
of April, 1995.
ATTEST: SCUDDER INSTITUTIONAL FUND, INC.
By /s/Thomas F. McDonough By /s/Daniel Pierce
------------------------- ------------------------
Thomas F. McDonough Daniel Pierce
Assistant Secretary President
3
<PAGE>
Verification
------------
I, Daniel Pierce, President of Scudder Institutional Fund, Inc. (the
"Corporation") do hereby verify that I have executed these Articles
Supplementary and acknowledge the same to be my act; that adoption of these
Articles Supplementary by the Corporation was a valid corporate act; that, to
the best of my knowledge, information and belief, the matters and facts set
forth herein are true in all material respects; and that this statement is made
under the penalties of perjury.
/s/Daniel Pierce
--------------------------------
Daniel Pierce
President
4
SCUDDER INSTITUTIONAL FUND, INC.
(The "Corporation")
AMENDED AND RESTATED BY-LAWS
ARTICLE I.
Stockholders' Meetings.
SECTION 1. Place of Holding Meetings. Each meeting of stockholders
shall be held at such place within or without the State of Maryland as the Board
of Directors may determine.
SECTION 2. Annual Meetings. If a meeting of the stockholders of the
Corporation is required by the Investment Company Act of 1940, as amended (the
"1940 Act"), to take action on the election of Directors, then there shall be an
annual meeting to elect Directors held within the United States no later than
120 days after the occurrence of the event requiring the meeting. In other
years, no annual meeting need be held.
SECTION 3. Special Meetings. Special meetings of the stockholders of
the Corporation, or of a Class or Classes of the Corporation, for any purpose or
purposes may be called by the Chairman of the Board, the President, the Board of
Directors or a majority of the Executive Committee and shall be called by the
Secretary upon the written request of the holders of shares entitled to cast at
least twenty-five percent of all the votes entitled to be cast at such meeting.
Such request shall state the purpose or purposes of such meeting and the matters
proposed to be acted on thereat. The Secretary shall inform such stockholders of
the reasonably estimated cost of preparing and mailing such notice of meeting,
and upon payment to the Corporation of such costs the Secretary shall give
notice stating the purpose or purposes of the meeting, as required in this
Article and by law, to all stockholders entitled to notice of such meeting. No
special meeting need be called upon the request of the holders of shares
entitled to cast less than a majority of all votes entitled to be cast at such
meeting, to consider any matter which is substantially the same as a matter
voted upon at any special meeting of stockholders held during the preceding
twelve months.
SECTION 4. Notice of Stockholders' Meetings. Not less than ten days nor
more than ninety days before the date of every stockholders' meeting, the
Secretary shall give to each stockholder entitled to vote at or to notice of
such meeting, written or printed notice stating the time and place of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, either by mail or by presenting it to him/her personally
or by leaving it at his/her residence or usual place of business. If mailed,
such notice shall be deemed to be given when deposited in the United States mail
addressed to the stockholder at his/her post office address as it appears on the
records of the Corporation, with postage thereon prepaid.
SECTION 5. Quorum; Adjournment; Majority Vote. The presence in person
or by proxy of the holders of one-third of the Shares of all Classes issued and
outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the stockholders except as
<PAGE>
otherwise provided by law or in the Articles of Incorporation and except that
where the holders of Shares of any Class are entitled to a separate vote as a
Class (a "Separate Class") or where the holders of Shares of two or more (but
not all) Classes are required to vote as a single Class (a "Combined Class"),
the presence in person or by proxy of the holders of one-third of the Shares of
that Separate Class or Combined Class, as the case may be, issued and
outstanding and entitled to vote thereat shall constitute a quorum for such
vote. If, however, a quorum with respect to all Classes, a Separate Class or a
Combined Class, as the case may be, shall not be present or represented at any
meeting of the stockholders, the holders of a majority of the Shares of all
Classes, such Separate Class or such Combined Class, as the case may be, present
in person or by proxy and entitled to vote shall have power to adjourn the
meeting, from time to time as to all Classes, such Separate Class or such
Combined Class, as the case may be, without notice other than announcement at
the meeting, until the requisite number of shares entitled to vote at such
meeting shall be present. At such adjourned meeting at which the requisite
number of Shares entitled to vote thereat shall be represented any business may
be transacted which might have been transacted at the meeting as originally
notified. The absence from any meeting of stockholders of the number of Shares
in excess of one-third of the Shares of all Classes or of the affected Class or
Classes, as the case may be, which may be required by the laws of the State of
Maryland, the 1940 Act or any other applicable law or the Articles of
Incorporation, for action upon any given matter shall not prevent action of such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
the number of Shares required for action in respect of such other matter or
matters.
SECTION 6. Voting. All elections shall be had and all questions decided
by a majority of the votes cast, without regard to Class, at a duly constituted
meeting, except as otherwise provided by law or by the Articles of Incorporation
or by these By-Laws and except that with respect to a question as to which the
holders of Shares of any Class or Classes are entitled or required to vote as a
Separate Class or a Combined Class, as the case may be, such question shall be
decided as to such Separate Class or such Combined Class, as the case may be, by
a majority of the votes cast by Shares of such Separate Class or such Combined
Class, as the case may be.
With respect to all Shares having voting rights (a) a stockholder may
vote the Shares owned by him/her as of the record date determined pursuant to
Section 3 of Article V either in person or by proxy executed in writing by the
stockholder or by his/her duly authorized attorney-in-fact, provided that no
proxy shall be valid after eleven months from its date unless otherwise provided
in the proxy and (b) in all elections for directors every stockholder shall have
the right to vote, in person or by proxy, the Shares owned by him/her as of the
record date determined pursuant to Section 3 of Article V, for as many persons
as there are directors to be elected and for whose election he/she has a right
to vote.
SECTION 7. Conduct of Stockholders' Meetings. Each meeting of
stockholders shall be presided over by the Chairman of the Board, or if he/she
is not present, by the President or any Vice-President, or, if none of the
foregoing is present, by a chairman to be elected at the meeting. The Secretary
of the Corporation, or if he/she is not present, an Assistant Secretary, or if
2
<PAGE>
neither is present, a secretary to be appointed by the chairman of the meeting,
shall act as secretary of the meeting.
SECTION 8. Fractional Shares. Any fractional Share shall carry
proportionately all the rights of a whole Share, excepting any right to receive
a certificate evidencing such fractional Share, but including, without
limitation, the right to vote and the right to receive dividends.
SECTION 9. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting or
at any adjournment of the meeting. If the inspectors shall not be so appointed
or if any of them shall fail to appear or act, the chairman of the meeting may,
and on the request of any stockholder entitled to vote at the meeting shall,
appoint inspectors. Each inspector, before entering upon the discharge of
his/her duties, shall take and sign an oath to execute faithfully the duties of
inspector at the meeting with strict impartiality and according to the best of
his/her ability. The inspectors shall determine the number of shares outstanding
and the voting power of each share, the number of shares represented at the
meeting, the existence of a quorum and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No Director or candidate for the office of Director shall act as
inspector of an election of Directors. Inspectors need not be stockholders of
the Corporation.
SECTION 10. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Corporation's Articles of Incorporation,
any action required to be taken at any meeting of stockholders, or any action
that may be taken at any meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders' meetings: (i) an unanimous written consent
that sets forth the action and is signed by each stockholder entitled to vote on
the matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at the
meeting.
ARTICLE II.
Board of Directors.
SECTION 1. Number; Term. The business and affairs of the Corporation
shall be managed under the direction of a Board of five members, but from time
to time such number may be increased to not more than twenty-one or decreased to
not less than three, by vote of a majority of the entire Board of Directors,
provided that the tenure of office of a director shall not be affected by any
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decrease in the number of directors so made by the Board unless the director is
specifically removed pursuant to Section 5 of this Article II at the time of the
decrease.
At each annual meeting of stockholders, or special meeting of
stockholders held for the purpose of electing directors, the stockholders shall
elect directors to hold office until the next annual meeting or until their
successors are elected and qualify, or until his/her earlier death, resignation
or removal, subject to the right of removal granted by law. Directors need not
be stockholders.
SECTION 2. Vacancies. Subject to the provisions of the 1940 Act, and
Section 5 of this Article II, any vacancy occurring in the Board of Directors
for any cause other than by reason of an increase in the number of directors may
be filled by the vote of a majority of the remaining directors, although such
majority is less than a quorum. Any vacancy occurring by reason of an increase
in the number of directors may be filled by action of a majority of the entire
Board of Directors. A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of
stockholders or until his/her successor is elected and qualifies, or until
his/her earlier death, resignation or removal, subject to stockholders' right of
removal set forth in Section 5 hereof.
SECTION 3. Meetings. Meetings of the Board of Directors, regular or
special, may be held at any place in or out of the State of Maryland as the
Board may from time to time determine or as shall be specified or filed in the
respective notices or waivers of notice thereof. Meetings of the Board may be
held in conjunction with meetings of other investment companies having the same
investment adviser or an affiliated investment adviser.
Regular meetings of the Board may be held without notice of the date,
time and place determined by the Board of Directors.
Special meetings of the Board may be held at any time upon call of the
Chairman of the Board, the President or a majority of the Directors. Written
notice of the time and place of any special meeting shall be delivered to each
Director either personally or by telephone or other standard form of
communication, or by telegraph, cable or other communication leaving a visual
record not less than 24 hours before the time at which the meeting is to be
held, or by First-Class mail, postage prepaid, addressed to the director at
his/her residence or usual place of business, and mailed not less than three
days before the day on which the meeting is to be held. Such notice need not
include a statement of the business to be transacted at, or the purpose of, such
special meeting. A written waiver of notice, signed by the Director entitled to
such notice and filed with the records of the meeting, whether before or after
the holding thereof, or actual attendance at the meeting, shall be deemed
equivalent to the giving of notice to such director.
At all meetings of the Board, one-third of the total number of
directors, but not less than two directors, shall constitute a quorum for the
transaction of business. If there be less than a quorum present at any meeting
of the Board, a majority of those present may adjourn the meeting to another
date, time and place until a quorum shall be present. Notice of the date, time
and place of any adjourned meeting shall be given to the directors who were not
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present at the time of the adjournment and, unless the date, time and place were
announced at the meeting at which the adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is present, any business
may be transacted that might have been transacted at the meeting as originally
called.
The action of a majority of the directors present at a meeting at which
a quorum is present shall be the action of the Board unless the concurrence of a
greater proportion is required for such action by statute, the Articles of
Incorporation or these By-Laws.
SECTION 4. Committees. The Board of Directors may designate by
resolution one or more committees, including an executive committee, of the
Board of Directors, each consisting of 2 (two) or more directors. To the extent
provided in the resolution, and permitted by law, the Board may delegate to
these committees any of its powers, except the power to authorize the issuance
of stock, declare a dividend or distribution on stock, recommend to stockholders
any action requiring stockholder approval, amend these By-laws, or approve any
merger or share exchange which does not require stockholder approval. If the
Board of Directors has given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general formula or method specified
by the Board by resolution or by adoption of a stock option or other plan, may
fix the terms of stock subject to classification or reclassification and the
terms on which any stock may be issued, including all terms and conditions
required or permitted to be established or authorized by the Board of Directors.
Any committee or committees shall have the name or names determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a Director to act in the place of an
absent member.
SECTION 5. Removal of Directors. At any meeting of stockholders, the
stockholders may remove any Director from office, either with or without cause,
and may elect a successor to fill any resulting vacancy for the unexpired term
of the removed Director, subject to the provisions of the 1940 Act.
SECTION 6. Resignation. A director of the Corporation may resign at any
time by giving written notice of his/her resignation to the Board of Directors,
the Chairman of the Board, the President or the Secretary of the Corporation.
Any resignation shall take effect at the time specified in it or, should the
time when it is to become effective not be specified in it, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
SECTION 7. Telephone Meetings. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means constitutes presence at the meeting.
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SECTION 8. Action Without a Meeting. Subject to the provisions of the
1940 Act, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee of the Board may be taken without a
meeting if a written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 9. Compensation of Directors. Each director shall be entitled
to receive compensation, if any, as may from time to time be fixed by the Board
of Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he/she attends. Directors may also be reimbursed by
the Corporation for all reasonable expenses incurred in traveling to and from
the place of a Board or committee meeting.
ARTICLE III.
Officers.
SECTION 1. Officers. The Officers of the Corporation shall be a
President, a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. A Chairman of the Board may be selected from among the
directors, and may hold such office only so long as the Chairman continues to be
a director. The Board may also appoint one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers, employees and agents as it
may deem appropriate. Any two or more offices, except those of President and
Vice-President, may be held by the same person but no person shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law, the Articles of Incorporation or these By-Laws to
be executed, acknowledged or verified by two or more officers.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his/her resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at the time specified therein or, if the time when
it shall become effective is not specified therein, immediately upon its
receipt. Acceptance of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors whenever in
the Board's judgment the best interests of the Corporation will be served
thereby, and the Board may delegate the power of removal as to agents and
employees not elected or appointed by the Board of Directors. Removal shall be
without prejudice to the person's contract rights, if any, but the appointment
of any person as an officer, agent or employee of the Corporation shall not of
itself create contract rights.
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SECTION 4. Vacancies. A vacancy in any office whether arising from
death, resignation, removal or any other cause, may be filled in the manner
prescribed in these By-Laws for the regular election or appointment to the
office.
SECTION 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his/her control.
SECTION 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his/her duties, including
responsibility for negligence and for the accounting of any of the Corporation's
property, funds or securities that come into his/her hands in an amount and with
any surety or sureties as the Board may require.
SECTION 7. Chairman of the Board. The Chairman of the Board, if there
be such an officer, shall be the senior officer of the Corporation, shall
preside at all stockholders' meetings and at all meetings of the Board of
Directors and unless otherwise provided by director resolution shall be ex
officio, with a vote, a member of all committees of the Board of Directors.
He/she shall have such other powers and perform such other duties as may be
assigned to him/her from time to time by the Board of Directors.
SECTION 8. President. The President shall be the chief executive
officer of the Corporation. In the absence or inability of the Chairman of the
Board to act, or if no Chairman shall be in office, the President shall preside
at all meetings of the stockholders and, if also a director, of the Board of
Directors. The President shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation, and
general supervision over its officers, employees and agents, and he/she may
delegate these powers. Except as the Board of Directors may otherwise order,
he/she may sign in the name and on behalf of the Corporation all deeds, bonds,
contracts, or agreements. He/she shall exercise such other powers and perform
such other duties as from time to time may be assigned to him/her by the Board
of Directors.
SECTION 9. Vice President. Each Vice President shall have the powers
and perform the duties that the Board of Directors or the President may from
time to time prescribe. At the request or in the absence or disability of the
President, the Vice President (or, if there are two or more Vice Presidents,
then the senior of the Vice Presidents present and able to act) may perform all
the duties of the President and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
SECTION 10. Treasurer and Assistant Treasurer. Subject to the
provisions of any contract that may be entered into with any custodian pursuant
to authority granted by the Board of Directors, the Treasurer shall have charge
of all receipts and disbursements of the Corporation and shall have or provide
for the custody of the Corporation's funds and securities; he/she shall have
full authority to receive and give receipts for all money due and payable to the
Corporation, and to endorse checks, drafts and warrants, in its name and on its
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behalf and to give full discharge for the same; and he/she shall deposit all
funds of the Corporation, except those that may be required for current use, in
such banks or other places of deposit as the Board of Directors may from time to
time designate. The Treasurer shall render to the Board of Directors such
financial information as the Board shall direct. In general, he/she shall
perform all duties incident to the office of Treasurer and such other duties as
may from time to time be assigned to him/her by the Board of Directors or the
President.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer, the President or the Board of Directors may assign, and, in the
absence of the Treasurer, the Assistant Treasurer may perform all of the duties
of Treasurer.
SECTION 12. Secretary and Assistant Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose the minutes of all meetings of the Board of Directors, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates, if any, of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him/her
by the Board of Directors or the President.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary, the President or the Board of Directors may assign, and in the
absence of the Secretary, he/she may perform all duties of the Secretary.
SECTION 13. Subordinate Officers. The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
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Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
SECTION 14. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE IV.
Indemnification.
SECTION 1. Indemnification of Directors and Officers. Any person who
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is a current or former
Director or officer of the Corporation, or is or was serving while a Director or
officer of the Corporation at the request of the Corporation as a Director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the fullest extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the 1940 Act, as such statutes are now or hereafter
in force, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his/her office ("disabling conduct").
SECTION 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article IV shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him/her in connection with proceedings to which he/she is a
party in the manner and to the fullest extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 and the 1940 Act, as such
statutes are now or hereafter in force; provided however, that the person
seeking indemnification shall provide to the Corporation a written affirmation
of his/her good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written undertaking by or
on behalf of the Director to repay any such advance if it is ultimately
determined that he/she is not entitled to indemnification, and provided further
that at least one of the following additional conditions is met: (1) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Corporation for his/her undertaking; (2) the Corporation is insured
against losses arising by reason of the advance; or (3) a majority of a quorum
of Directors of the Corporation who are neither "interested persons" as defined
in Section 2(a)(19) of the 1940 Act, as amended, nor parties to the proceeding
("disinterested non-party Directors") or independent legal counsel, in a written
opinion, shall determine, based on a review of facts readily available to the
Corporation at the time the advance is proposed to be made, that there is reason
to believe that the person seeking indemnification will ultimately be found to
be entitled to indemnification.
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SECTION 3. Indemnification of Employees and Agents. Employees and
agents who are not officers or Directors of the Corporation may be indemnified
in accordance with the procedures set forth in this Article IV to the fullest
extent permissible under the Maryland General Corporation Law, the Securities
Act of 1933 and the 1940 Act, as such statutes are now or hereafter in force,
and to such further extent, consistent with the foregoing, as may be provided by
action of the Board of Directors or by contract.
SECTION 4. Procedure. At the request of any current or former Director
or officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the 1940 Act, as such statutes are now or hereafter in force, whether the
standards required by this Article IV have been met; provided, however, that
indemnification shall be made only following: (1) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct or (2) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct, by (a) the vote of the majority of a quorum of disinterested
non-party Directors or (b) an independent legal counsel in a written opinion.
SECTION 5. Other Rights. The indemnification provided by this Article
IV shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action by a Director or officer
of the Corporation in his/her official capacity and as to action by such person
in another capacity while holding such office or position, and shall continue as
to a person who has ceased to be a Director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 6. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article IV, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a Director,
officer, employee or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under this Article IV with respect
to the resulting or surviving corporation as he/she would if he/she had served
the resulting or surviving corporation in the same capacity.
ARTICLE V.
Capital Stock.
SECTION 1. Certificates of Stock. Certificates of stock of the
Corporation shall be in the form approved by the Board of Directors. Unless the
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Board of Directors authorizes the issuance of stock without certificates, every
holder of stock of the Corporation shall be entitled to have a Certificate
signed in the name of the Corporation by the President or any Vice President and
by the Treasurer or any Assistant Treasurer or the Secretary or an Assistant
Secretary, sealed with the seal of the Corporation and certifying the number and
kind of shares owned by him/her in the Corporation. Such signatures and seal may
be a facsimile and may be mechanically reproduced thereon. The certificates
containing such facsimiles shall be valid for all intents and purposes.
SECTION 2. Lost Certificates. The Board of Directors may determine the
conditions upon which a new certificate of Shares may be issued in place of a
certificate which is alleged to have been lost, destroyed or stolen. It may, in
its discretion, require the owner of such certificate to give bond, with
sufficient surety, to the Corporation to indemnify it against any loss or claim
which may arise by reason of the issuance of a new certificate.
SECTION 3. Record Dates. The Board of Directors may fix, in advance, a
date as the record date for the purpose of determining stockholders of any Class
entitled to notice of, or to vote at, any meeting of stockholders of any Class
or stockholders entitled to receive payment of any dividend or the allotment of
any rights to that Class or in order to make a determination of stockholders of
any Class for any other proper purpose. Such date in any case shall be not more
than ninety days, and in case of a meeting of stockholders, not less than ten
days, prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. If no record date in the case of
a meeting of stockholders has been fixed, the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be the later of the close of business on the day on which notice of the
meeting is mailed or the thirtieth day before the meeting, or, if notice is
waived by all stockholders, at the close of business on the tenth day next
preceding the day on which the meeting is held. All persons who were holders of
record of shares of the Class or Classes to which the meeting relates as of the
record date of a meeting, and no others, shall be entitled to vote at such
meeting and adjournment thereof.
SECTION 4. Stock Ledger. The Corporation shall maintain at an office
specified by the Board of Directors an original or duplicate stock ledger
containing the names and addresses of all stockholders and the number of Shares
of each Class held by each stockholder or, if the Corporation employs a transfer
agent, at the offices of the transfer agent of the Corporation. Such stock
ledger may be in written form or any other form capable of being converted into
written form within a reasonable time for visual inspection.
ARTICLE VI.
Checks, Notes, Etc.
All checks and drafts on the Corporation's bank accounts and all bills
of exchange and promissory notes, and all acceptances, obligations and other
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instruments for the payment of money, shall be signed by such officer or
officers, or agent or agents, as shall be thereunto authorized from time to time
by the Board of Directors.
ARTICLE VII.
Books and Records.
The books of the Corporation other than the original or duplicate stock
ledger may be kept at such place or places in or out of the State of Maryland as
the Board of Directors may from time to time determine.
ARTICLE VIII.
Seal.
The Board of Directors shall provide a suitable corporate seal or
facsimile, in such form and bearing such inscriptions as it may determine.
ARTICLE IX.
Fiscal Year.
The fiscal year of the Corporation shall end on December 31 of each
year, subject, however, to change from time to time by the Board of Directors.
ARTICLE X.
Amendments.
The Board of Directors is authorized and empowered to make, alter or
repeal the By-Laws of the Corporation, in any manner not inconsistent with the
laws of the State of Maryland or the Articles of Incorporation of the
Corporation at any regular or special meeting of the Board, subject to the
provisions of the Act.
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