Filed electronically with the Securities and Exchange
Commission on April 30, 1997
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. 18
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT No. 16
------
Scudder Institutional Fund, Inc.
------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
------------------------------------- ------------
(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),
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X on May 1, 1997 pursuant to paragraph (b),
------
60 days after filing pursuant to paragraph (a)(1),
------
on pursuant to paragraph (a)(1)
------ -----------------
75 days after filing pursuant to paragraph (a)(2)
------
on pursuant to paragraph (a)(2) of Rule 485.
-----------------
The Registrant previously filed a declaration registering an indefinite amount
of securities pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on February 28, 1997.
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Items Required by Form N-1A
---------------------------
PART A
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<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<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
Cross Reference - Page 1
<PAGE>
INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
(continued)
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and COMPANY ORGANIZATION
History
13. Investment Objectives and THE PORTFOLIOS AND THEIR OBJECTIVES
Policies PORTFOLIO TRANSACTIONS
14. Management of the INVESTMENT ADVISER
Registrant DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and Principal DIRECTORS AND OFFICERS
Holders of Securities
16. Investment Advisory and INVESTMENT ADVISER
Other Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation and PORTFOLIO TRANSACTIONS
Other Practices
18. Capital Stock and Other COMPANY ORGANIZATION
Securities DIVIDENDS
19. Purchase, Redemption and PURCHASE OF SHARES
Pricing of Securities REDEMPTION OF SHARES
Being Offered NET ASSET VALUE
20. Tax Status DIVIDENDS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
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
---------------------------
PART A
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Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information FINANCIAL HIGHLIGHTS
4. General Description of Registrant INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
COMPANY ORGANIZATION
5. Management of the Fund COMPANY ORGANIZATION--Investment Adviser, Transfer Agent,
Experienced Professional Management
BACK COVER PAGE
5A. Management's Discussion of Fund NOT APPLICABLE
Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--
Securities Dividends and Capital Gains Distributions, Taxes
COMPANY ORGANIZATION
BACK COVER PAGE
7. Purchase of Securities Being Offered TRANSACTION INFORMATION--Purchasing Shares, Share Price
COMPANY ORGANIZATION--Distributor
8. Redemption or Repurchase TRANSACTION INFORMATION--Redeeming Shares
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference - Page 3
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
(continued)
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and COMPANY ORGANIZATION
History
13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Policies PORTFOLIO TRANSACTIONS
14. Management of the INVESTMENT ADVISER
Registrant DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and Principal DIRECTORS AND OFFICERS
Holders of Securities
16. Investment Advisory and INVESTMENT ADVISER
Other Services ADDITIONAL INFORMATION--Experts and Other Information
17. Brokerage Allocation and PORTFOLIO TRANSACTIONS
Other Practices
18. Capital Stock and Other COMPANY ORGANIZATION
Securities DIVIDENDS
19. Purchase, Redemption and PURCHASE OF SHARES
Pricing of Securities REDEMPTION OF SHARES
Being Offered NET ASSET VALUE
20. Tax Status DIVIDENDS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference - Page 4
<PAGE>
Scudder Institutional Fund, Inc.
Calculation of Registration Fee under the Securities Act of 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Per Offering Registration
Registered Registered Share (1) Price (2) Fee
---------- ---------- ---------- ---------- ----------
Shares of Capital
Stock, $.001
par value:
Institutional 32,888,766 $1.00 $0 $0
Government
Portfolio
This Post-Effective Amendment No. 18 seeks to register 32,888,766
additional shares of Government Portfolio under the Securities Act of 1933.
(1) Computed under Rule 457(d) on the basis of the net asset value per
share of registrant's shares of Institutional Government Portfolio
at the close of business on April 15, 1997. The above calculation
shall not be deemed a representation as to the actual offering
price.
(2) Calculated pursuant to Rule 24e-2 under the Investment Company Act
of 1940.
Institutional
Government
Portfolio
(a) Total number of shares redeemed during previous fiscal
year 298,316,303
(b) Total number of shares included in (a) previously used
under Rule 24e-2(a) this fiscal year 0
(c) Total number of shares included in (a) previously used
under Rule 24f-2(c) this fiscal year 265,427,537
(d) Total number of shares included in (a) being used to
reduce maximum aggregate offering price in this
Post-Effective Amendment 32,888,766
<PAGE>
Institutional Cash Portfolio
Institutional Tax Free Portfolio
Institutional Government Portfolio
345 Park Avenue, New York, New York 10154
(800) 854-8525
Investment Manager
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
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 2038
Boston, Massachusetts 02106
Legal Counsel
Sullivan & Cromwell
New York, New York
- ------------------------------
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 CASH PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
INSTITUTIONAL GOVERNMENT PORTFOLIO
PROSPECTUS
MAY 1, 1997
<PAGE>
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
INSTITUTIONAL GOVERNMENT 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 Cash Portfolio, Institutional Tax Free Portfolio and
Institutional Government Portfolio, are series of Scudder Institutional Fund,
Inc. (the "Company"), a no-load, open-end, diversified, management investment
company designed to suit the needs of institutions, corporations and
fiduciaries.
Institutional Cash Portfolio, Institutional Tax Free Portfolio and
Institutional Government Portfolio (each, a "Portfolio" and collectively, the
"Portfolios") are money market funds that seek to provide investors with as high
a level of current income as is consistent with their investment objectives and
policies and with preservation of capital and liquidity. The Portfolios are
neither insured nor guaranteed by the U.S. Government. Each Portfolio intends to
maintain a net asset value per share of $1.00, but there is no assurance it will
be able to do so.
The minimum aggregate investment in the Company is $10 million, with a
minimum investment in any single Portfolio of $2 million. Additionally, each
investor must maintain the minimum aggregate investment of $10 million or be
subject to possible involuntary redemption by the Company.
This Prospectus sets forth concisely the information about the Company
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 May 1, 1997, 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 and is available along with other related
materials on the Securities and Exchange Commission's Internet Web site
(http://www.sec.gov).
--------------------
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.
<PAGE>
Table of Contents
Page
Summary......................................................................2
Expense Information..........................................................5
Financial Highlights.........................................................7
Investment Objectives and Policies..........................................10
Additional Information About Policies and Investments.......................12
Distribution and Performance Information....................................15
Company Organization........................................................18
Transaction Information.....................................................19
Shareholder Benefits........................................................22
Summary
The Company Scudder Institutional Fund, Inc. is a
professionally managed, no-load, open-end,
diversified management investment company
which offers the following three investment
series: Institutional Cash Portfolio (the
"Cash Portfolio"), Institutional Tax Free
Portfolio (the "Tax Free Portfolio") and
Institutional Government Portfolio (the
"Government Portfolio"), (each, a
"Portfolio" and collectively, the
"Portfolios") See "Company Organization."
Objectives and Policies Each Portfolio seeks to provide investors
with as high a level of current income as is
consistent with its stated investment
objective and policies and with preservation
of capital and liquidity. Each Portfolio
invests exclusively in high quality
investments with remaining maturities of not
more than 397 calendar days. Each Portfolio
values its portfolio securities on the basis
of amortized cost rather than at market
value. Thus, although the market value of a
portfolio may vary inversely to changes in
prevailing interest rates and may be
affected by changes in the creditworthiness
of issuers of securities held in its
portfolio and other market factors, each
Portfolio expects to maintain a constant net
asset value of $1.00 per share. There is no
assurance, however, that this can be
achieved.
The Cash Portfolio invests in obligations
issued or guaranteed by the U.S. Government
or its agencies or instrumentalities,
obligations of certain U.S. or foreign banks
and their branches (such banks in each case
to have total assets of at least $1
billion), corporate commercial paper and
other short-term corporate obligations, and
securities issued by or on behalf of states,
cities, municipalities and other public
authorities (which may or may not be exempt
from federal income taxes).
2
<PAGE>
The Tax Free Portfolio invests in a broad
range of securities issued by or on behalf
of states, cities, municipalities and other
public authorities ("municipal obligations")
the income of which is exempt from federal
income taxes. Income from the Tax Free
Portfolio may not be exempt from certain
state and local taxes. See "Investment
Objectives and Policies."
The Government Portfolio invests in
obligations issued or guaranteed by the U.S.
Government or its agencies or
instrumentalities.
Additional Investment The Cash Portfolio may invest in obligations
Activities of foreign banks, which involve different
risks than those associated with obligations
of domestic banks. In addition, certain
obligations in which each Portfolio may
invest may have a floating or variable rate
of interest. Certain obligations in which
the Cash Portfolio and Tax Free Portfolio
may invest may be backed by bank letters of
credit. Each Portfolio may enter into
repurchase agreements, and investments in
any of the Portfolios may be purchased on a
when-issued basis and with put features.
Each of these investment practices entails
certain risks. See "Additional Information
About Policies and Investments."
Investment Adviser The Portfolios' investment adviser is
Scudder, Stevens & Clark, Inc., (the
"Adviser"), a leading provider of U.S. and
international investment management services
for clients throughout the world.
The Adviser receives monthly an investment
management fee for its services, equal, on
an annual basis, to 0.15% of each
Portfolio's average daily net assets.
Distributor Scudder Investor Services, Inc., a
subsidiary of the Adviser (the
"Distributor") is the principal underwriter
for the Company.
Custodian State Street Bank and Trust Company (the
"Custodian") is the custodian for the
Company.
Purchasing Shares Shares of any Portfolio may be purchased at
net asset value by writing or calling
Scudder Service Corporation, a subsidiary of
the Adviser (the "Transfer Agent"). There is
no sales charge. There is a $10 million
minimum initial investment in the Company,
with a minimum investment in any single
Portfolio of $2 million. Subsequent
investments may be made in any Portfolio in
any amount. See "Transaction
Information--Purchasing Shares."
3
<PAGE>
Redeeming Shares Shareholders may redeem all or any part of
their investments in the Portfolios by
contacting the Transfer Agent. Shares will
be redeemed at their next determined net
asset value. There is no redemption charge.
The Company reserves the right, upon notice,
to redeem the shares in an investor's
account if the value of such shares falls
below certain levels or if the account does
not have a certified Social Security or
taxpayer identification number. See
"Transaction Information-- Redeeming
Shares."
Share Price Scudder Fund Accounting Corporation, a
subsidiary of the Adviser, determines net
asset value per share of each Portfolio on
each day the New York Stock Exchange (the
"Exchange") is open for trading. The net
asset value per share is determined at 2:00
p.m. for the Tax Free Portfolio and 4:00
p.m. for the Government Portfolio and the
Cash Portfolio. See "Transaction
Information--Share Price."
Dividends Dividends on shares of each Portfolio are
declared daily and paid monthly.
Distributions of capital gains, if any, are
paid annually. Dividends and capital gains
distributions with respect to shares of each
Portfolio are automatically paid in
additional shares of the same Portfolio
unless shareholders elect to receive
payments in cash. See "Distribution and
Performance Information--Dividends and
Capital Gains Distributions."
4
<PAGE>
Expense Information
This information is designed to help an investor understand the various costs
and expenses of investing in Cash Portfolio and Tax Free Portfolio.
1) Shareholder Transaction Expenses: Expenses charged directly to an individual
account in a Portfolio for various transactions.
Cash Tax Free
Portfolio Portfolio
--------- ---------
NONE NONE
2) Annual Portfolio Operating Expenses: Expenses paid by a Portfolio before it
distributed its net investment income, expressed as a percentage of a
Portfolio's average daily net assets for the fiscal year ended December 31,
1996.
Investment Management Fees 0.15% 0.15%
12b-1 Fees NONE NONE
Other Expenses 0.06% 0.13%
----- -----
Total Portfolio Operating Expenses 0.21% 0.28%
===== =====
Example
Based on the 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 a Portfolio before it distributes its
net investment income to shareholders.
One year $ 3 $ 4
Three years 8 11
Five years 14 20
Ten years 32 44
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.
5
<PAGE>
Expense Information
This information is designed to help an investor understand the various costs
and expenses of investing in Government Portfolio.
1) Shareholder Transaction Expenses: Expenses charged directly to an individual
account in the Portfolio for various transactions.
Government
Portfolio
---------
NONE
2) Annual Portfolio Operating Expenses: Expenses paid by the Portfolio before it
distributed its net investment income, expressed as a percentage of the
Portfolio's average daily net assets for the fiscal year ended December 31,
1996.
Investment Management Fees 0.15%
12b-1 Fees NONE
Other Expenses 0.13%
-----
Total Portfolio Operating Expenses 0.28%
=====
Example
Based on the 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.
One year $ 4
Three years 13
Five years 22
Ten years 49
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.
6
<PAGE>
Financial Highlights
Cash Portfolio
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, audited financial statements are available in the Company's
Annual Report dated December 31, 1996 and may be obtained without charge by
writing or calling the Company.
The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is included in the
Annual Report to Shareholders, which is incorporated by reference to the
Statement of Additional Information. The financial highlights should be read
in conjunction with the financial statements and notes thereto included in the
Annual Report.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
beginning of period... ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net investment
income............... .052 .057 .041 .031 .038 .059 .080 .089 .074 .065
Distributions from
net investment income
and net realized
capital gains......... (.052) (.057) (.041) (.031) (.038) (.059) (.080) (.089) (.074) (.065)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
period................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return (%).......... 5.33 5.88 4.13 3.16 3.88 6.12 8.27 9.32 7.60(b) 6.73
Ratios and Supplemental Data
Net assets, end of
year ($ millions)..... $272 $249 $271 $468 $662 $308 $152 $82 $61 $51
Ratio of operating
expenses to average
daily net assets (%)(a) .21 .25 .24 .22 .25 .25 .32 .37 .33 .31
Ratio of net investment
income to average net
assets (%)............ 5.21 5.73 3.94 3.12 3.66 5.89 8.02 8.94 7.43 6.43
(a) Operating expense
ratio including expenses
reimbursed, management
fee and other expenses
not imposed (%)......... -- -- -- -- -- -- -- -- .36 --
(b) Total returns are higher due to maintenance of the Portfolio's expenses.
</TABLE>
7
<PAGE>
Tax Free Portfolio
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, audited financial statements are available in the Company's Annual
Report dated December 31, 1996 and may be obtained without charge by writing or
calling the Company.
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon is included in the Annual Report
to Shareholders, which is incorporated by reference to the Statement of
Additional Information. The financial highlights should be read in conjunction
with the financial statements and notes thereto included in the Annual Report.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net investment
income................ .032 .036 .027 .023 .029 .045 .058 .063 .051 .045
Distributions from
net investment income
and net realized
capital gains.......... (.032) (.036) (.027) (.023) (.029) (.045) (.058) (.063) (.051) (.045)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
period................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return (%)......... 3.29 3.69 2.74(b) 2.32 2.92 4.65 5.96 6.45 5.24 4.56(b)
Ratios and Supplemental Data
Net assets, end of
year ($ millions)...... $104 $79 $168 $125 $96 $75 $88 $155 $168 $103
Ratio of operating
expenses to average
daily net assets (%)(a) .28 .35 .27 .29 .31 .36 .32 .30 .30 .30
Ratio of net investment
income to average net
assets (%)............. 3.25 3.61 2.73 2.30 2.82 4.55 5.79 6.25 5.15 4.46
(a) Operating expense
ratio including expenses
reimbursed, management fee
and other expenses not
imposed (%).............. -- -- .29 -- -- -- -- -- -- .31
(b) Total returns are higher due to maintenance of the Portfolio's expenses.
</TABLE>
8
<PAGE>
Government Portfolio
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Portfolio's
performance, audited financial statements are available in the Company's
Annual Report dated December 31, 1996 and may be obtained without charge by
writing or calling the Company.
The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is included in the
Annual Report to Shareholders, which is incorporated by reference to the
Statement of Additional Information. The financial highlights should be read
in conjunction with the financial statements and notes thereto included in the
Annual Report.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net investment
income................ .051 .055 .040 .030 .037 .057 .079 .090 .073 .065
Distributions from
net investment income
and net realized
capital gains.......... (.051) (.055) (.040) (.030) (.037) (.057) (.079) (.090) (.073) (.065)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
period................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return (%)......... 5.17 5.60 4.09 3.01 3.74 5.94 8.19 9.36 7.58 6.69
Ratios and Supplemental Data
Net assets, end of
year ($ millions)...... $47 $80 $118 $196 $247 $192 $174 $253 $161 $146
Ratio of operating
expenses to average
daily net assets (%)(a) .32 .39 .28 .26 .24 .26 .31 .29 .28 .31
Ratio of net investment
income to average net
assets (%)............. 5.06 5.46 3.89 2.97 3.69 5.86 7.89 8.96 7.35 6.56
</TABLE>
9
<PAGE>
Investment Objectives and Policies
Set forth below is a description of the investment objective and policies
of each Portfolio. The Portfolios seek to provide investors with as high a level
of current income through investment in high-quality short-term obligations as
is consistent with their investment objectives and policies and with
preservation of capital and liquidity. The Tax Free Portfolio seeks to provide
current income that is exempt from federal income taxes. The investment
objective of a Portfolio cannot 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 can
be no assurance that any of the Portfolios will achieve its investment
objective.
Securities in which the Portfolios invest may not yield as high a level of
current income as securities of lower quality and longer maturities which
generally have less liquidity and greater market risk.
Each Portfolio will maintain a dollar-weighted average maturity of 90 days
or less in an effort to maintain a net asset value per share of $1.00, but there
is no assurance that it will be able to do so.
Cash Portfolio
The Cash Portfolio seeks to provide investors with as high a level of
current income as is consistent with its investment policies and with
preservation of capital and liquidity. The Portfolio invests exclusively in a
broad range of short-term money market instruments that have remaining
maturities of not more than 397 calendar days and certain repurchase agreements.
These securities consist of obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, taxable and tax-exempt
municipal obligations, corporate and bank obligations, certificates of deposit,
bankers' acceptances and variable amount master demand notes.
The bank obligations in which the Portfolio may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. The Portfolio limits its investments in U.S. bank
obligations to obligations of U.S. banks (including foreign branches, the
obligations of which are guaranteed by the U.S. parent) that have at least $1
billion in total assets at the time of investment. "U.S. banks" include
commercial banks that are members of the Federal Reserve System or are examined
by the Comptroller of the Currency or whose deposits are insured by the Federal
Deposit Insurance Corporation. In addition, the Portfolio may invest in
obligations of savings banks and savings and loan associations insured by the
Federal Deposit Insurance Corporation that have total assets in excess of $1
billion at the time of the investment. The Portfolio limits its investments in
foreign bank obligations to U.S. dollar-denominated obligations of foreign banks
(including U.S. branches) which banks (based upon their most recent annual
financial statements) at the time of investment (i) have more than $10 billion,
or the equivalent in other currencies, in total assets; (ii) are among the 100
largest banks in the world as determined on the basis of assets; and (iii) have
branches or agencies in the U.S.; and which obligations, in the opinion of the
Adviser, are of an investment quality comparable to obligations of U.S. banks in
which the Portfolio may invest.
Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties that vary with market conditions and the
remaining maturity of the obligations. The Portfolio may not invest more than
10% of the value of its total assets in investments that are not readily
marketable including fixed time deposits subject to withdrawal penalties
maturing in more than seven calendar days.
The Portfolio may invest in U.S. dollar-denominated certificates of
deposit and promissory notes issued by Canadian affiliates of U.S. banks under
circumstances where the instruments are guaranteed as to principal and interest
by the U.S. bank. While foreign obligations generally involve greater risks than
those of domestic obligations, such as risks relating to liquidity,
marketability, foreign taxation, nationalization and exchange controls,
generally the Adviser believes that these risks are substantially less in the
case of instruments issued by Canadian affiliates that are guaranteed by U.S.
banks than in the case of other foreign money market instruments.
The Portfolio may invest in U.S. dollar-denominated obligations of foreign
banks. There is no limitation on the amount of the Portfolio's assets that may
be invested in obligations of foreign banks that meet the conditions set forth
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above. Such investments may involve greater risks than those affecting U.S.
banks or Canadian affiliates of U.S. banks. In addition, foreign banks are not
subject to examination by any U.S. Government agency or instrumentality.
Except for obligations of foreign banks and foreign branches of U.S.
banks, the Portfolio will not invest in the securities of foreign issuers.
Generally, the Portfolio may not invest less than 25% of the current value of
its total assets in bank obligations (including bank obligations subject to
repurchase agreements).
The commercial paper purchased by the Portfolio is limited to direct
obligations of domestic corporate issuers, including bank holding companies,
which obligations, at the time of investment, are (i) rated "P-1" by Moody's
Investors Service, Inc. ("Moody's"), "A-1" or better by Standard & Poor's
("S&P") or "F-1" by Fitch Investor Services, Inc. ("Fitch"), (ii) issued or
guaranteed as to principal and interest by issuers having an existing debt
security rating of "Aa" or better by Moody's or "AA" or better by S&P or Fitch,
or (iii) securities that, if not rated, are of comparable investment quality as
determined by the Adviser in accordance with procedures adopted by the Board of
Directors.
The Portfolio may invest in non-convertible corporate debt securities such
as notes, bonds and debentures that have remaining maturities of not more than
397 calendar days and that are rated "Aa" or better by Moody's or "AA" or better
by S&P or Fitch, and variable amount master demand notes. A variable amount
master demand note differs from ordinary commercial paper in that it is issued
pursuant to a written agreement between the issuer and the holder. Its amount
may from time to time be increased by the holder (subject to an agreed maximum)
or decreased by the holder or the issuer and is payable on demand. The rate of
interest varies pursuant to an agreed-upon formula. Generally, master demand
notes are not rated by a rating agency. However, the Portfolio may invest in a
master demand note that, if not rated, is in the opinion of the Adviser of an
investment quality comparable to rated securities in which the Portfolio may
invest. The Adviser monitors the issuers of such master demand notes on a daily
basis. Transfer of such notes is usually restricted by the issuer, and there is
no secondary trading market for such notes. The Portfolio may not invest in a
master demand note if, as a result, more than 10% of the value of its total net
assets would be invested in such notes.
All of the securities in which the Portfolio will invest must meet credit
standards applied by the Adviser pursuant to procedures established by the Board
of Directors. Should an issue of securities cease to be rated or if its rating
is reduced below the minimum required for purchase by the Portfolio, the Adviser
will dispose of any such security, as soon as practicable, unless the Directors
of the Company determine that such disposal would not be in the best interests
of the Portfolio.
In addition, the Portfolio may invest in variable or floating rate
obligations, obligations backed by bank letters of credit, when-issued
securities and securities with put features.
Tax Free Portfolio
The Tax Free Portfolio seeks to provide investors with as high a level of
current income that cannot be subjected to federal income tax by reason of
federal law as is consistent with its investment policies and with preservation
of capital and liquidity. The Portfolio invests exclusively in high-quality
municipal obligations the interest on which is exempt from federal income taxes
and that have remaining maturities of not more than 397 calendar days. Opinions
relating to the exemption of interest on municipal obligations from federal
income tax are rendered by bond counsel to the municipal issuer. The Portfolio
may also invest in certain taxable obligations on a temporary defensive basis,
as described below.
From time to time the Portfolio may invest 25% or more of the current
value of its total assets in municipal obligations that are related in such a
way that an economic, business or political development or change affecting one
such obligation would also affect the other obligations. For example, certain
municipal obligations accrue interest that is paid from revenues of similar type
projects; other municipal obligations have issuers located in the same state.
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The Portfolio may, pending the investment of proceeds of sales of shares
or proceeds from sales of portfolio securities or in anticipation of
redemptions, or to maintain a "defensive" posture when, in the opinion of the
Adviser, it is advisable to do so because of market conditions, elect to invest
temporarily up to 20% of the current value of its total assets in cash reserves
or taxable securities. Under ordinary market conditions, the Portfolio will
maintain at least 80% of the value of its total assets in obligations that are
exempt from federal income taxes and are not subject to the alternative minimum
tax. The foregoing constitutes a fundamental policy that cannot be changed
without the approval of a majority of the outstanding shares of the Portfolio.
The taxable market is a broader and more liquid market with a greater
number of investors, issuers and market makers than the market for municipal
obligations. The more limited marketability of municipal obligations may make it
difficult in certain circumstances to dispose of large investments
advantageously. In addition, certain municipal obligations might lose tax-exempt
status in the event of a change in the tax laws.
All of the securities in which the Portfolio will invest must meet credit
standards applied by the Adviser pursuant to procedures established by the Board
of Directors. Should an issue of securities cease to be rated or if its rating
is reduced below the minimum required for purchase by the Portfolio, the Adviser
will dispose of any such security, as soon as practicable, unless the Directors
of the Company determine that such disposal would not be in the best interests
of the Portfolio.
In addition, the Portfolio may enter into repurchase agreements, and
invest in variable or floating rate obligations, obligations backed by bank
letters of credit, when-issued securities and securities with put features.
Government Portfolio
The Government Portfolio seeks to provide investors with as high a level
of current income as is consistent with its investment policies and with
preservation of capital and liquidity. The Portfolio invests exclusively in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities that have remaining maturities of not more than 397 calendar
days and certain repurchase agreements.
In addition, the Portfolio may invest in variable or floating rate
obligations, when-issued securities and securities with put features.
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 each Portfolio that may be
changed only when permitted by law and approved by the holders of a majority of
such Portfolio's outstanding voting securities, as described under "Company
Organization" in the Statement of Additional Information.
The Portfolios may not issue senior securities, borrow money or pledge or
mortgage their assets, except that each Portfolio may borrow from banks up to
10% of the current value of that Portfolio's total net assets in order to meet
redemptions, and these borrowings may be secured by pledges of not more than 10%
of the Portfolio's total net assets (but investments may not be purchased by
such Portfolio while any such borrowing exists). Generally, the Cash Portfolio
may not invest less than 25% of the current value of its total assets in bank
obligations, including bank obligations subject to repurchase agreements.
For a more complete description, see "Investment Restrictions" in the
Statement of Additional Information.
Obligations of U.S. Government Agencies and Instrumentalities. Obligations
of U.S. Government agencies and instrumentalities are debt securities issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies. Some
of such obligations are supported by (a) the full faith and credit of the U.S.
Treasury (such as Government National Mortgage Association participation
certificates), (b) the limited authority of the issuer to borrow from the U.S.
Treasury (such as securities of the Federal Home Loan Bank), (c) the authority
of the U.S. Government to purchase certain obligations of the issuer (such as
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securities of the Federal National Mortgage Association) or (d) only the credit
of the issuer. In the case of obligations not backed by the full faith and
credit of the U.S., the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, which agency may be
privately owned. The Company will invest in obligations of U.S. Government
agencies and instrumentalities only when the Adviser is satisfied that the
credit risk with respect to the issuer is minimal.
Floating and Variable Rate Instruments. Certain of the obligations that
each Portfolio may purchase have a floating or variable rate of interest. Such
obligations bear interest at rates that are not fixed, but which vary with
changes in specified market rates or indices, such as the Prime Rate, and at
specified intervals. Certain of such obligations may carry a demand feature that
would permit the holder to tender them back to the issuer at par value prior to
maturity. Each Portfolio may invest in floating and variable rate obligations
even if they carry stated maturities in excess of 397 days, if certain
conditions contained in a rule of the Securities and Exchange Commission (the
"SEC") are met, in which case the obligations will be treated as having
maturities of not more than 397 days. Each Portfolio will limit its purchase of
floating and variable rate obligations to those meeting the quality standards
set forth above for such Portfolio. The Adviser will monitor on an ongoing basis
the earning power, cash flow and other liquidity ratios of the issuers of such
obligations, and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand. Each Portfolio's right to
obtain payment at par on a demand instrument could be affected by events
occurring between the date the Portfolio elects to demand payment and the date
payment is due that may affect the ability of the issuer of the instrument to
make payment when due except when such demand instruments permit same day
settlement. To facilitate settlement, the same day demand instruments must be
held in book entry form at a bank other than the Portfolio's Custodian subject
to a sub-custodian agreement approved by the Portfolio between that bank and the
Portfolio's Custodian.
The floating and variable rate obligations that the Portfolios may
purchase include certificates of participation in such obligations purchased
from banks. A certificate of participation gives the Portfolio an undivided
interest in the underlying obligations in the proportion that such Portfolio's
interest bears to the total principal amount of such obligations. Certain of
such certificates of participation may carry a demand feature that would permit
the holder to tender them back to the issuer prior to maturity. The Portfolios
may invest in certificates of participation even if the underlying obligations
carry stated maturities in excess of one year, upon compliance with certain
conditions contained in a rule of the SEC. The income received on certificates
of participation in tax-exempt municipal obligations constitutes interest from
tax-exempt obligations. It is presently contemplated that the Tax Free Portfolio
will not invest more than 20% of its total assets in these certificates.
To the extent that floating and variable rate instruments without demand
features are not readily marketable, they will be subject to the investment
restriction that no Portfolio may invest an amount equal to 10% or more of the
current value of its total assets in securities that are not readily marketable.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements
wherein the seller of a security to the Portfolio agrees to repurchase that
security from the Portfolio at a mutually agreed-upon time and price. Sellers of
repurchase agreements are banks that are issuers of eligible bank obligations
(see "Cash Portfolio" under "Investment Objectives and Policies" above) and
dealers that meet guidelines established by the Board of Directors. The period
of maturity is usually quite short, often overnight or a few days, although it
may extend over a number of months. Each Portfolio may enter into repurchase
agreements only with respect to obligations that could otherwise be purchased by
the Portfolio. While the maturities of the underlying securities may be greater
than one year, the term of the repurchase agreement is always less than one
year. If the seller defaults and the value of the underlying securities has
declined, the Portfolio may incur a loss. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the security, the Portfolio's
disposition of the security may be delayed or limited.
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A Portfolio may not enter into a repurchase agreement if, as a result,
more than 10% of the market value of that Portfolio's total net assets would be
invested in repurchase agreements with a maturity of more than seven days,
illiquid securities and securities for which current market quotations or bids
are not readily available.
Municipal Obligations. Municipal obligations, which are debt obligations
issued by or on behalf of states, cities, municipalities and other public
authorities, and may be general obligation, revenue, or industrial development
bonds, include municipal bonds, municipal notes and municipal commercial paper.
The Tax Free Portfolio may invest in excess of 25% of its assets in
industrial development bonds subject to the Portfolio's fundamental investment
policy requiring that it maintain at least 80% of the value of its total assets
in obligations that are exempt from federal income tax and are not subject to
the alternative minimum tax. For purposes of the Portfolio's fundamental
investment limitation regarding concentration of investments in any one
industry, industrial development bonds will be considered representative of the
industry for which purpose the bond was issued.
The Cash and Tax Free Portfolios' investments in municipal bonds are
limited to bonds that are rated at the date of purchase "Aa" or better by
Moody's or "AA" or better by S&P or Fitch.
The Portfolios' investments in municipal notes will be limited to notes
that are rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG
2" in the case of an issue having a variable rate demand feature) by Moody's,
"SP-1" or "SP-1+" by S&P or "F-1" or "F-1+" by Fitch.
Municipal commercial paper is a debt obligation with a stated maturity of
270 days or less that is issued to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term debt. The Portfolios may
invest in municipal commercial paper that is rated at the date of purchase "P-1"
by Moody's, "A-1" or "A-1+" by S&P or "F-1" by Fitch. If a municipal obligation
is not rated, the Portfolios may purchase the obligation if, in the opinion of
the Adviser, it is of investment quality comparable to other rated investments
that are permitted in the Portfolios.
Letters of Credit. Municipal obligations, including certificates of
participation, commercial paper and other short-term obligations may be backed
by an irrevocable letter of credit of a bank which assumes the obligation for
payment of principal and interest in the event of default by the issuer. Only
banks which, in the opinion of the Adviser, are of investment quality comparable
to other permitted investments of the Portfolios may be used for letter of
credit backed investments.
Securities with Put Rights. The Portfolios may enter into put transactions
with respect to obligations held in their portfolios with broker/dealers
pursuant to a rule under the 1940 Act and with commercial banks.
The right of the Portfolios to exercise a put is unconditional and
unqualified. A put is not transferable by a Portfolio, although the Portfolio
may sell the underlying securities to a third party at any time. If necessary
and advisable, any Portfolio may pay for certain puts either separately in cash
or by paying a higher price for portfolio securities that are acquired subject
to such a put (thus reducing the yield to maturity otherwise available for the
same securities). The Portfolios expect, however, that puts generally will be
available without the payment of any direct or indirect consideration.
The Portfolios may enter into puts only with banks or broker/dealers that,
in the opinion of the Adviser, present minimal credit risks. The ability of the
Portfolios to exercise a put will depend on the ability of the bank or
broker/dealer to pay for the underlying securities at the time the put is
exercised. In the event that a bank or broker/dealer should default on its
obligation to repurchase an underlying security, the Portfolio might be unable
to recover all or a portion of any loss sustained from having to sell the
security elsewhere.
The Portfolios intend to enter into puts solely to maintain liquidity and
do not intend to exercise their rights thereunder for trading purposes. The puts
will only be for periods substantially less than the life of the underlying
security. The acquisition of a put will not affect the valuation by the
Portfolio of the underlying security. The actual put will be valued at zero in
determining net asset value of the Portfolios. Where a Portfolio pays directly
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or indirectly for a put, its cost will be reflected as an unrealized loss for
the period during which the put is held by the Portfolio and will be reflected
in realized gain or loss when the put is exercised or expires. If the value of
the underlying security increases, the potential for unrealized or realized gain
is reduced by the cost of the put. The maturity of a municipal obligation
purchased by a Portfolio will not be considered shortened by any put to which
such obligation is subject.
Third Party Puts. The Portfolios may also purchase long-term fixed rate
bonds that have been coupled with an option granted by a third party financial
institution allowing a Portfolio at specified intervals, not exceeding 397
calendar days, to tender (or "put") the bonds to the institution and receive the
face value thereof (plus accrued interest). These third party puts are available
in several different forms, may be represented by custodial receipts or trust
certificates and may be combined with other features such as interest rate
swaps. A Portfolio receives a short-term rate of interest (which is periodically
reset), and the interest rate differential between that rate and the fixed rate
on the bond is retained by the financial institution. The financial institution
granting the option does not provide credit enhancement, and in the event that
there is a default in the payment of principal or interest, or downgrading of a
bond to below investment grade, or a loss of the bond's tax-exempt status, the
put option will terminate automatically, the risk to a Portfolio will be that of
holding such a long-term bond and the dollar-weighted average maturity of the
Portfolio would be adversely affected.
When-Issued Securities. Each Portfolio may purchase securities on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of the commitment to purchase. The Portfolios will only
make commitments to purchase securities on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date if it is deemed advisable. When-issued securities are subject to
market fluctuation and no income accrues to the purchaser prior to issuance. The
purchase price, and the interest rate that will be received on debt securities,
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed upon purchase price, in which case
there could be an unrealized loss at the time of delivery.
Each Portfolio will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to that Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Portfolio will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
Distribution and Performance Information
Dividends and Capital Gains Distributions
The Company declares dividends on the outstanding shares of each Portfolio
from each Portfolio's net investment income at the close of each business day to
shareholders of record at 2:00 p.m. for the Tax Free Portfolio and 4:00 p.m. for
the Cash Portfolio and Government Portfolio on the day of declaration. Realized
capital gains and losses (other than long-term capital gains) may be taken into
account in determining the daily distribution. Shares purchased will begin
earning dividends on the day the purchase order is executed and shares redeemed
will earn dividends through the previous day. Net investment income for a
Saturday, Sunday or holiday will be declared as a dividend on the previous
business day to shareholders of record at 2:00 p.m. for the Tax Free Portfolio
and 4:00 p.m. for the Cash Portfolio and Government Portfolio on that day.
Investment income for a Portfolio includes, among other things, interest
income and accretion of market and original issue discount and amortization of
premium.
Dividends declared in and attributable to the preceding month will be paid
on the first business day of each month. Net realized capital gains, after
utilization of capital loss carryforwards, if any, will be distributed annually,
although an additional distribution may be necessary to prevent the application
of a federal excise tax. Dividends and distributions will be invested in
additional shares of the same Portfolio at net asset value and credited to the
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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. Each Portfolio forwards
to the Custodian the monies for dividends to be paid in cash on the payment
date.
Shareholders who redeem all their shares prior to a dividend payment will
receive, in addition to the redemption proceeds, dividends declared but unpaid.
Shareholders who redeem only a portion of their shares will be entitled to all
dividends declared but unpaid on such shares on the next dividend payment date.
(See also "Transaction Information--Redeeming Shares.")
Taxes
Each of the Company's Portfolios has in the past qualified, and intends to
continue to qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Each Portfolio will be treated as a
separate entity for tax purposes and thus the provisions of the Code applicable
to regulated investment companies generally will be applied to each Portfolio
separately, rather than to the Company as a whole. In addition, net capital
gains, net investment income, and operating expenses will be determined
separately for each Portfolio. By complying with the applicable provisions of
the Code, each Portfolio will not be subject to federal income taxes with
respect to net investment income and net capital gains distributed to its
shareholders. A 4% non-deductible excise tax will be imposed on each Portfolio
(except the Tax Free Portfolio to the extent of its tax-exempt income) to the
extent such Portfolio does not meet certain distribution requirements by the end
of each calendar year.
Dividends from net investment income (including realized net short-term
capital gains in excess of net long-term capital losses), except
"exempt-interest dividends" (described below), will be taxable as ordinary
income for federal income tax purposes. Most states exempt from personal income
tax dividends paid by a regulated investment company attributable to interest
derived from obligations of the U.S. Government and certain of its agencies and
instrumentalities. For example, shareholders of a regulated investment company
will not be subject to New York State or City personal income tax on the
dividends paid by such a fund to the extent attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities, provided that at the close of each quarter of the fund's
taxable year at least 50% of the value of the total assets of the fund consists
of such obligations. Dividends paid by the Government Portfolio may qualify for
this treatment. Dividends distributed by the Tax Free Portfolio are not excluded
in determining New York State or City franchise taxes on corporations and
financial institutions. In addition to the distributions described above, in the
case of the dividends distributed by the Tax Free Portfolio, that part of its
net investment income that is attributable to interest from tax-exempt
securities and that is distributed to shareholders will be designated by the
Company as an "exempt-interest dividend," and, as such, will be exempt from
federal income tax. In addition, the Tax Free Portfolio may not be exempt from
certain state and local taxes.
Distributions of net long-term capital gains in excess of net short-term
capital losses, if any, will be taxable as long-term capital gains, whether
received in cash or reinvested in additional shares, regardless of how long the
shareholder has held the shares. Because substantially all of the income of each
Portfolio will arise from interest, no part of the distributions to shareholders
is expected to qualify for the dividends received deduction available to
corporations. Each year the Company will notify shareholders of the federal
income tax status of distributions.
In the case of the shareholders of the Tax Free Portfolio, interest on
indebtedness incurred, or continued, to purchase or carry shares of the
Portfolio will not be deductible for federal income tax purposes to the extent
that the Portfolio's distributions are exempt from federal income tax. In
addition, a portion of an exempt-interest dividend allocable to certain
tax-exempt obligations may be treated as a preference item for purposes of the
alternative minimum tax imposed on both individuals and corporations. Persons
who may be "substantial users" (or "related persons" of substantial users) of
facilities financed by private activity bonds should consult their tax advisors
before purchasing shares in the Tax Free Portfolio.
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The Company will be required to withhold, subject to certain exemptions,
at a rate of 31% on dividends paid or credited to individual shareholders
(except shareholders of the Tax Free Portfolio to the extent it distributes
exempt-interest dividends) and on redemption proceeds, if a correct Social
Security or taxpayer identification number, certified when required, is not on
file with the Company or Transfer Agent. (See also "Transaction
Information--Redeeming Shares.")
The exemption of interest income for federal income tax purposes may not
result in similar exemptions under the tax law of state and local tax
authorities. In general, interest earned on obligations issued by the state or
locality in which the investor resides may be exempt from state and local taxes.
State and local laws differ, however, with respect to the tax treatment of
dividends attributable to interest on obligations of: (i) the U.S. Government
and certain of its agencies and instrumentalities, and (ii) obligations of
states and localities, and shareholders should consult their tax advisors about
the taxability of dividends. The Company furnishes each shareholder of record
with a statement of the portion of the previous year's income derived from: (i)
U.S. Government Obligations and (ii) various agencies and instrumentalities,
each of which is specified by name.
Shareholders are urged to consult their own tax advisors regarding
specific questions as to federal, state or local taxes.
Performance Information
From time to time, quotations of a Portfolio's performance may be included
in advertisements, sales literature or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment and
are not intended to indicate future performance. The "yield" of a Portfolio
refers to income generated by an investment in a Portfolio over a specified
seven-day period. Yield is expressed as an annualized percentage. The "effective
yield" of a Portfolio is expressed similarly but, when annualized, the income
earned by an investment in a Portfolio is assumed to be reinvested and will
reflect the effects of compounding. "Total return" is the change in value of an
investment in a Portfolio for a specified period. The "average annual total
return" of a Portfolio is the average annual compound rate of return of an
investment in a Portfolio assuming the investment has been held for one year,
five years and ten years as of a stated ending date. If a Portfolio has not been
in operation for at least ten years, the life of the Portfolio will be used
where applicable. "Cumulative total return" represents the cumulative change in
value of an investment in a Portfolio for various periods. Total return
calculations assume that all dividends and capital gains distributions during
the period were reinvested in shares of a Portfolio. Performance will vary based
upon, among other things, changes in market conditions and the level of a
Portfolio's expenses.
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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, diversified, open-end
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.
Investment Adviser
The Company retains the investment management firm of Scudder, Stevens &
Clark, Inc. (the "Adviser"), a Delaware corporation, to manage the Company'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, 1996,
the Adviser and its affiliates had in excess of $115 billion under their
supervision, approximately two-thirds of which was invested in fixed-income
securities.
Pursuant to Investment Advisory Agreements (the "Agreements") with the
Company on behalf of each Portfolio, the Adviser regularly provides each
Portfolio with investment research, advice and supervision and furnishes
continuously an investment program for each Portfolio consistent with its
investment objective and policies. The Agreements further provide that the
Adviser will pay the compensation and certain expenses of all officers and
certain employees of the Company and make available to each such Portfolio such
of the Adviser's directors, officers and employees as are reasonably necessary
for such Portfolio's operations or as may be duly elected officers or directors
of the Company. Under the Agreements, the Adviser pays each Portfolio's office
rent and will provide 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 Portfolios, may
render investment advice, management and other services to others.
Each Portfolio will bear all expenses not specifically assumed by the
Adviser under the terms of the Agreements, including, among others, the fee
payable to the Adviser as 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 its Transfer Agent.
For a more complete description of the expenses to be borne by the Portfolios,
see "Investment Adviser" and "Distributor" in the Statement of Additional
Information.
Each Portfolio is charged a management fee at an annual rate of 0.15% of
its average daily net assets. Management fees are computed daily and paid
monthly.
Transfer Agent
Scudder Service Corporation, P.O. Box 2038, Boston, Massachusetts 02106, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Company.
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Distributor
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the
Company's principal underwriter. 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
State Street Bank and Trust Company is the custodian for the Company.
Fund Accounting Agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of each Portfolio.
Transaction Information
Purchasing Shares
There is a $10 million minimum initial investment in the Company, with a
minimum investment in any single Portfolio of $2 million. Subsequent investments
may be made in the Portfolios in any amount. Investment minimums may be waived
for Directors and officers of the Company and certain other affiliates. 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 any Portfolio may be purchased by writing or calling the
Company's Transfer Agent. Orders for shares of a 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 a Portfolio will become effective when an investor's
bank wire order or check is converted into federal funds (monies credited to the
Custodian's account with its registered Federal Reserve Bank). If payment is
transmitted by the Federal Reserve Wire System, the order will become effective
upon receipt. Orders will be executed at 2:00 p.m. for the Tax Free Portfolio
and 4:00 p.m. for the Cash Portfolio and the Government Portfolio on the same
day if a bank wire or check is converted to federal funds or received by 12:00
noon for the Tax Free Portfolio and 4:00 p.m. for the Cash Portfolio and the
Government Portfolio. In addition, if investors notify the Company by 2:00 p.m.
for the Tax Free Portfolio and 4:00 p.m. for the Cash Portfolio and the
Government Portfolio that they intend to wire federal funds to purchase shares
of a Portfolio on any business day and if monies are received in time to be
invested, orders will be executed at the net asset value per share determined at
2:00 p.m. for the Tax Free Portfolio and 4:00 p.m. for the Cash Portfolio and
the Government Portfolio the same day. Wire transmissions may, however, be
subject to delays of several hours, in which event the effectiveness of the
order may be delayed. Payments transmitted by a bank wire other than the Federal
Reserve Wire System may take longer to be converted into federal funds.
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 a Portfolio, a shareholder appoints the Transfer Agent to
establish an open account to which all shares purchased will be credited,
together with any dividends and capital gains distributions that are paid in
additional shares. See "Distribution and Performance Information--Dividends and
Capital Gains Distributions."
Initial Purchase by Wire
1. Shareholders may open an account by calling toll free from any
continental state: 1-800-854-8525. Give the Portfolio(s) to be invested in,
name(s) in which the account is to be registered, address, Social Security or
19
<PAGE>
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: [Name of Portfolio(s)]
Account (name(s) in which to be registered)
Account Number (as assigned by telephone) and amount
invested in each 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 2038
Boston, Massachusetts 02106
Additional Purchases by Wire
Instruct the wiring bank to transmit the specified amount to the Custodian
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 check payable to the Portfolio whose
shares are to be purchased, to the Transfer Agent at the address set forth
above.
Additional Purchases by Mail
1. Make a check payable to the Portfolio whose shares are to be purchased.
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 any Portfolio will be redeemed at their next determined net asset
value. See "Share Price." For the shareholder's convenience, the Company has
established several different redemption procedures.
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
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 Portfolios not reasonably practicable.
A shareholder's account in a Portfolio remains open for up to one year
following complete redemption, and all costs during the period will be borne by
that Portfolio.
The Company reserves the right to redeem involuntarily upon not less than
30 days' written notice all shares in a shareholder's Portfolio accounts if the
combined holdings in those accounts aggregate less than $10 million. However,
any shareholder affected by the exercise of the right will be allowed to make
additional investments prior to the date fixed for redemption to avoid
liquidation of a Portfolio account or accounts.
20
<PAGE>
The Company also reserves the right, following 30 days' notice, to redeem
all shares in accounts without a certified Social Security or taxpayer
identification number. 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.
No redemption of shares purchased by check will be permitted pursuant to
the Expedited Redemption Service until seven business days after those shares
have been credited to the shareholder's account.
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."
Tax Free Portfolio: Proceeds of Expedited Redemptions will be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request is received by the Transfer Agent by 12:00 noon (eastern
time) on a day the Company and the Custodian are open for business, the
redemption proceeds will be transmitted to the shareholder's bank that same day.
Such expedited redemption requests received after 12:00 noon and prior to 2:00
p.m. (eastern time) will be honored the same day if such redemption can be
accomplished in time to meet the Federal Reserve Wire System schedules.
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Cash Portfolio and Government Portfolio: Proceeds of Expedited Redemptions
will be wired to the shareholder's bank indicated in the Purchase Application.
If an Expedited Redemption request is received by the Transfer Agent by 4:00
p.m. on a day the Company and the Custodian are open for business, the
redemption will be executed at the net asset value calculated at 4:00 p.m. and
proceeds will normally start transmission that same day if such redemption can
be accomplished in time to meet the Federal Reserve Wire System's schedule.
Each 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 a Portfolio does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. Each Portfolio will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Exchanging Shares
Shares of any of the Portfolios that have been held for seven days or more
may be exchanged for shares of one of the other Portfolios in an identically
registered account. Shares may be exchanged for shares of another Portfolio only
if shares of such Portfolio may legally be sold under applicable state laws.
A shareholder may exchange shares by calling the Transfer Agent's toll
free number at 1-800-854-8525. Procedures applicable to redemption of a
Portfolio's shares are also applicable to exchanging shares. The Company and the
Distributor may modify or discontinue exchange privileges at any time upon 60
days' notice.
Share Price
Net asset value per share for each Portfolio is determined by Scudder Fund
Accounting Corporation on each day the Exchange is open for trading. The net
asset value per share of each Portfolio is determined at 2:00 p.m. for the Tax
Free Portfolio and 4:00 p.m. for the Cash Portfolio and Government Portfolio.
The net asset value per share of each 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.
Each Portfolio uses the amortized cost method to value its portfolio
securities and seeks to maintain a constant net asset value of $1.00 per share.
The amortized cost method involves valuing a security at its cost and accreting
any discount and amortizing any premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security. See the Statement of Additional Information for a more complete
description of the amortized cost method.
Shareholder Benefits
Account Services
Shareholders will be sent a Statement of Account from the Distributor, as
agent of the Company, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Company at the address and telephone number
on the cover of this Prospectus with any questions relating to their investment
in shares of any of the Portfolios.
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 one or more of the Portfolios. 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.
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Shareholder Reports. The fiscal year of the Company ends on December 31 of
each year. The Company sends to its shareholders, semi-annually, reports showing
the investments in each of the Company's Portfolios and other information
(including unaudited financial statements) pertaining to the Company. An annual
report, containing financial statements audited by the Company'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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24
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<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
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, and information or
representations not contained herein must not be relied upon as having been
authorized by the Company or the Distributor. This Prospectus does not
constitute an offer of any security other than the registered securities to
which it relates or an offer to any person in any jurisdiction where such offer
would be unlawful.
Institutional International
Equity Portfolio
BARRETT INTERNATIONAL SHARES
Prospectus
May 1, 1997
<PAGE>
Institutional International Equity Portfolio
345 Park Avenue, New York, New York 10154
1-800-854-8525
Scudder, Stevens & Clark, Inc. - Investment Adviser
Scudder Investor Services, Inc. - Distributor
Institutional International Equity Portfolio (the "Portfolio") is a series
of Scudder Institutional Fund, Inc. (the "Company"), a no-load, open-end,
diversified, management investment company. Currently the Portfolio is comprised
of a single class of shares ("Barrett International Shares").
The Portfolio seeks long-term growth of capital primarily through a
diversified portfolio of marketable foreign equity securities.
This Prospectus sets forth concisely the information about the Portfolio
that a prospective investor should know before investing. Please retain it for
future reference. If you require more detailed information, a Statement of
Additional Information dated May 1, 1997, 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 and is available along with other related
materials on the Securities and Exchange Commission's Internet Web site
(http://www.sec.gov).
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.
<PAGE>
Table of Contents
Page
Expense Information 2
Financial Highlights 3
Investment Objective and Policies 4
Additional Information About Policies and Investments 5
Distribution and Performance Information 7
Company Organization 8
Transaction Information 9
Shareholder Benefits 13
May 1, 1997
<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 paid by the
Portfolio before it distributed itsnet investment income, expressed as a
percentage of its average daily net assets for the initial fiscal year.
Investment Management Fee 0%*
Other Expenses 0.95%
Total Portfolio Operating Expenses 0.95%*
Example
Based on the 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 July 31, 1997, the Adviser has agreed to waive a portion of its
investment management fee to the extent necessary so that the total
annualized expenses of the Portfolio do not exceed 0.95% of average daily
net assets. If the Adviser had not agreed to waive a portion of its fee, it
is estimated that annualized Portfolio expenses would be: investment
management fee 0.90%, other expenses 1.65% and total operating expenses
2.55% for the fiscal year.
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Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the audited
financial statements.
If you would like more detailed information concerning the Portfolio's
performance, audited financial statements are available in the Portfolio's
Annual Report dated December 31, 1996 and may be obtained without charge by
writing or calling the Company.
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon is included in the Annual Report
to Shareholders, which is incorporated by reference to the Statement of
Additional Information. The financial highlights should be read in conjunction
with the financial statements and notes thereto included in the Annual Report.
For the period
April 3, 1996
(commencement
of operations)
to December 31,
1996
------------
Income from Investment Operations:
Net asset value, beginning of period $ 12.00
Net investment income .11
Net realized and unrealized gain (loss) on investments .48
-----
Total from investment operations .59
-----
Less distributions from income (.11)
-----
Net asset value, end of period $12.48
-----
-----
Total return (%) (b) 4.93**
Ratios and Supplementary Data
Net assets, end of period ($ millions) 18
Ratio of operating expenses, to average daily net assets (%) .95*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) 2.55*
Ratio of net investment income, to average daily net assets (%) 1.24*
Portfolio turnover rate (%) 10.1*
Average commission rate paid (c) $.0004
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
(c) Average commission rate paid per share of common and preferred stock
securities.
* Annualized
** Not annualized
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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. If there is a change in investment objective,
shareholders should consider whether the Portfolio remains an appropriate
investment in light of their then current financial position and needs. There is
no assurance that the Portfolio will achieve its investment objective. Except as
otherwise indicated, the Portfolio's policies are not fundamental and may be
changed without a vote of shareholders.
Investments
The Portfolio generally invests at least 90% of its total assets in equity
securities of established companies, listed on foreign exchanges, which the
Portfolio's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"),
believes have favorable characteristics.
When the Adviser believes that it is appropriate to do so in order to
achieve the Portfolio's investment objective of long-term capital growth, the
Portfolio may invest up to 10% of its total assets in debt securities. Such debt
securities include debt securities of foreign governments, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (ECU). Portfolio debt investments will be selected on the basis
of, among other things, yield, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk. The
Portfolio may purchase "investment-grade" bonds, which are those rated Aaa, Aa,
A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by
Standard & Poor's ("S&P") or, if unrated, judged by the Adviser to be of
equivalent quality. The Portfolio may also invest up to 5% of its total assets
in debt securities which are rated below investment-grade (see "Risk Factors").
When the Adviser determines that exceptional conditions exist abroad, the
Portfolio may, for temporary defensive purposes, invest all or a portion of its
assets in Canadian or U.S. Government obligations or currencies, or securities
of companies incorporated in and having their principal activities in Canada or
the U.S.
The Portfolio's investments are generally denominated in foreign
currencies. The strength or weakness of the U.S. dollar against these currencies
is responsible for part of the Portfolio's investment performance. For example,
if the dollar falls in value relative to the Japanese yen, the dollar value of a
Japanese stock held in the Portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall.
The Portfolio reserves the right, without prior shareholder approval, in
the future to pursue its investment objective by investing all of its investable
assets in a separate registered investment company having the same investment
objective and substantially similar policies and restrictions as the Portfolio.
The new structure (commonly known as "master-feeder") could enable the Portfolio
to benefit, directly or indirectly, from certain economies of scale, based on
the premise that certain of the expenses of operating an investment portfolio
are relatively fixed and that a larger investment portfolio may eventually
achieve a lower ratio of operating expenses to average net assets.
4
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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.
For a more complete description, see "Investment Restrictions" in the
Statement of Additional Information.
Strategic Transactions and Derivatives
The Portfolio may, but is not required to, utilize various other
investment strategies as described below to hedge various market risks (such as
interest rates, currency exchange rates, and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities in the Portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Portfolio may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Portfolio's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Portfolio's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and in any
combination, and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Portfolio
to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Portfolio will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes. Please refer to "Risk
Factors--Strategic Transactions and Derivatives" for more information.
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
5
<PAGE>
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.
Illiquid or restricted securities. The Fund may invest a portion of its assets
in securities for which there is not an active trading market, or which have
resale restrictions ("restricted securities"). These types of securities
generally offer a higher return than more readily marketable securities, but
carry the risk that the Fund may not be able to dispose of them at an
advantageous time or price. Some restricted securities purchased by the Fund,
however, may be considered liquid despite resale restrictions, since they can be
sold to other qualified institutional buyers under a rule of the Securities and
Exchange Commission (Rule 144A). Upon approval from the Fund's Board of
Directors, the Adviser may determine which Rule 144A securities will be
considered liquid.
Debt Securities. The Portfolio may invest no more than 5% of its total assets in
debt securities which are rated below investment-grade; that is, rated below Baa
by Moody's or below BBB by S&P, commonly referred to as junk bonds. The lower
the ratings of such debt securities, the greater their risks render them like
equity securities. Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics. The Portfolio may invest
in securities which are rated D by S&P or, if unrated, are of equivalent
quality. Securities rated D may be in default with respect to payment of
principal or interest. The market value of the Portfolio's debt securities may
vary inversely with changes in prevailing interest rates.
Strategic Transactions and Derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or for prices higher than (in the case of put options) or lower than (in
the case of call options) current market values, limit the amount of
appreciation the Portfolio can realize on its investments or cause the Portfolio
to hold a security it might otherwise sell. The use of currency transactions can
result in the Portfolio incurring losses as a result of a number of factors
including the imposition of exchange controls, suspension of settlements or the
inability to deliver or receive a specified currency. The use of options and
futures transactions entails certain other risks. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Portfolio creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Portfolio's position. In addition, futures and options markets
may not be liquid in all circumstances and certain over-the-counter options may
have no markets. As a result, in certain markets, the Portfolio might not be
able to close out a transaction without incurring substantial losses, if at all.
Although the use of futures contracts and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain which
might result from an increase in value of such position. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
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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.
Distribution and Performance Information
Dividends and Capital Gains Distributions
The Portfolio intends to distribute dividends from its net investment
income and net realized capital gains after utilization of capital loss
carryforwards, if any, in December to prevent application of federal excise tax.
An additional distribution may be made, if necessary. Any dividends or capital
gains distributions declared in October, November or December with a record date
in such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. Dividends and distributions will be invested in
additional shares of the Portfolio at net asset value and credited to the
shareholder's account on the payment date or, at the shareholder's election,
paid in cash. Dividend checks and Statements of Account will be mailed
approximately two business days after the payment date.
Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains distributions, if any,
which are so designated by the Portfolio are taxable as long-term capital gains
regardless of the length of time shareholders have owned their shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income. Dividends and other distributions are taxable to
shareholders in the same manner whether received in cash or reinvested in
additional Portfolio shares.
Shareholders may be able to claim a credit or deduction on their income
tax returns for their pro rata portion of qualified taxes paid by the Portfolio
to foreign countries.
Taxes
The Portfolio intends to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the
Portfolio must meet certain income, distribution and diversification
requirements. In any year in which the Portfolio qualifies as a regulated
investment company and timely distributes all of its taxable income, the
Portfolio generally will not pay any U.S. federal income or excise tax.
The Portfolio sends detailed tax information about the amount and type of
its distribution by January 31 of the following year.
Upon the redemption, sale or other disposition of shares of the Portfolio,
a shareholder may realize a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares.
The Portfolio will be required to withhold, subject to certain exemptions,
at a rate of 31% of all taxable distributions payable to shareholders who fail
to provide the Portfolio with their correct taxpayer identification number or to
make required certifications, or who have been notified by the IRS that they are
subject to backup withholding. (See also "Transaction Information--Redeeming
Shares.")
Further information relating to U.S. federal tax consequences is contained
in the Statement of Additional Information. Portfolio distributions also may be
subject to state, local and foreign taxes. Shareholders are urged to consult
their own tax advisors regarding specific questions as to federal, state, local
or foreign taxes.
Performance Information
From time to time, quotations of the Portfolio's performance may be
included in advertisements, sales literature or shareholder reports. All
performance figures are historical, show the performance of a hypothetical
investment and are not intended to indicate future performance. "Total return"
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
7
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but does not include the reinvestment of dividends. Performance will vary based
upon, among other things, changes in market conditions and the level of the
Portfolio's expenses.
Company Organization
The Company was formed on January 2, 1986 as a corporation under the laws
of the State of Maryland. The Company is a no-load, open-end, diversified,
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"). The Company's activities are supervised by its Board of
Directors. The Board of Directors, under applicable laws of the State of
Maryland, in addition to supervising the actions of the Company's Adviser and
Distributor, as set forth below, decides upon matters of general policy.
Shareholders have one vote for each share held on matters on which they
are entitled to vote. The Company is not required to and has no current
intention of holding annual shareholder meetings, although meetings may be
called for purposes such as electing or removing Directors, changing fundamental
investment policies or approving an investment advisory agreement. Shareholders
will be assisted in communicating with other shareholders in connection with
removing a Director as if Section 16(c) of the 1940 Act were applicable.
If the Portfolio does not achieve an asset level of $100 million within a
period of three years from commencement of operations, it may be terminated at
the Board's discretion.
Investment Adviser
The Company retains the investment management firm of Scudder, Stevens &
Clark, Inc., a Delaware corporation, to manage the Portfolio's daily investment
and business affairs subject to the policies established by the Board of
Directors. The Adviser is one of the most experienced investment counsel firms
in the U.S. The Adviser was established in 1919 as a partnership and was
restructured as a Delaware corporation in 1985. The principal source of the
Adviser's income is professional fees received from providing continuing
investment advice. The Adviser provides investment counsel for many individuals
and institutions, including insurance companies, endowments, industrial
corporations and financial and banking organizations. As of December 31, 1996,
the Adviser and its affiliates had in excess of $115 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
borne by the Portfolio, see "Investment Adviser" and "Distributor" in the
Statement of Additional Information.
The Portfolio is charged a management fee equal, on an annual basis, to
0.90% of the Portfolio's average daily net assets. Management fees are computed
daily and paid monthly. The Adviser has agreed to maintain the total annualized
expenses of the Portfolio at no more than 0.95% of the average daily net assets
of the Portfolio until July 31, 1997.
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Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced
investment management firms, actively manages your investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities. The Adviser has been a
leader in international investment management and trading for over 40 years.
The Institutional International Equity Portfolio is managed by a team of
Scudder investment professionals, each of whom plays an important role in the
Portfolio's management process. Team members work together to develop investment
strategies and select securities for the Portfolio. They are supported by
Scudder's large staff of economists, research analysts, traders, and other
investment specialists who work in Scudder's offices across the U.S. and abroad.
Scudder believes its team approach benefits Portfolio investors by bringing
together many disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Carol L. Franklin has responsibility for setting
the Portfolio's investment strategy and overseeing security selection for the
Portfolio. Ms. Franklin, who has 19 years of experience in finance and
investing, joined Scudder in 1981. J. Gregory Garrett, Portfolio Manager, joined
Scudder in 1990, and the Portfolio's team in 1997. Mr. Garrett specializes in
international client service and international equity management and has over
ten years of investment experience.
Transfer Agent
Scudder Service Corporation, P.O. Box 9242, Boston, Massachusetts 02205, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Portfolio.
Distributor
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the
Company's principal underwriter (the "Distributor"). Scudder Investor Services,
Inc. confirms, as agent, all purchases of shares of the Portfolio. Under the
Underwriting Agreement with the Company, the Distributor acts as the principal
underwriter and bears the cost of printing and mailing prospectuses to potential
investors and of any advertising expenses incurred by it in connection with the
distribution of shares.
Custodian
Brown Brothers Harriman & Co. is the custodian for the Portfolio.
Accounting Agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of the Portfolio.
Transaction Information
Purchasing Shares
There is a $1,000 minimum initial investment in the Portfolio and a
minimum account size of $1,000. The minimum subsequent investment for the
Portfolio is $1,000. The minimum investment requirement may be waived or lowered
for investments effected through banks and other institutions and for
investments effected on a group basis by certain other entities and their
employees, such as pursuant to a payroll deduction plan and for investments made
in an Individual Retirement Account offered by the Company. Investment minimums
9
<PAGE>
may also be waived for Directors and officers of the Company. The Company and
the Distributor reserve the right to reject any purchase order. All funds will
be invested in full and fractional shares.
Shares of the Portfolio may be purchased by writing or calling the
Transfer Agent. Orders for shares of the Portfolio will be executed at the net
asset value per share next determined after an order has become effective. See
"Share Price."
Orders for shares of the Portfolio will become effective at the net asset
value per share next determined after receipt by the Transfer Agent of a check
drawn on any member of the Federal Reserve System or by the custodian of a bank
wire or Federal Reserve wire.
Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay the
execution of an order. Checks must be payable in U.S. dollars and will be
accepted subject to collection at full face value.
By investing in the Portfolio, a shareholder appoints the Transfer Agent
to establish an open account to which all shares purchased will be credited,
together with any dividends and capital gains distributions that are paid in
additional shares. See "Distribution and Performance Information--Dividends and
Capital Gains Distributions."
Initial Purchase by Wire
1. Shareholders may open an account by calling toll free from any
continental state: 1-800-854-8525. Give the name(s) in which the Portfolio's
account is to be registered, address, Social Security or taxpayer identification
number, dividend payment election, amount to be wired, name of the wiring bank
and name and telephone number of the person to be contacted in connection with
the order. An account number will then be assigned.
2. Instruct the wiring bank to transmit the specified amount to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Number 011000028
Custody and Shareholder Services Division
Attention: Institutional International Equity Portfolio
Account (name(s) in which registered)
Account Number (as assigned by telephone) and amount
invested in the Portfolio
3. Complete a Purchase Application. Indicate the services to be
used. A completed Purchase Application must be received by the Transfer
Agent before the Expedited Redemption Service can be used. Mail the Purchase
Application to:
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205
Additional Purchases by Wire
Instruct the wiring bank to transmit the specified amount to State Street
Bank and Trust Company with the information stated above.
Additional Purchases by Telephone Order
Existing shareholders may purchase shares at a certain day's price by
calling the Transfer Agent before the close of regular trading on the New York
Stock Exchange (the "Exchange"), normally 4:00 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
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<PAGE>
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Portfolio resulting from this cancellation. The
Portfolio may, at its discretion, accept purchase orders of less than $10,000
regardless of the account size or may allow an account to be established through
this service.
Initial Purchase by Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and check payable to the Institutional
International Equity Portfolio to the Transfer Agent at the address set forth
above.
Additional Purchases by Mail
1. Make a check payable to the Institutional International Equity
Portfolio. Write the shareholder's Portfolio account number on the check.
2. Mail the check and the detachable stub from the Statement of Account
(or a letter providing the account number) to the Transfer Agent at the address
set forth above.
Redeeming Shares
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of the Portfolio will be redeemed at its next determined net asset value.
See "Share Price." For the shareholder's convenience, the Company has
established several different redemption procedures.
No redemption of shares purchased by check will be permitted until seven
business days after those shares have been credited to the shareholder's
account.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to make payment of redemption proceeds in whole or in part
in readily marketable securities. The Company may suspend the right of
redemption during any period when (i) trading on the Exchange is restricted or
the Exchange is closed, other than customary weekend and holiday closings, (ii)
the SEC has by order permitted such suspension or (iii) an emergency, as defined
by rules of the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of the Portfolio not reasonably
practicable.
The proceeds of redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account in the Portfolio remains open for up to one year
following complete redemption, and all costs during the period will be borne by
the Portfolio.
The Company reserves the right to redeem upon not less than 30 days'
written notice the shares in an account of the Portfolio that has a value of
$1,000 or less. Reductions in value that result solely from market activity will
not trigger an involuntary redemption. However, any shareholder affected by the
exercise of this right will be allowed to make additional investments prior to
the date fixed for redemption to avoid liquidation of the account.
The Company also reserves the right, following 30 days' notice to
shareholders, to redeem all shares in accounts without certified Social Security
or taxpayer identification numbers. A shareholder may avoid involuntary
redemption by providing the Company with a taxpayer identification number during
the 30-day notice period.
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).
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<PAGE>
2. Sign the letter in exactly the same way the account is registered.
If there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $50,000 or more, the
signature(s) must be guaranteed by a commercial bank that is a member of the
Federal Deposit Insurance Corporation, a trust company, a member firm of a
domestic stock exchange or a foreign branch of any of the foregoing. In
addition, signatures may be guaranteed by other Eligible Guarantor Institutions,
i.e., other banks, other brokers and dealers, municipal securities brokers and
dealers, government securities brokers and dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. The Transfer Agent, however, may reject redemption
instructions if the guarantor is neither a member of nor a participant in a
signature guarantee program (currently known as "STAMPsm"). Signature guarantees
by notaries public are not acceptable. Further documentation, such as copies of
corporate resolutions and instruments of authority, may be requested from
corporations, administrators, executors, personal representatives, trustees or
custodians to evidence the authority of the person or entity making the
redemption request.
4. Mail the letter to the Transfer Agent at the address set forth under
"Purchasing Shares."
Checks for redemption proceeds will normally be mailed the day following
receipt of the request in proper form, although the Company reserves the right
to take up to seven days. Unless other instructions are given in proper form, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. The Custodian may benefit from the use of redemption proceeds until
the check issued to a redeeming shareholder for such proceeds has cleared.
When proceeds of a redemption are to be paid to someone other than the
shareholder, either by wire or check, the signature(s) on the letter of
instruction must be guaranteed regardless of the amount of the redemption.
Redemption by Expedited Redemption Service
If Expedited Redemption Service has been elected on the Purchase
Application on file with the Transfer Agent, redemption of shares may be
requested by telephoning the Transfer Agent on any day the Company and State
Street Bank and Trust Company are open for business.
1. Telephone the request to the Transfer Agent by calling toll free
from any continental state: 1-800-854-8525, or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchasing Shares."
Proceeds of Expedited Redemptions of $1,000 or more will be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request for the Portfolio is received by the Transfer Agent by the
close of regular trading on the Exchange (currently 4:00 p.m. eastern time) on a
day the Company and State Street Bank and Trust Company are open for business,
the redemption proceeds will be transmitted to the shareholder's bank the
following business day. A check for proceeds of less than $1,000 will be mailed
to the shareholder's address of record.
The Portfolio uses procedures designed to give reasonable assurance that
telephone instructions are genuine, including recording telephone calls, testing
a caller's identity and sending written confirmation of telephone transactions.
If the Portfolio does not follow such procedures, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. The Portfolio will not
be liable for acting upon instructions communicated by telephone that it
reasonably believes to be genuine.
Share Price
Net asset value per share for the Portfolio is determined by Scudder Fund
Accounting Corporation on each day the Exchange is open for trading. The net
asset value of shares of the Portfolio is determined at the close of regular
trading on the Exchange, which is currently 4:00 p.m. (eastern time). The net
asset value per share of the Portfolio is computed by dividing the value of the
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<PAGE>
total assets of the Portfolio, less all liabilities, by the total number of
outstanding shares of the Portfolio.
Trading in securities on European and Far Eastern securities exchanges is
normally completed before the close of regular trading on the Exchange. Trading
on these foreign exchanges may not take place on all days on which there is
regular trading on the Exchange, or may take place on days on which there is no
regular trading on the Exchange. If events materially affecting the value of the
Fund's portfolio securities occur between the time when these foreign exchanges
close and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value as determined by the Corporation's Board
of Directors.
Shareholder Benefits
Account Services
Shareholders will be sent a Statement of Account from the Distributor, as
agent of the Company, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Company at the address and telephone number
on the cover of this Prospectus with any questions relating to their investment
in shares of the Portfolio.
Shareholder Services
The Company offers the following shareholder services. See the Statement
of Additional Information for further details about these services or call or
write the Company.
Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in the Portfolio. A monthly summary of accounts can be
provided, showing for each account the account number, the month-end share
balance and the dividends and distributions paid during the month.
Shareholder Reports. The fiscal year of the Portfolio ends on December 31
of each year. The Portfolio sends to its shareholders, at least semi-annually,
reports showing the investments in the Portfolio and other information
(including unaudited financial statements) pertaining to the Portfolio. An
annual report, containing financial statements audited by the Portfolio's
independent accountants, is sent to shareholders each year.
Shareholder inquiries should be addressed to Scudder Institutional Fund,
Inc., 345 Park Avenue, New York, New York 10154.
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INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX FREE PORTFOLIO
INSTITUTIONAL GOVERNMENT PORTFOLIO
345 Park Avenue
New York, New York 10154
1-800-854-8525
Scudder Institutional Fund, Inc. (the "Company") is a professionally managed,
no-load, open-end, diversified, management investment company comprised
of three money market portfolios that seek to provide investors with as
high a level of current income as is consistent with their
investment objectives and policies
and with preservation of capital and liquidity.
- --------------------------------------------------------------------------------
Statement of Additional Information
May 1, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Institutional Fund, Inc.
dated May 1, 1997, 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 PORTFOLIOS AND THEIR OBJECTIVES...........................................1
General Investment Objectives and Policies...........................1
Cash Portfolio.......................................................1
Tax Free Portfolio...................................................3
Government Portfolio.................................................4
Investment Restrictions..............................................4
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES....................................5
PURCHASING SHARES.............................................................6
REDEEMING SHARES..............................................................7
DIVIDENDS.....................................................................7
PERFORMANCE INFORMATION.......................................................7
Yield................................................................8
Effective Yield......................................................8
Average Annual Total Return..........................................8
Cumulative Total Return..............................................9
Total Return.........................................................9
Comparison of Portfolio Performance.................................10
SHAREHOLDER BENEFITS.........................................................10
COMPANY ORGANIZATION.........................................................11
INVESTMENT ADVISER...........................................................11
Personal Investments by Employees of the Adviser....................13
DISTRIBUTOR..................................................................13
DIRECTORS AND OFFICERS.......................................................14
REMUNERATION.................................................................15
Responsibilities of the Board--Board and Committee Meetings.........15
Compensation of Officers and Directors..............................16
TAXES........................................................................17
PORTFOLIO TRANSACTIONS.......................................................18
NET ASSET VALUE..............................................................18
ADDITIONAL INFORMATION.......................................................19
Experts.............................................................19
Other Information...................................................19
FINANCIAL STATEMENTS.........................................................20
APPENDIX
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THE PORTFOLIOS AND THEIR OBJECTIVES
(See "Investment Objectives and Policies" and "Additional Information About
Policies and Investments" in the Company's Prospectus)
General Investment Objectives and Policies
Institutional Cash Portfolio ("Cash Portfolio"), Institutional Tax Free
Portfolio ("Tax Free Portfolio") and Institutional Government Portfolio
("Government Portfolio") (collectively, the "Portfolios") are series of Scudder
Institutional Fund, Inc. (the "Company"), a no-load, open-end, diversified,
management investment company designed to suit the needs of institutions,
corporations and fiduciaries. The Portfolios are money market funds that seek to
provide investors with as high a level of current income as is consistent with
their investment objectives and policies and with preservation of capital and
liquidity. Set forth below is a description of the investment objective and
policies of each Portfolio. The Tax Free Portfolio seeks to provide current
income that is exempt from federal income taxes. The investment objective of a
Portfolio cannot 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 can be no assurance that any
of the Portfolios will achieve its investment objective.
Securities in which the Portfolios invest may not yield as high a level of
current income as securities of lower quality and longer maturities which
generally have less liquidity and greater market risk. Each Portfolio will
maintain a dollar-weighted average maturity of 90 days or less in an effort to
maintain a net asset value per share of $1.00, but there is no assurance that it
will be able to do so.
The Portfolios' investment adviser is Scudder, Stevens & Clark, Inc.,
(the "Adviser"), a leading provider of U.S. and international investment
management services for clients throughout the world. See "Investment Adviser."
Cash Portfolio
The Cash Portfolio seeks to provide investors with as high a level of
current income as is consistent with its investment policies and with
preservation of capital and liquidity. The Portfolio invests exclusively in a
broad range of short-term money market instruments that have remaining
maturities of not more than 397 calendar days and certain repurchase agreements.
These securities consist of obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, taxable and tax-exempt
municipal obligations, corporate and bank obligations, certificates of deposit,
bankers' acceptances and variable amount master demand notes.
The bank obligations in which the Portfolio may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. The Portfolio limits its investments in U.S. bank
obligations to obligations of U.S. banks (including foreign branches, the
obligations of which are guaranteed by the U.S. parent) that have at least $1
billion in total assets at the time of investment. "U.S. banks" include
commercial banks that are members of the Federal Reserve System or are examined
by the Comptroller of the Currency or whose deposits are insured by the Federal
Deposit Insurance Corporation. In addition, the Portfolio may invest in savings
banks and savings and loan associations insured by the Federal Deposit Insurance
Corporation that have total assets in excess of $1 billion at the time of the
investment. The Portfolio limits its investments in foreign bank obligations to
U.S. dollar-denominated obligations of foreign banks (including U.S. branches)
which banks (based upon their most recent annual financial statements) at the
time of investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 100 largest banks in the world
as determined on the basis of assets; and (iii) have branches or agencies in the
U.S.; and which obligations, in the opinion of the Adviser, are of an investment
quality comparable to obligations of U.S. banks in which the Portfolio may
invest.
Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties that vary with market conditions and the
remaining maturity of the obligations. The Portfolio may not invest more than
10% of the value of its total assets in investments that are not readily
marketable including fixed time deposits subject to withdrawal penalties
maturing in more than seven calendar days.
Municipal commercial paper is a debt obligation with a stated maturity of
270 days or less that is issued to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term debt. The Portfolio may
invest in municipal commercial paper that is rated at the date of purchase "P-1"
by Moody's Investors Service, Inc. ("Moody's"), "A-1" or "A-1+" by Standard &
Poor's ("S&P") or "F-1" by Fitch Investors Service, Inc. ("Fitch"). If a
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municipal obligation is not rated, the Portfolio may purchase the obligation if,
in the opinion of the Adviser, it is of investment quality comparable to other
rated investments that are permitted in the Portfolio.
The Portfolio may invest in U.S. dollar-denominated certificates of
deposit and promissory notes issued by Canadian affiliates of U.S. banks under
circumstances where the instruments are guaranteed as to principal and interest
by the U.S. bank. While foreign obligations generally involve greater risks than
those of domestic obligations, such as risks relating to liquidity,
marketability, foreign taxation, nationalization and exchange controls,
generally the Adviser believes that these risks are substantially less in the
case of instruments issued by Canadian affiliates that are guaranteed by U.S.
banks than in the case of other foreign money market instruments.
The Portfolio may invest in U.S. dollar-denominated obligations of
foreign banks. There is no limitation on the amount of the Portfolio's assets
that may be invested in obligations of foreign banks that meet the conditions
set forth above. Such investments may involve greater risks than those affecting
U.S. banks or Canadian affiliates of U.S. banks. In addition, foreign banks are
not subject to examination by any U.S. Government agency or instrumentality.
Except for obligations of foreign banks and foreign branches of U.S.
banks, the Portfolio will not invest in the securities of foreign issuers.
Generally, the Portfolio may not invest less than 25% of the current value of
its total assets in bank obligations (including bank obligations subject to
repurchase agreements).
The commercial paper purchased by the Portfolio is limited to direct
obligations of domestic corporate issuers, including bank holding companies,
which obligations, at the time of investment, are (i) rated "P-1" by Moody's,
"A-1" or better by S&P or "F-1" by Fitch, (ii) issued or guaranteed as to
principal and interest by issuers having an existing debt security rating of
"Aa" or better by Moody's or "AA" or better by S&P or Fitch, or (iii) securities
that, if not rated, are of comparable investment quality as determined by the
Adviser in accordance with procedures adopted by the Board of Directors.
The Portfolio may invest in non-convertible corporate debt securities such
as notes, bonds and debentures that have remaining maturities of not more than
397 calendar days and that are rated "Aa" or better by Moody's or "AA" or better
by S&P or Fitch, and variable amount master demand notes. A variable amount
master demand note differs from ordinary commercial paper in that it is issued
pursuant to a written agreement between the issuer and the holder. Its amount
may from time to time be increased by the holder (subject to an agreed maximum)
or decreased by the holder or the issuer and is payable on demand. The rate of
interest varies pursuant to an agreed-upon formula. Generally, master demand
notes are not rated by a rating agency. However, the Portfolio may invest in a
master demand note that, if not rated, is in the opinion of the Adviser of an
investment quality comparable to rated securities in which the Portfolio may
invest. The Adviser monitors the issuers of such master demand notes on a daily
basis. Transfer of such notes is usually restricted by the issuer, and there is
no secondary trading market for such notes. The Portfolio may not invest in a
master demand note if, as a result, more than 10% of the value of its total net
assets would be invested in such notes.
Municipal obligations, which are debt obligations issued by or on behalf
of states, cities, municipalities and other public authorities, and may be
general obligation, revenue, or industrial development bonds, include municipal
bonds, municipal notes and municipal commercial paper.
The Portfolio's investments in municipal bonds are limited to bonds that
are rated at the date of purchase "Aa" or better by Moody's or "AA" or better by
S&P or Fitch.
The Portfolio's investments in municipal notes will be limited to notes
that are rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG
2" in the case of an issue having a variable rate demand feature) by Moody's,
"SP-1" or "SP-1+" by S&P or "F-1" or "F-1+" by Fitch.
All of the securities in which the Portfolio will invest must meet credit
standards applied by the Adviser pursuant to procedures established by the Board
of Directors. Should an issue of securities cease to be rated or if its rating
is reduced below the minimum required for purchase by the Portfolio, the Adviser
will dispose of any such security, as soon as practicable, unless the Directors
of the Company determine that such disposal would not be in the best interests
of the Portfolio.
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In addition, the Portfolio may invest in variable or floating rate
obligations, obligations backed by bank letters of credit, when-issued
securities and securities with put features.
Tax Free Portfolio
The Tax Free Portfolio seeks to provide investors with as high a level of
current income that cannot be subjected to federal income tax by reason of
federal law as is consistent with its investment policies and with preservation
of capital and liquidity. The Portfolio invests exclusively in high-quality
municipal obligations the interest on which is exempt from federal income taxes
and that have remaining maturities of not more than 397 calendar days. Opinions
relating to the exemption of interest on municipal obligations from federal
income tax are rendered by bond counsel to the municipal issuer. The Portfolio
may also invest in certain taxable obligations on a temporary defensive basis,
as described below.
Municipal obligations, which are debt obligations issued by or on behalf
of states, cities, municipalities and other public authorities, and may be
general obligation, revenue, or industrial development bonds, include municipal
bonds, municipal notes and municipal commercial paper.
The Portfolio's investments in municipal bonds are limited to bonds that
are rated at the date of purchase "Aa" or better by Moody's or "AA" or better by
S&P or Fitch.
The Portfolio's investments in municipal notes will be limited to notes
that are rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG
2" in the case of an issue having a variable rate demand feature) by Moody's,
"SP-1" or "SP-1+" by S&P or "F-1" or "F-1+" by Fitch.
Municipal commercial paper is a debt obligation with a stated maturity of
270 days or less that is issued to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term debt. The Portfolio may
invest in municipal commercial paper that is rated at the date of purchase "P-1"
by Moody's, "A-1" or "A-1+" by S&P or "F-1" by Fitch.
If a municipal obligation is not rated, the Portfolio may purchase the
obligation if, in the opinion of the Adviser, it is of investment quality
comparable to other rated investments that are permitted in the Portfolio. From
time to time the Portfolio may invest 25% or more of the current value of its
total assets in municipal obligations that are related in such a way that an
economic, business or political development or change affecting one such
obligation would also affect the other obligations. For example, certain
municipal obligations accrue interest that is paid from revenues of similar type
projects; other municipal obligations have issuers located in the same state.
The floating and variable rate municipal obligations that the Portfolio
may purchase include certificates of participation in such obligations purchased
from banks. A certificate of participation gives the Portfolio an undivided
interest in the underlying municipal obligations, usually private activity
bonds, in the proportion that the Portfolio's interest bears to the total
principal amount of such municipal obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity. The Portfolio may invest in
certificates of participation even if the underlying municipal obligations carry
stated maturities in excess of one year, if compliance with certain conditions
contained in a rule of the Securities and Exchange Commission (the "SEC") is
met. The income received on certificates of participation constitutes interest
from tax-exempt obligations. It is presently contemplated that the Portfolio
will not invest more than 20% of its total assets in these certificates.
The Portfolio may, pending the investment of proceeds of sales of shares
or proceeds from sales of portfolio securities or in anticipation of
redemptions, or to maintain a "defensive" posture when, in the opinion of the
Adviser, it is advisable to do so because of market conditions, elect to invest
temporarily up to 20% of the current value of its total assets in cash reserves
or taxable securities. Under ordinary market conditions, the Portfolio will
maintain at least 80% of the value of its total assets in obligations that are
exempt from federal income taxes and are not subject to the alternative minimum
tax. The foregoing constitutes a fundamental policy that cannot be changed
without the approval of a majority of the outstanding shares of the Portfolio.
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The taxable market is a broader and more liquid market with a greater
number of investors, issuers and market makers than the market for municipal
obligations. The more limited marketability of municipal obligations may make it
difficult in certain circumstances to dispose of large investments
advantageously. In addition, certain municipal obligations might lose tax-exempt
status in the event of a change in the tax laws.
All of the securities in which the Portfolio will invest must meet credit
standards applied by the Adviser pursuant to procedures established by the Board
of Directors. Should an issue of securities cease to be rated or if its rating
is reduced below the minimum required for purchase by the Portfolio, the Adviser
will dispose of any such security, as soon as practicable, unless the Directors
of the Company determine that such disposal would not be in the best interests
of the Portfolio.
In addition, the Portfolio may enter into repurchase agreements and invest
in variable or floating rate obligations, obligations backed by bank letters of
credit, when-issued securities and securities with put features.
Government Portfolio
The Government Portfolio seeks to provide investors with as high a level
of current income as is consistent with its investment policies and with
preservation of capital and liquidity. The Portfolio invests exclusively in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities that have remaining maturities of not more than 397 calendar
days and certain repurchase agreements.
In addition, the Portfolio may invest in variable or floating rate
obligations, when-issued securities and securities with put features.
Investment Restrictions
In connection with its investment objectives and policies as set forth
in the Prospectus, the Company has adopted the following investment
restrictions, on behalf of each Portfolio, none of which may be changed without
the approval of the holders of a majority of a Portfolio's outstanding shares,
as defined in the Investment Company Act of 1940 (the "1940 Act").
As a matter of fundamental policy, the Portfolios may not:
(1) Issue senior securities, borrow money or pledge or
mortgage the assets of any of its Portfolios. However, each Portfolio
may borrow from banks up to 10% of the current value of that
Portfolio's total net assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of
not more than 10% of the current value of the Portfolio's total net
assets. Purchases of investments by the Portfolio will not be made
while any such borrowing exists.
(2) Make loans. The purchase or holding of a portion of an
issue of publicly distributed debt obligations, the making of deposits
with banks, and the entering into repurchase agreements shall not
constitute the making of a loan. The Company may also engage in the
practice of lending its portfolio securities.
(3) Invest an amount equal to 10% or more of the current value
of the particular Portfolio's total assets in illiquid securities,
restricted securities, investments that do not have readily available
market quotations and repurchase agreements maturing in more than seven
days.
(4) Act as an underwriter of securities. The purchase of a
permitted investment directly from the issuer thereof, or from an
underwriter for an issuer, and the later disposition of such securities
in accordance with a Portfolio's investment program, shall not be
deemed an underwriting.
(5) Purchase or sell real estate, commodities or commodity
contracts. This limitation shall not apply to securities secured by
real estate or interests therein or issued by persons who deal in real
estate or interests therein.
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(6) Purchase securities on margin or make short sales of
securities. This limitation shall not apply to short-term credits
necessary for the clearance of transactions.
(7) Write, purchase or sell puts, calls, warrants or any
combination thereof, except that the Portfolios may enter into put
transactions in order to maintain liquidity, as described under
"Additional Permitted Investment Activities".
(8) Purchase equity securities or securities convertible into
equity securities.
(9) Purchase securities that must be registered under the
Securities Act of 1933 before they may be offered or sold to the
public.
(10) Purchase any securities that would cause more than 25% of
the value of any individual Portfolio's total assets to be invested in
securities of issuers in the same industry, except banks as described
in paragraph 11. This limitation shall not apply to investments in
obligations of the U.S. Government, its agencies or instrumentalities.
Notwithstanding the provisions of this paragraph, the Tax Free
Portfolio shall not be limited with respect to investments in (i)
municipal obligations (not including industrial development and
pollution control bonds if the payment of principal and interest on
such bonds is the ultimate responsibility of non-governmental users) or
(ii) negotiable certificates of deposit or bankers' acceptances that
are purchased on a temporary basis or for defensive purposes.
(11) The Cash Portfolio may not invest less than 25% of the
current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements), provided that if at some
future date adverse economic conditions prevail in the banking
industry, the Portfolio, for defensive purposes, may invest temporarily
less than 25% of its assets in bank obligations.
Whenever any investment restriction states a maximum percentage of a
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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
(See "Additional Information About Policies and Investments" in the
Company's Prospectus)
Municipal Notes. The Tax Free Portfolio and the Cash Portfolio may
invest in municipal notes. Municipal notes include, but are not limited to, tax
anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs"), construction loan notes and project notes.
Municipal notes generally have maturities at the time of issuance of three years
or less. Notes sold as interim financing in anticipation of collection of taxes,
a bond sale or receipt of other revenues are usually general obligations of the
issuer. Project notes are issued by local housing authorities to finance urban
renewal and public housing projects and are secured by the full faith and credit
of the U.S. Government.
TANs An uncertainty in a municipal issuer's capacity to raise taxes as
a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers
mix various tax proceeds into a general fund that is used to meet
obligations other than those of the outstanding TANs. Use of such a
general fund to meet various obligations could affect the likelihood of
a municipal issuer's making payments on the TANs.
BANs The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds
of such bond sales will be used to pay the principal of, and interest
on, BANs.
RANs A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an
issuer's ability to meet its obligations on outstanding RANs. In
addition, the possibility that the revenues would, when received, be
used to meet other obligations could affect the ability of the issuer
to pay the principal of, and interest on, RANs.
5
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Securities of U.S. Government Sponsored Enterprises. The Government
Portfolio, Federal Portfolio and Cash Portfolio may invest in debt securities
issued or guaranteed by U.S. Government sponsored enterprises. These sponsored
enterprises include the World Bank, the Inter-American Development Bank and the
Asian-American Development Bank. None of the Portfolios intends to invest in
securities issued or guaranteed by non-domestic U.S. Government sponsored
enterprises.
Loans of Portfolio Securities. Each Portfolio may lend securities from
its portfolio to brokers, dealers and financial institutions if cash or cash
equivalent collateral, including letters of credit, equal to at least 100% of
the current market value of the securities loaned (including accrued interest
and dividends thereon) plus the interest payable to the Portfolio with respect
to the loan is maintained by the borrower with that Portfolio in a segregated
account. In determining whether to lend a security to a particular broker,
dealer or financial institution, the Adviser will consider all relevant facts
and circumstances, including the creditworthiness of the broker, dealer or
financial institution. The Portfolios will not enter into any security lending
arrangement having a duration of longer than one year. Securities that a
Portfolio may receive as collateral will not become part of that Portfolio at
the time of the loan. In the event of a default by the borrower, such Portfolio
will, if permitted by law, dispose of the collateral except for such part
thereof that is a security in which the Portfolio is permitted to invest. During
the time securities are on loan, the borrower will pay the Portfolio any accrued
income on those securities, and the Portfolio may invest the cash collateral and
earn additional income or receive an agreed upon fee from a borrower that has
delivered cash equivalent collateral. No Portfolio will lend securities having a
value that exceeds 5% of the current value of its net assets. Loans of
securities by a Portfolio will be subject to termination at the option of the
Portfolio or the borrower. The Portfolio may pay reasonable administrative and
custodial fees in connection with securities loans and may pay a negotiated
portion of the interest or fee earned with respect to the collateral to the
borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Company or the Adviser. The
Portfolios did not lend any of their portfolio securities during 1994 and have
no present intention to do so.
PURCHASING SHARES
(See "Transaction Information--Purchasing Shares" in the Company's Prospectus)
There is a $10 million minimum initial investment in the Company, with
a minimum investment in any single Portfolio of $2 million. Subsequent
investments may be made in the Portfolios in any amount. Investment minimums may
be waived for Directors and officers of the Company and certain other
affiliates. The Company 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.
Orders for shares of a Portfolio will become effective when an
investor's bank wire order or check is converted into federal funds (monies
credited to State Street Bank and Trust Company's (the "Custodian") account with
its registered Federal Reserve Bank). If payment is transmitted by the Federal
Reserve Wire System, the order will become effective upon receipt. Orders will
be executed at 2:00 p.m. for the Tax Free Portfolio and 4:00 p.m. for the Cash
Portfolio and Government Portfolio on the same day if a bank wire or check is
received or converted to federal funds by 12:00 noon for the Tax Free Portfolio
and 4:00 p.m. for the Cash Portfolio and Government Portfolio. In addition, if
investors notify the Company by 2:00 p.m. for the Tax Free Portfolio and 4:00
p.m. for the Cash Portfolio and Government Portfolio that they intend to wire
federal funds to purchase shares of a Portfolio on any business day and if
monies are received in time to be invested, orders will be executed at the net
asset value per share determined at 2:00 p.m. for the Tax Free Portfolio and
4:00 p.m. for the Cash Portfolio and Government Portfolio the same day. Wire
transmissions may, however, be subject to delays of several hours, in which
event the effectiveness of the order may be delayed. Payments transmitted by a
bank wire other than the Federal Reserve Wire System may take longer to be
converted into federal funds.
Shares of any Portfolio may be purchased by writing or calling Scudder
Service Corporation, a wholly-owned 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 a Portfolio. Orders for
shares of a 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.
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By investing in a 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 Company's Prospectus.
REDEEMING SHARES
(See "Transaction Information--Redeeming Shares" in the Company'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 any 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 that Portfolio not reasonably
practicable.
A shareholder's Company account remains open for up to one year
following complete redemption and all costs during the period will be borne by
the Company. This permits an investor to resume investments.
DIVIDENDS
(See "Distribution and Performance Information--Dividends and
Capital Gains Distributions" in the Company's Prospectus.)
The Company declares dividends on the outstanding shares of each
Portfolio from each Portfolio's net investment income at the close of each
business day to shareholders of record at 2:00 p.m. for the Tax Free Portfolio
and 4:00 p.m. for the Cash Portfolio and Government Portfolio on the day of
declaration. Realized capital gains and losses may be taken into account in
determining the daily distribution. Shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the previous day. Net investment income for a Saturday,
Sunday or holiday will be declared as a dividend on the previous business day to
shareholders of record at 2:00 p.m. for the Tax Free Portfolio and 4:00 p.m. for
the Cash Portfolio and Government Portfolio on that day.
Investment income for a Portfolio includes, among other things,
interest income and accretion of market and original issue discount and
amortization of premium.
Dividends declared in and attributable to the preceding month will be
paid on the first business day of each month. Net realized capital gains, after
utilization of capital loss carryforwards, if any, will be distributed annually,
although an additional distribution may be necessary to prevent the application
of a federal excise tax. Dividends and distributions will be invested in
additional shares of the same 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. Each Portfolio forwards
to the Custodian the monies for dividends to be paid in cash on the payment
date.
Shareholders who redeem all their shares prior to a dividend payment
will receive, in addition to the redemption proceeds, dividends declared but
unpaid. Shareholders who redeem only a portion of their shares will be entitled
to all dividends declared but unpaid on such shares on the next dividend payment
date.
PERFORMANCE INFORMATION
(See "Distribution and Performance Information--Performance Information"
in the Company's Prospectus.)
From time to time, quotations of each 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:
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Yield
The Company makes available various yield information with respect to
shares of the Portfolios, including yield and effective yield quotations based
upon the seven-day period ended on the date of calculation. The yield for each
Portfolio for the seven-day period ended December 31, 1996 was 5.24% for the
Cash Portfolio, 3.66% for the Tax Free Portfolio and 5.06% for the Government
Portfolio. Each Portfolio's yield may fluctuate daily and does not provide a
basis for determining future yields.
The yield is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the seven-day period and dividing the
difference by the value of the account at the beginning of the seven-day period
to obtain the seven-day period return. The seven-day period return is then
"annualized" by multiplying it by 365/7 with the resulting yield figure carried
to at least the nearest hundredth of one percent. The net change in value of an
account consists of the value of additional shares purchased with dividends from
the original share plus dividends declared on both the original share and any
such additional shares (not including realized gains or losses and unrealized
appreciation or depreciation) less applicable expenses, including the management
fee payable to the Adviser.
Current yield for all of the Portfolios will fluctuate from time to
time, unlike bank deposits or other investments that pay a fixed yield for a
stated period of time, and do not provide a basis for determining future yields.
Yield is a function of portfolio quality, composition, maturity and market
conditions as well as the expenses allocated to the Portfolios.
Effective Yield
The effective yield is computed in a similar fashion to the yield,
except that the seven-day period return is compounded by adding 1, raising the
sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)^365/7] - 1
The result of the calculation is carried out to the nearest one
hundredth of one percent.
The effective yield (i.e., on a compound basis, assuming that the daily
reinvestment of dividends) for the seven-day period ended December 31, 1996 was
5.37% for the Cash Portfolio, 3.73% for the Tax Free Portfolio and 5.18% for the
Government Portfolio, respectively.
In computing the yield and effective yield, the calculation of net
change in account value includes the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares and less fees that are charged to all
shareholder accounts in proportion to the length of the seven-day period. The
calculations exclude realized gains and losses from the sale of securities and
unrealized appreciation and depreciation.
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for periods of one year, five years, and ten years and the life of a
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
a 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.
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n = number of years.
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Average Annual Total Return for periods ended December 31, 1996
Life of the
One Year Five Years Portfolio
Government Portfolio (1)
Cash Portfolio (2)
Tax Free Portfolio (3)
(1) For the period beginning June 3, 1986
(2) For the period beginning June 18, 1986
(3) For the period beginning May 12, 1986
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a 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 finding
the cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return.
P = a hypothetical initial investment of $1,000.
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Cumulative Total Return for periods ended December 31, 1996
Life of the
One Year Five Years Portfolio
Government Portfolio % % 1)
Cash Portfolio % % (2)
Tax Free Portfolio % % (3)
(1) For the period beginning June 3, 1986
(2) For the period beginning June 18, 1986
(3) For the period beginning May 12, 1986
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.
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Comparison of Portfolio Performance
Quotations of each Portfolio's performance are based on historical
earnings, show the performance of a hypothetical investment, and are not
intended to indicate future performance of a Portfolio. An investor's shares
when redeemed may be worth more or less than their original cost. Performance of
a Portfolio will vary based on changes in market conditions and the level of a
Portfolio's expenses.
From time to time, in marketing and other fund literature, the
performance of each of the Portfolios 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 Fund will be compared to Lipper's appropriate fund category, that is, by
fund objective and portfolio holdings. For instance, the Portfolios will be
compared with funds within Lipper's money market 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 Portfolios 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.
From time to time, in marketing pieces and other fund literature, the
yield of one or more of the Portfolios may be compared to the performance of
broad groups of comparable mutual funds, unmanaged indices of comparable
securities, bank money market deposit accounts and fixed-rate insured
certificates of deposit ("CDs"), or unmanaged indices of securities that are
comparable to money market funds in their terms and intent, such as Treasury
bills, bankers' acceptances, negotiable order of withdrawal (NOW) accounts, and
money market certificates. Most bank CDs differ from money market funds in
several ways: the interest rate is fixed for the term of the CD, there are
interest penalties for early withdrawal of the deposit, and the deposit
principal is insured by the Federal Deposit Insurance Corporation. Evaluations
of Fund performance made by independent sources may also be used in
advertisements concerning the Portfolios. In addition, from time to time the
Company may advertise what an initial $10,000 investment in one or more of its
portfolios would grow to over a five-year period as compared to other
institutional money market funds with similar investment objectives and their
related rankings, all as computed by IBC/Donoghue, Inc. Sources for any and all
performance information may include, but are not limited to:
IBC Money Fund Report, a weekly publication of IBC Financial Data,
Inc., reporting on the performance of the nation's money market funds,
summarizing money market fund activity and including certain averages as
performance benchmarks, specifically "IBC's Money Fund Average," and "IBC's
Government Money Fund Average."
Bank Rate Monitor, a weekly newsletter, published by the Advertising
News Service, Inc., that includes a national index of bank money market rates
and yields on CDs and other bank depository instruments of varied maturities for
the 100 leading banks and thrifts in the nation's top 10 Census Statistical
Metropolitan Areas.
SHAREHOLDER BENEFITS
(See "Shareholders Benefits" in the Company'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 Fund. In addition to the copy of the regular Statement
of Account furnished to the registered holder after each transaction, a monthly
summary of accounts can be provided. The monthly summary will show for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month. All costs of this service will be borne by
the Company. For information on the special monthly summary of accounts, contact
the Company.
10
<PAGE>
COMPANY ORGANIZATION
(See "Company Organization" in the Company'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 and Cash Portfolio, and 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, Federal Portfolio, Cash
Portfolio, Tax Free Portfolio, Institutional International Equity Portfolio,
Institutional Prime Portfolio, Institutional Municipal Income Portfolio,
Institutional Intermediate Cash Portfolio, Institutional Bond Index Portfolio,
Institutional Cash Plus Portfolio, Institutional Global Equity Portfolio,
Institutional Emerging Markets Equity Portfolio, Institutional Global Small
Company Equity Portfolio, Institutional Latin America Equity Portfolio,
Institutional Japanese Equity Portfolio, Institutional Pacific Basin Equity
Portfolio, Institutional Growth and Income Portfolio, Institutional Quality
Growth Portfolio, Institutional Value Equity Portfolio, Institutional Small
Company Equity Portfolio, Institutional Defensive Limited Volatility Bond
Portfolio, Institutional Intermediate Limited Volatility Bond Portfolio,
Institutional Active Value Bond Portfolio, Institutional Long Duration Bond
Portfolio, Institutional Mortgage Investment Portfolio, Institutional Global
Bond Portfolio, Institutional International Bond Portfolio, and Institutional
Emerging Markets Fixed Income Portfolio. The Directors have reserved authority
to create, in the future, other series representing shares of additional
portfolios.
On any matter submitted to a vote of shareholders, all shares then
entitled to vote will be voted by Portfolio unless otherwise required by the
1940 Act, in which case all shares will be voted in the aggregate. For example,
a change in a Portfolio's fundamental investment policies would be voted upon
only by shareholders of the Portfolio involved. Additionally, approval of the
Investment Advisory Agreements is a matter to be determined separately by each
Portfolio. Approval by the shareholders of one Portfolio is effective as to that
Portfolio whether or not sufficient votes are received from the shareholders of
the other Portfolios to approve the proposal as to those Portfolios. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority," when referring to approvals to be obtained from shareholders of a
Portfolio, means the vote of the lesser of (i) 67% of the shares of the
Portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the Portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Portfolio. 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 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 Company's Prospectus)
The Company retains Scudder, Stevens & Clark, Inc. (the "Adviser") as
investment adviser on behalf of each of the Portfolios pursuant to Investment
Advisory Agreements (the "Agreements"). The Adviser is one of the most
experienced investment counsel firms in the U.S. It was established in 1919 as a
partnership and was restructured as a Delaware corporation in 1985. The
principal source of the Adviser's income is professional fees received from
providing continuing investment advice, and the firm derives no income from
banking, brokerage, or underwriting of securities. The Adviser's wholly-owned
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<PAGE>
subsidiary, 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, 1996, the Adviser and its
affiliates had in excess of $115 billion under their supervision, approximately
two-thirds of which was invested in fixed-income securities.
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 Portfolios 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 a Portfolio of the Company. If these clients and
such 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 such Portfolio
invests. The best interests of any 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 Agreements, it is the responsibility of the Adviser, subject
to the supervision of the Board of Directors, to manage each such 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. It also furnishes the Portfolio with bookkeeping,
accounting and administrative services which are not furnished by the Custodian
or Scudder Fund Accounting Corporation, a wholly-owned 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.
Total fees paid by the Company to the Adviser for the year ended
December 31, 1996 were $______ for the Cash Portfolio, $______ for the Tax Free
Portfolio and $_______ for the Government Portfolio. For the year ended December
31, 1996, the Adviser did not impose fees amounting to $_________.
Total fees paid by the Company to the Adviser for the year ended
December 31, 1995 were $104,332 for the Government Portfolio, $476,472 for the
Cash Portfolio and $143,025 for the Tax Free Portfolio.
Total fees paid by the Company to the Adviser for the year ended
December 31, 1994 were $272,538 for the Government Portfolio, $580,110 for the
Cash Portfolio and $212,854 for the Tax Free Portfolio. See "Investment Adviser"
in the Prospectus. For the year ended December 31, 1994, the Adviser reimbursed
a portion of expenses amounting to $32,600 for the Tax Free Portfolio.
Each Portfolio will bear all expenses not specifically assumed by the
Adviser under the terms of the Agreements. Such expenses will include without
limitation: (a) organization expenses of the Portfolios; (b) clerical salaries;
(c) fees and expenses incurred by the Portfolios 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 Portfolios; (j) the cost of preparing share
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of shares of the Portfolios; (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 Portfolios' assets,
12
<PAGE>
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 Company's shares are not deemed sales or promotional expenses.
The Agreements will continue in effect with respect to each 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. Each of the Agreements may be terminated
without penalty by either of the parties on 60 days' written notice and must
terminate in the event of its assignment. Each may be amended or modified only
if approved by vote of the holders of the majority of the particular Portfolio's
outstanding shares as defined in the 1940 Act.
The Agreements provide that the Adviser is not liable for any act or
omission in the course of or in connection with rendering services under the
Agreements 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 Portfolios of the Company. 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 Portfolios. 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.
DISTRIBUTOR
(See "Company Organization--Distributor" in the Company's Prospectus)
Pursuant to a contract with the Company, Scudder Investor Services,
Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, serves as
the Company's principal underwriter in connection with a continuous offering of
shares of the Company. 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 Company. In addition, the Underwriting Agreement obligates the
Distributor to pay certain expenses in connection with the offering of the
shares of the Company. 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.
13
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
The principal occupations of the Directors and executive officers of
the Company for the past five years are listed below.
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- ------- ---------------------- -----------------------
<S> <C> <C> <C>
Daniel Pierce (63)+*# President and Chairman of the Board and Vice President, Director
Director Managing Director of and Assistant Treasurer
Scudder, Stevens & Clark,
Inc.
David S. Lee (63)+*# Chairman of the Managing Director of President, Director and
Board and Director Scudder, Stevens & Clark, Assistant Treasurer
Inc.
Edgar R. Fiedler (67)# Director Vice President and Economic --
50114 Manly Counselor, The Conference
Chapel Hill, NC 27514 Board, Inc.
Peter B. Freeman (64) Director Corporate Director and --
100 Alumni Avenue Trustee
Providence, RI 02906
Robert W. Lear (79) Director Executive-in-Residence, --
429 Silvermine Road Visiting Professor, Columbia
New Canaan, CT 06840 University Graduate School
of Business
Stephen L. Akers+ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
K. Sue Cote (35)+ Vice President Principal of Scudder, --
Stevens & Clark, Inc.
Carol L. Franklin++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
Jerard K. Hartman (64)++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
Thomas W. Joseph (57)+ Vice President and Principal of Scudder, Vice President,
Assistant Secretary Stevens & Clark, Inc. Director, Treasurer and
Assistant Clerk
Kathryn L. Quirk (44)++ Vice President Managing Director of Senior Vice President,
Scudder, Stevens & Clark, Director and Clerk
Inc.
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<PAGE>
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- ------- ---------------------- -----------------------
Thomas F. McDonough (50)+ Vice President and Principal of Scudder, Assistant Clerk
Secretary Stevens & Clark, Inc.
Pamela A. McGrath (43)+ Vice President Managing Director of --
and Treasurer Scudder, Stevens & Clark,
Inc.
</TABLE>
* 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
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.
As of April 1, 1997, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of each Portfolio of the
Company.
As of April 1, 1997, the following shareholders held of record,
beneficially, or both, more than 5% of the outstanding shares of these
Portfolios:
Cash Portfolio. Bowen David & Co., Boston, MA 02105-1647, and Scudder,
Stevens & Clark, Inc., New York, New York 10154-0004 held of record 71% and 7%,
respectively, of the outstanding shares of the Cash Portfolio.
Tax Free Portfolio. Bowen David & Co., Boston, MA 02105-1647, and
Amarillo National Bank, Amarillo, TX 79181-0001 held of record 74% and 8%,
respectively, of the outstanding shares of the Tax Free Portfolio.
Government Portfolio. Bowen David & Co., Boston, MA 02105-1647 held of
record 97% of the outstanding shares of the Government Portfolio.
As of April 1, 1997, no other persons, to the knowledge of management,
owned of record or beneficially more than 5% of the outstanding shares of any
Portfolio. To the extent that any shareholder is the beneficial owner of more
than 25% of the outstanding shares of any Portfolio, such shareholder may be
deemed to be a "control person" of that Portfolio for purposes of the 1940 Act.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Directors is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder, Stevens & Clark, Inc. (The "Advisor"). These "Independent Directors"
have primary responsibility for assuring that each Fund is managed in the best
interests of its shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of each Fund and other operational matters, including
policies and procedures designated to assure compliance with various regulatory
requirements. At least annually, the Independent Directors review the fees paid
to the Adviser and its affiliates for investment advisory services and other
15
<PAGE>
administrative and shareholder services. In this regard, they evaluate, among
other things, each Funds' investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by each Fund's independent
public accountants and by independent legal counsel selected by the Independent
Directors.
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
The Independent Directors met five times during 1996, including Board
and Committee meetings and meetings to review each Fund's contractual
arrangements as described above. All of the Independent Directors attended at
least 83.3% of all such meetings.
Compensation of Officers and Directors
The Independent Directors receive compensation of $150 per Portfolio
for each Director's meeting attended and each Board Committee meeting attended
and an annual Director's fee of $500 for each Portfolio with average daily net
assets less than $100 million, and $1,500 for each Portfolio with average daily
net assets in excess of $100 million, payable quarterly. No additional
compensation is paid to any Independent Director for travel time to meetings,
attendance at directors' educational seminars or conferences, service on
industry or association committees, participation as speakers at directors'
conferences, service on special trustee task forces or subcommittees or service
as lead or liaison trustee. Independent Directors do not receive any employee
benefits such as pension, retirement or health insurance.
The Independent Directors also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type an complexity
and in some cases have substantially different Directors fee schedules. The
following table shows the aggregate compensation received by each Independent
Directors during 1996 from the Trust and from all of Scudder funds as a group.
Name Scudder Institutional Fund* All Scudder Funds
---- --------------------------- -----------------
Edgar R. Fiedler, Director** $________ $108,083 (20 funds)
Peter B. Freeman, Director $________ $131,734 (33 funds)
Robert W. Lear, Director $________ $34,049 (11 funds)
* Scudder Institutional Fund, Inc. consists of Institutional Government
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 $22,400 through a deferred compensation program.
As of December 31, 1995, Mr. Fiedler had a total of $206,003 accrued in
a deferred compensation program for serving on the Board of Directors
of the Company.
Members of the Board of Directors who are employees of Scudder or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of Scudder, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
16
<PAGE>
TAXES
(See "Distribution and Performance Information--Taxes" in the
Company's Prospectus.)
The Prospectus describes generally the tax treatment of distributions
by the Company. This section of the Statement includes additional information
concerning federal taxes.
Qualification by each Portfolio as a regulated investment company under
the Internal Revenue Code of 1986 (the "Code") requires, among other things,
that (a) at least 90% of the Portfolio's annual gross income, without offset for
losses from the sale or other disposition of securities, be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of securities; (b) the Portfolio derive less than
30% of its gross income from gains (without offset for losses) from the sale or
other disposition of securities held for less than three months; and (c) the
Portfolio diversify its holdings so that, at the end of each quarter of the
taxable year: (i) at least 50% of the market value of the Portfolio's assets is
represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the value of the
Portfolio's assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of the Portfolio's assets is invested in
the securities of any one issuer (other than the U.S. government securities or
securities of other regulated investment companies) or of two or more issuers
which the taxpayer controls and which are determined to be engaged in the same
or similar trade or business. As a regulated investment company, each Portfolio
will not be subject to federal income tax on its net investment income and net
capital gains distributed to its shareholders, provided that it distributes to
its shareholders at least 90% of its net taxable investment income (including
net short-term capital gains) and at least 90% of the excess of its tax-exempt
interest income over attributable expenses earned in each year. In addition, in
the case of the Tax Free Portfolio, the Portfolio intends that at least 50% of
the value of its total assets at the close of each quarter of its taxable year
will consist of obligations the interest on which is exempt from federal income
tax, so that the Portfolio will qualify under the Code to pay exempt-interest
dividends.
A 4% nondeductible excise tax will be imposed on a Portfolio (except
the Tax Free Portfolio to the extent of its tax-exempt income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. For this purpose, any income or gain retained by a Portfolio that
is subject to tax will be considered to have been distributed by year-end. In
addition, dividends declared in October, November or December payable to
shareholders of record on a specified date in such a month and paid in the
following January will be treated as having been paid by each Portfolio and
received by shareholders on December 31 of the calendar year in which the
dividend was declared. Each Portfolio intends that it will timely distribute
substantially all of its net investment income and net capital gains and, thus,
expects not to be subject to the excise tax.
Any gain or loss realized upon a sale or redemption of shares of a
Portfolio by a shareholder who is not a dealer in securities is generally
treated as a long-term capital gain or loss if the shares have been held for
more than one year and otherwise as short-term capital gain or loss. However,
any loss realized by a shareholder upon the sale or redemption of shares of a
Portfolio held for six months or less is treated as long-term capital loss to
the extent of any long-term capital gain distribution received by the
shareholder. Any loss realized by a shareholder upon the sale or redemption of
shares of the Tax Free Portfolio held for six months or less is disallowed to
the extent of any exempt-interest dividends received by the shareholder.
Gains or losses on sales of securities by a Portfolio will generally be
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Portfolio acquires a put
or writes a call thereon. Other gains or losses on the sale of securities will
be short-term capital gains or losses.
Exempt-interest dividends allocable to interest received by the Tax
Free Portfolio on certain "private activity" obligations issued after August 7,
1986 will be treated as interest on such obligations and thus will give rise to
an item of tax preference that will increase a shareholder's alternative minimum
taxable income. Exempt-interest dividends paid to a corporate shareholder by the
Tax Free Portfolio (whether or not from interest on private activity bonds) will
be taken into account (i) in determining the alternative minimum tax imposed on
75% of the excess of adjusted current earnings of the corporation over
alternative minimum taxable income, (ii) in calculating the environmental tax
equal to 0.12% of a corporation's modified alternative minimum taxable income in
excess of $2 million, and (iii) in determining the foreign branch profits tax
imposed on the effectively connected earnings and profits tax (with adjustments)
of U.S. branches of foreign corporations.
17
<PAGE>
Any loss realized on a sale or exchange of shares of a Portfolio will
be disallowed to the extent shares of such Portfolio are reacquired within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of. Income from the Federal Portfolio and Tax Free Portfolio may not be
exempt from certain state and local taxes.
PORTFOLIO TRANSACTIONS
Subject to the supervision of the Board of Directors, the Adviser is
primarily responsible for the Company's investment decisions and the placing of
the Company's portfolio transactions. In placing orders, it is the policy of the
Adviser to obtain the most favorable net results, taking into account such
factors as price, size of order, difficulty of execution and skill required of
the executing broker. While the Adviser will generally seek reasonably
competitive spreads or commissions, the Company will not necessarily be paying
the lowest spread or commission available.
To the maximum extent feasible, the Adviser places orders for portfolio
transactions for the Company through the Distributor, which in turn places
orders on behalf of the Company. The Distributor receives no commissions, fees
or other remuneration from the Company for this service. Allocation of portfolio
transactions by the Distributor is supervised by the Adviser.
The Company's purchases and sales of portfolio securities are generally
placed by the Adviser with the issuer or a primary market maker for these
securities on a net basis, without any brokerage commissions being paid by the
Company. Trading, however, does involve transactions costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Transaction costs may also include fees paid to third parties for
information as to potential purchasers or sellers of securities but only for the
purpose of seeking for the Company the most favorable net results, including
such fees, on a particular transaction. Purchases of underwritten issues may be
made, which will include an underwriting fee paid to the Distributor. During the
Company's last three fiscal years, the Portfolios paid no brokerage commissions.
Research and Statistical Information. When it can be done consistently
with the policy of obtaining the most favorable net results, it is the Adviser's
practice to place orders with brokers and dealers who supply market quotations
to the fund accounting agent of the Portfolio for valuation purposes, or who
supply research, market and statistical information to the Adviser. Except for
implementing the policy stated above, there is no intention on the part of the
Adviser to place portfolio transactions with particular brokers or dealers or
groups thereof, and the Adviser does not place orders with brokers or dealers on
the basis that such broker or dealer has or has not sold shares of the
Portfolios. Although such research, market and statistical information is useful
to the Adviser, it is the Adviser's opinion that such information is only
supplementary to its own research efforts, since the information must still be
analyzed, weighed and reviewed by the Adviser's staff. Information so received
will be in addition to, and not in lieu of, the services required to be
performed by the Adviser under the investment advisory contracts with the
Portfolios, and the expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. Such information may be useful to the
Adviser in providing services to clients other than the Portfolios, and not all
such information is used by the Adviser in connection with the Portfolios.
NET ASSET VALUE
Net asset value per share for each Portfolio is determined by
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, on each day
the Exchange is open for trading. The net asset value per share of each
Portfolio is determined at 2:00 p.m. for the Tax Free Portfolio and 4:00 p.m.
for the Cash Portfolio and Government Portfolio. The net asset value per share
of each 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. The Exchange is closed on Saturdays, Sundays, and on New Year's
Day, Presidents' Day (the third Monday in February), Good Friday, Memorial Day
(the last Monday in May), Independence Day, Labor Day (the first Monday in
September), Thanksgiving Day and Christmas Day (collectively, the "Holidays").
When any Holiday falls on a Saturday, the Exchange is closed the preceding
Friday, and when any Holiday falls on a Sunday, the Exchange is closed the
following Monday. Although the Company intends to declare dividends with respect
to each of its Money Market Funds on all other days, including Martin Luther
King, Jr. Day (the third Monday in January), Columbus Day (the second Monday in
October) and Veterans' Day, no redemptions will be made on these three bank
holidays nor on any of the Holidays.
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<PAGE>
As indicated under "Transaction Information--Share Price" in the
Prospectus, each Portfolio uses the amortized cost method to determine the value
of its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Portfolio would receive if the security were sold. During these periods
the yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of a Portfolio's portfolio on a particular
day, a prospective investor in that Portfolio would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing Portfolio shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, each Portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities (as defined in Rule 2a-7) of no more than 397 calendar days and
invest only in securities determined by the Board of Directors to be of high
quality with minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable and floating rate
instruments subject to demand features. Pursuant to Rule 2a-7, the Board is
required to establish procedures designed to stabilize, to the extent reasonably
possible, such Portfolio's price per share as computed for the purpose of sales
and redemptions at $1.00. Such procedures include review of the Portfolio's
portfolio holdings by the Board of Directors, at such intervals as it may deem
appropriate, to determine whether the Portfolio's net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board of
Directors. If such deviation exceeds 1/2 of 1%, the Board will promptly consider
what action, if any, will be initiated. In the event the Board determines that a
deviation exists that may result in material dilution or other unfair results to
investors or existing shareholders, the Board will take such corrective action
as it regards as appropriate, including the redemption of shares in kind, the
sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends or
establishing a net asset value per share by using available market quotations.
ADDITIONAL INFORMATION
Experts
The financial highlights of each Portfolio included in the Prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been audited by Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, New York 10036, independent accountants, and are
included in the Prospectus and this Statement of Additional Information in
reliance upon the accompanying report of said firm, which report is given upon
their authority as experts in accounting and auditing.
Other Information
The CUSIP number of the Cash Portfolio is 811161405.
The CUSIP number of the Tax Free Portfolio is 811161504.
The CUSIP number of the Government Portfolio is 811161207.
Each Portfolio has a fiscal year end of December 31.
The law firm of Sullivan & Cromwell is counsel to the Company.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Portfolios. Each Portfolio pays SFAC an annual fee equal to
0.020% of the first $150 million of average daily net assets, 0.0060% of such
assets in excess of $150 million and 0.0035% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the year
19
<PAGE>
ended December 31, 1996, the amount charged to the Portfolios by SFAC aggregated
$42,445 for the Cash Portfolio, $30,340 for the Tax Free Portfolio and $30,000
for the Government Portfolio, of which $3,669, $2,500 and $2,500, respectively,
remained unpaid at December 31, 1996.
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 Company 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 Company
shares and promptly effecting such orders; (ii) recording purchases of Company
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 each Portfolio of the Company. The Service
Corporation applies monthly activity fees for servicing shareholder accounts of
the Company and Scudder Fund, Inc., with a minimum fee of 1/12 of $220,000.
Until September 30, 1995 the difference between the activity fees charged and
the annual $220,000 minimum was allocated among all Portfolios of the Company
and all series of Scudder Fund, Inc. based on relative net assets. Effective
October 1, 1995 the minimum monthly charge to any Portfolio shall be the pro
rata portion of the annual fee, determined by dividing such aggregate fee by the
number of Portfolios of the Company and series of Scudder Fund, Inc. An activity
fee is charged on a monthly basis for the shareholder accounts serviced. When a
Portfolio's monthly activity charges do not equal or exceed the minimum monthly
charge, the minimum will be charged. For the year ended December 31, 1996, the
amount charged to each of the Portfolios by Service Corporation was $23,477, of
which $2,292 remained unpaid.
The Company's Prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Company 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 Company and the securities offered hereby. The
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolios of the
Company, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements are incorporated herein by
reference in the Annual Report to the Shareholders of the Company dated December
31, 1996 and are hereby deemed to be a part of this Statement of Additional
Information.
20
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's, S&P and
Fitch to corporate and municipal bonds, corporate and municipal commercial paper
and municipal notes.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa". Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest degree of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations, neither highly protected nor poorly secured. Moody's applies
numerical modifiers 1, 2 and 3 in each rating category from "Aa" through "Baa"
in its rating system. The modifier 1 indicates that the security ranks in the
higher end of the category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB". Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the higher rated issues only in small degree".
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible to" adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead a "weakened capacity" to make such payments. The ratings
from "AA" to "BBB" may be modified by the addition of a plus or minus sign to
show relative standing within the category.
Fitch: The four highest ratings of Fitch for corporate and municipal
bonds are "AAA," "AA," "A" and "BBB". Bonds rated "AAA" are considered to be
investment-grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated "AA" are
considered to be investment grade and of very high credit quality. The obligor's
ability to pay interest and repay principal is very strong, although not quite
as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F1+". Bonds rated "A" are
considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher rates. Bonds rated "BBB" are considered to be investment
grade and of satisfactory credit quality. The obligor's ability to pay interest
and repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse effects
on these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with greater ratings.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior ability for
repayment of senior short-term obligations".
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is strong".
Commercial paper with "overwhelming safety characteristics" will be rated
"A-1+".
Fitch: The rating "F-1" is the highest rating assigned by Fitch. Among
the factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated "F-1".
<PAGE>
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality". Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins or protection "ample although
not as large as in the preceding group". Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest". Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+". The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Fitch: The highest ratings for state and municipal short-term
obligations are "F-1+," "F-1," and "F-2".
<PAGE>
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
May 1, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of Institutional International Equity
Portfolio dated May 1, 1997, 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...........................................................17
Personal Investments by Employees of the Adviser....................18
DIRECTORS AND OFFICERS.......................................................18
REMUNERATION.................................................................20
Responsibilities of the Board--Board and Committee Meetings.........20
Compensation of Officers and Directors..............................20
DISTRIBUTOR..................................................................21
TAXES........................................................................21
PORTFOLIO TRANSACTIONS.......................................................25
Brokerage Commissions...............................................25
Portfolio Turnover..................................................26
NET ASSET VALUE..............................................................26
ADDITIONAL INFORMATION.......................................................27
Experts.............................................................27
Other Information...................................................27
FINANCIAL STATEMENTS.........................................................28
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 total assets in equity
securities of established companies, listed on recognized exchanges, which the
Portfolio's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"),
believes have favorable characteristics. The Adviser expects this condition to
continue, although the Portfolio may invest in other securities.
When the Adviser believes that it is appropriate to do so in order to
achieve the Portfolio's investment objective of long-term capital growth, the
Portfolio may invest up to 10% of its total assets in debt securities. Such debt
securities include debt securities of foreign governments, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (ECU). In determining the location of the principal activities and
interests of a company, the Adviser takes into account such factors as the
location of the company's assets, personnel, sales and earnings. In selecting
securities for the Portfolio, the Adviser seeks to identify companies whose
securities prices do not adequately reflect their established positions in their
fields. In analyzing companies for investment, the Adviser ordinarily looks for
one or more of the following characteristics: above-average earnings growth per
share, high return on invested capital, healthy balance sheets and overall
financial strength, strong competitive advantages, strength of management and
general operating characteristics which will enable the companies to compete
successfully in the marketplace. Investment decisions are made without regard to
arbitrary criteria as to minimum asset size, debt-equity ratios or dividend
history of portfolio companies.
The Portfolio may invest in any type of security including, but not limited
to shares, preferred or common; bonds and other evidences of indebtedness; and
other securities of issuers wherever organized, and not excluding evidences of
indebtedness of governments and their political subdivisions. The Portfolio, in
view of its investment objective, intends under normal conditions to maintain a
portfolio consisting primarily of a diversified list of equity securities.
When the Adviser determines that exceptional conditions exist abroad, the
Portfolio may, for temporary defensive purposes, invest all or a portion of its
assets in Canadian or U.S. Government obligations or currencies, or securities
of companies incorporated in and having their principal activities in Canada or
the U.S.
Foreign securities such as those purchased by the Portfolio may be subject
to foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Portfolio may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
From time to time, the Portfolio may be a purchaser of restricted debt or
equity securities (i.e., securities which may require registration under the
Securities Act of 1933, as amended, or an exemption therefrom, in order to be
<PAGE>
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 or otherwise
illiquid (securities subject to legal restrictions on resales to institutions,
or contractual restrictions on resale) and more than 10% of its total assets
would be invested in securities that are not readily marketable.
The Portfolio reserves the right in the future, without prior shareholder
approval, to pursue its investment objective by investing all of its investable
assets in a separate registered investment company having the same investment
objective and substantially similar policies and restrictions as the Portfolio.
The new structure (commonly known as "master-feeder") could enable the Portfolio
to benefit, directly or indirectly, from certain economies of scale, based on
the premise that certain of the expenses of operating an investment portfolio
are relatively fixed and that a larger investment portfolio may eventually
achieve a lower ratio of operating expenses to average net assets.
Risk Factors
Foreign Securities. The Portfolio is intended to provide individual and
institutional investors with an opportunity to invest a portion of their assets
in securities of a diversified group of companies, wherever organized, which do
business primarily outside the U.S., and foreign governments. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future. Because of the
Portfolio's investment policy, the Portfolio is not intended to provide a
complete investment program for an investor.
Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Portfolio's performance. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Portfolio will endeavor to achieve the most favorable net results
on its portfolio transactions. There is generally less government supervision
and regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for the Portfolio's agents to keep currently
informed about corporate actions which may affect the prices of portfolio
securities. Communications between the U.S. and foreign countries may be less
reliable than within the U.S., thus increasing the risk of delayed settlements
of portfolio transactions or loss of certificates for portfolio securities.
Payment for securities without delivery may be required in certain foreign
markets. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect U.S. investments in
those countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. The management of the Portfolio seeks to mitigate
the risks associated with the foregoing considerations through continuous
professional management.
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Portfolio may hold
foreign currencies and forward contracts, futures contracts and options on
foreign currencies and foreign currency futures contracts, the value of the
assets of the Portfolio as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Portfolio may incur costs in connection with conversions
between various currencies. Although the Portfolio values its assets daily in
terms of U.S. dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
2
<PAGE>
foreign currency to the Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer. The
Portfolio will conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into options or forward or futures
contracts to purchase or sell foreign currencies. The market value of the
Portfolio's debt securities, and correspondingly the Portfolio's share price,
will vary inversely with changes in prevailing interest rates.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Portfolio's objective of long-term capital growth, the
Portfolio may invest up to 10% of its total assets in debt securities including
bonds of foreign governments, supranational organizations and private issuers,
including bonds denominated in the ECU. Portfolio debt investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Portfolio may purchase "investment-grade" bonds,
which are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P
or, if unrated, judged to be of equivalent quality as determined by the Adviser.
Moody's considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. The market value of the Portfolio's debt
securities may vary inversely with changes in prevailing interest rates.
High Yield/High Risk Bonds. The Portfolio may also purchase, to a limited
extent, debt securities which are rated below investment-grade, that is, rated
below Baa by Moody's or below BBB by S&P and unrated securities, which usually
entail greater risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories. The lower the ratings of such debt securities, the
greater their risks. The Portfolio will invest no more than 5% of its total
assets in securities rated BB or lower by Moody's or Ba by S&P, and may invest
in securities which are rated D by S&P. Securities rated D may be in default
with respect to payment of principal or interest. See the Appendix to this
Statement of Additional Information for a more complete description of the
ratings assigned by ratings organizations and their respective characteristics.
An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect the Portfolio's net
asset value. In addition, investments in high yield zero coupon or pay-in-kind
bonds, rather than income-bearing high yield securities, may be more speculative
and may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may limit
the ability of the Portfolio to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the
Portfolio's investment objective by investment in such securities may be more
dependent on the Adviser's credit analysis than is the case for higher quality
bonds. Should the rating of a portfolio security be downgraded, the Adviser will
determine whether it is in the best interest of the Portfolio to retain or
dispose of such security.
Prices for below investment-grade securities may be affected by legislative
and regulatory developments. For example, new federal rules require savings and
loan institutions to gradually reduce their holdings of this type of security.
Also, Congress has from time to time considered legislation which would restrict
or eliminate the corporate tax deduction for interest payments in these
securities and regulate corporate restructurings. Such legislation may
3
<PAGE>
significantly depress the prices of outstanding securities of this type. For
more information regarding tax issues related to high yield securities, see
"TAXES."
Strategic Transactions and Derivatives. The Portfolio may, but is not required
to, utilize various other investment strategies as described below to hedge
various market risks (such as interest rates, currency exchange rates, and broad
or specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Portfolio's portfolio, or
to enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Portfolio may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Portfolio's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Portfolio to utilize
these Strategic Transactions successfully will depend on the Adviser's ability
to predict pertinent market movements, which cannot be assured. The Portfolio
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Portfolio, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Portfolio can realize on its
investments or cause the Portfolio to hold a security it might otherwise sell.
The use of currency transactions can result in the Portfolio incurring losses as
a result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. The use of options and futures transactions entails certain other
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of
the Portfolio creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Portfolio's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Portfolio might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
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options require segregation of Portfolio assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Portfolio's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Portfolio the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Portfolio's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Portfolio against an increase in the price of the
underlying instrument that it intends to purchase in the future by fixing the
price at which it may purchase such instrument. An American style put or call
option may be exercised at any time during the option period while a European
style put or call option may be exercised only upon expiration or during a fixed
period prior thereto. The Portfolio is authorized to purchase and sell exchange
listed options and over-the-counter options ("OTC options"). Exchange listed
options are issued by a regulated intermediary such as the Options Clearing
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Portfolio's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Portfolio will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. The Portfolio expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
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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 option transactions
only with U.S. government securities dealers recognized by the Federal Reserve
Bank of New York as "primary dealers" or broker/dealers, domestic or foreign
banks or other financial institutions which have received (or the guarantors of
the obligation of which have received) a short-term credit rating of A-1 from
S&P or P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Portfolio, and portfolio securities "covering" the amount of the Portfolio's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the
Portfolio's limitation on investing no more than 10% of its total assets in
illiquid securities.
If the Portfolio sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Portfolio's income. The sale of put options can
also provide income.
The Portfolio may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Portfolio must be "covered" (i.e., the
Portfolio must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. Even though the Portfolio will receive the option premium to
help protect it against loss, a call sold by the Portfolio exposes the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Portfolio to hold a security or instrument which it might
otherwise have sold.
The Portfolio may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments (whether or not it holds the
above securities in its portfolio), and on securities indices, currencies and
futures contracts other than futures on individual corporate debt and individual
equity securities. The Portfolio will not sell put options if, as a result, more
than 50% of the Portfolio's assets would be required to be segregated to cover
its potential obligations under such put options other than those with respect
to futures and options thereon. In selling put options, there is a risk that the
Portfolio may be required to buy the underlying security at a disadvantageous
price above the market price.
General Characteristics of Futures. The Portfolio may enter into financial
futures contracts or purchase or sell put and call options on such futures as a
hedge against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Portfolio, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Portfolio's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Portfolio to deposit
with a financial intermediary as security for its obligations an amount of cash
or other specified assets (initial margin) which initially is typically 1% to
10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Portfolio. If the Portfolio exercises an option on a futures contract it
will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as it would for any position.
Futures contracts and options thereon are generally settled by
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entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur.
The Portfolio will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Portfolio's total assets (taken at current
value); however, in the case of an option that is in-the-money at the time of
the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Portfolio also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Portfolio may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Portfolio may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The Portfolio's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Portfolio, which will generally
arise in connection with the purchase or sale of its securities or the receipt
of income therefrom. Position hedging is entering into a currency transaction
with respect to portfolio security positions denominated or generally quoted in
that currency.
The Portfolio will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Portfolio may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Portfolio has or in which the
Portfolio expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a commitment or option to sell a
currency whose changes in value are generally considered to be correlated to a
currency or currencies in which some or all of the Portfolio's portfolio
securities are or are expected to be denominated, in exchange for U.S. dollars.
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The amount of the commitment or option would not exceed the value of the
Portfolio's securities denominated in correlated currencies. For example, if the
Adviser considers that the Austrian schilling is correlated to the German
deutschemark (the "D-mark"), the Portfolio holds securities denominated in
schillings and the Adviser believes that the value of schillings will decline
against the U.S. dollar, the Adviser may enter into a commitment or option to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Portfolio if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived correlation between various
currencies may not be present or may not be present during the particular time
that the Portfolio is engaging in proxy hedging. If the Portfolio enters into a
currency hedging transaction, the Portfolio will comply with the asset
segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Portfolio if it is unable to deliver or receive currency or
funds in settlement of obligations and could also cause hedges it has entered
into to be rendered useless, resulting in full currency exposure as well as
incurring transaction costs. Buyers and sellers of currency futures are subject
to the same risks that apply to the use of futures generally. Further,
settlement of a currency futures contract for the purchase of most currencies
must occur at a bank based in the issuing nation. Trading options on currency
futures is relatively new, and the ability to establish and close out positions
on such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.
Combined Transactions. The Portfolio may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Portfolio to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Portfolio may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. The Portfolio expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolio intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Portfolio may be obligated to pay. Interest rate swaps involve the exchange by
the Portfolio with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Portfolio will usually enter into swaps on a net basis, i.e., the
two payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, the Adviser and the Portfolio believe such obligations do not
constitute senior securities under the 1940 Act, and, accordingly, will not
treat them as being subject to its borrowing restrictions. The Portfolio will
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not enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or has an equivalent rating from a NRSRO or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Portfolio may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and collars
are more recent innovations for which standardized documentation has not yet
been fully developed and, accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in the
U.S., (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the U.S., and (v) lower trading
volume and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
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assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code for qualification
as a regulated investment company. (See "TAXES.")
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 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
10
<PAGE>
repurchase price. However, if the market value of the Obligation subject to
the repurchase agreement becomes less than the repurchase price (including
interest), the Portfolio will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Portfolio will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
Investment Restrictions
In connection with its investment objective and policies as set forth in
the Prospectus, the Company has adopted the following investment restrictions,
on behalf of the Portfolio, none of which may be changed without the approval of
the holders of a majority of the Portfolio's outstanding shares, as defined in
the 1940 Act.
As a matter of fundamental policy, the Portfolio may not:
(1) with respect to 75% of its total assets, taken at market value,
purchase more than 10% of the voting securities of any one issuer, or
invest more than 5% of the value of its total assets in the securities
of any one issuer, except obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and except securities of
other investment companies (except that if the Portfolio chooses to
participate in the master-feeder structure, as described in the
section titled "General Investment Objective and Policies," it may
purchase up to 100% of the voting securities of any one issuer and may
invest up to 100% of its investment securities in a single issuer
without restriction);
(2) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that the Portfolio maintains asset coverage of
300% for all borrowings;
(3) act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Portfolio;
(4) make loans to other persons, except (a) loans of portfolio securities,
and (b) to the extent the entry into repurchase agreements and the
purchase of debt securities in accordance with its investment
objectives and investment policies may be deemed to be loans;
(5) purchase or sell real estate (except that the Portfolio may invest in
(i) securities of companies which deal in real estate or mortgages,
and (ii) securities secured by real estate or interests therein, and
that the Portfolio reserves freedom of action to hold and to sell real
estate acquired as a result of the Portfolio's ownership of
securities); and
(6) purchase or sell physical commodities or contracts relating to
physical commodities.
The Portfolio will not as a matter of nonfundamental policy:
(a) purchase or retain securities of any open-end investment company,
or securities of closed-end investment companies except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchases, or except when
such purchase, though not made in the open market, is part of a
plan of merger, consolidation, reorganization or acquisition of
assets; in any event the Portfolio may not purchase more than 3%
of the outstanding voting securities of another investment
company, may not invest more than 5% of its assets in another
investment company, and may not invest more than 10% of its
assets in other investment companies (except that if the
Portfolio chooses to participate in the master-feeder structure,
as described in the section titled "General Investment Objective
and Policies," it may invest up to 100% of its investment
securities in an investment company without restriction);
(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 total assets in securities which are
not readily marketable or otherwise illiquid, the disposition of
which is restricted under Federal securities laws, or in
repurchase agreements not terminable within 7 days, and the
Portfolio will not invest more than 10% of its total assets in
restricted securities;
(f) other than as may be necessary to participate in a master-feeder
arrangement, purchase securities of any issuer with a record of
less than three years continuous operations, including
predecessors, and in equity securities which are not readily
marketable except U.S. Government securities, and obligations
issued or guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the investments
of the Portfolio in all such issuers to exceed 5% of the total
assets of the Portfolio taken at market value;
(g) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Portfolio
at any time do not exceed 20% of its net assets; or sell put
options on securities if, as a result, the aggregate value of the
obligations underlying such put options would exceed 50% of the
Portfolio's net assets;
(h) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate
initial margin with respect to all futures contracts entered into
on behalf of the Portfolio and the premiums paid for options on
futures contracts does not exceed 5% of the fair market value of
the Portfolio's total assets; provided, that in the case of an
option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit;
(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own
or invest in such interests);
(j) borrow money in excess of 5% of its total assets (taken at market
value) except for temporary or emergency purposes or borrow other
than from banks;
(k) purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of
the Portfolio's total net assets or more than 2% of its net
assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);
(l) invest more than 10% of its total assets in debt securities
(including convertible securities) or more than 5% of its total
assets in securities rated BB/Ba or below by Moody's or S&P or
the equivalent;
(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Portfolio's total assets at the
time the loan is made; all loans of portfolio securities will be
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
12
<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. 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
then be asked to claim a credit against their federal income tax liability. (See
"TAXES.")
13
<PAGE>
If the Portfolio does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Portfolio may be subject to that excise tax. (See "TAXES.") In certain
circumstances, the Portfolio may determine that it is in the interest of
shareholders to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of
Portfolio shares may be utilized by the Portfolio, to the extent permissible, as
part of the Portfolio's dividends paid deduction on its federal tax return.
The Portfolio intends to distribute its investment company taxable income
and any net realized capital gains in December to avoid federal excise tax,
although an additional distribution may be made, if necessary.
Both types of distributions will be made in shares of the Portfolio and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Portfolio issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
(See "Distribution and Performance Information--Performance Information"
in the Portfolio's Prospectus.)
From time to time, quotations of the Portfolio's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures may be calculated in the
following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of return
for periods of one year and the life of the Portfolio, where applicable, all
ended on the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Portfolio's shares, if any, and
assume that all dividends and capital gains distributions during the respective
periods were reinvested in Portfolio shares. Average annual total return is
calculated by finding the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000.
T = Average Annual Total Return.
n = number of years.
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 investment
made at the beginning of the applicable period.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Portfolio's shares and assume
that all dividends and capital gains distributions during the period were
reinvested in Portfolio shares. Cumulative total return is calculated by finding
the cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
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<PAGE>
C = (ERV/P) - 1
Where:
C = Cumulative Total Return.
P = a hypothetical initial investment of $1,000.
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Cumulative total return for the period April 3, 1996 (commencement of
operations) to December 31, 1996 was 4.83%. If the Adviser had not maintained
Fund expenses and had imposed a full management fee, total return would have
been lower.
Total Return
Total Return is the rate of return on an investment for a specified period
of time calculated in the same manner as cumulative total return.
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
15
<PAGE>
Statement of Account furnished to the registered holder after each transaction,
a monthly summary of accounts can be provided. The monthly summary will show for
each account the account number, the month-end share balance and the dividends
and distributions paid during the month. All costs of this service will be borne
by the Company. For information on the special monthly summary of accounts,
contact the Company.
COMPANY ORGANIZATION
(See "Company Organization" in the Portfolio's Prospectus)
The Company was formed on January 2, 1986 as a corporation under the laws
of the State of Maryland. The authorized capital stock of the Company consists
of 25,000,000,000 shares having a par value of $.001 per share, of which
5,000,000,000 shares each have been designated for the Government Portfolio, and
Cash Portfolio, 2,000,000,000 shares have been designated for the Tax-Free
Portfolio and 100,000,000 have been designated for the Institutional
International Equity Portfolio. The Company is authorized to issue full and
fractional shares in separate series. The Directors have created 28 series,
constituting the Government Portfolio, the Federal Portfolio, Cash Portfolio,
Tax-Free Portfolio, Institutional International Equity Portfolio, Institutional
Prime Portfolio, Institutional Municipal Income Portfolio, Institutional
Intermediate Cash Portfolio, Institutional Bond Index Portfolio, Institutional
Cash Plus Portfolio, Institutional Global Equity Portfolio, Institutional
Emerging Markets Equity Portfolio, Institutional Global Small Company Equity
Portfolio, Institutional Latin America Equity Portfolio, Institutional Japanese
Equity Portfolio, Institutional Pacific Basin Equity Portfolio, Institutional
Growth and Income Portfolio, Institutional Quality Growth Portfolio,
Institutional Value Equity Portfolio, Institutional Small Company Equity
Portfolio, Institutional Defensive Limited Volatility Bond Portfolio,
Institutional Intermediate Limited Volatility Bond Portfolio, Institutional
Active Value Bond Portfolio, Institutional Long Duration Bond Portfolio,
Institutional Mortgage Investment Portfolio, Institutional Global Bond
Portfolio, Institutional International Bond Portfolio, and Institutional
Emerging Markets Fixed Income Portfolio. The Directors have reserved authority
to create, in the future, other series representing shares of additional
portfolios.
On any matter submitted to a vote of shareholders, all shares then entitled
to vote will be voted by Portfolio unless otherwise required by the 1940 Act, in
which case all shares will be voted in the aggregate. For example, a change in a
Portfolio's fundamental investment policies would be voted upon only by
shareholders of the Portfolio involved. Additionally, approval of the Investment
Advisory Agreements is a matter to be determined separately by each Portfolio.
Approval by the shareholders of one Portfolio is effective as to that Portfolio
whether or not sufficient votes are received from the shareholders of the other
Portfolios to approve the proposal as to those Portfolios. As used in the
Prospectus and in this Statement of Additional Information, the term "majority,"
when referring to approvals to be obtained from shareholders of a Portfolio,
means the vote of the lesser of (i) 67% or more of the voting securities of the
Portfolio represented at a meeting if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present in person or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Portfolio. The term "majority," when referring to the approvals to be
obtained from shareholders of the Company as a whole, means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the outstanding shares are present in person or
represented by proxy, or (ii) more than 50% of the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held.
Each share of a Portfolio represents an equal proportional interest in that
Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Portfolio
as are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shares of a Portfolio are entitled to
receive the assets attributable to that Portfolio that are available for
distribution, and a distribution of any general assets not attributable to a
particular Portfolio that are available for distribution in such manner and on
such basis as the Directors in their sole discretion may determine.
Shareholders are not entitled to any pre-emptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
16
<PAGE>
INVESTMENT ADVISER
(See "Company Organization--Investment Adviser" in the Portfolio's Prospectus)
The Company retains Scudder, Stevens & Clark, Inc. (the "Adviser") as
investment adviser on behalf of the Portfolio pursuant to an Investment Advisory
Agreement (the "Agreement"). The Adviser is one of the most experienced
investment counsel firms in the U.S. It was established in 1919 as a partnership
and was restructured as a Delaware corporation in 1985. The principal source of
the Adviser's income is professional fees received from providing continuing
investment advice, and the firm derives no income from banking, brokerage, or
underwriting of securities. A subsidiary of the Adviser, Scudder Investor
Services, Inc. (the "Distributor"), acts as principal underwriter for shares of
registered open-end investment companies. The Adviser provides investment
counsel for many individuals and institutions, including insurance companies,
endowments, industrial corporations and financial and banking organizations. As
of December 31, 1996, the Adviser and its affiliates had in excess of $115
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.
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<PAGE>
For these services the Portfolio pays the Adviser a fee equal to 0.90% of
the Portfolio's average daily net assets. Management fees are computed daily and
paid monthly. The Adviser has agreed to maintain the total annualized expenses
of the Portfolio at no more than 0.95% of the average daily net assets of the
Portfolio until July 31, 1997. For the period April 3, 1996 (commencement of
operations) to December 31, 1996, Scudder did not impose any of its fee
amounting to $104,861. In addition, Scudder reimbursed expenses amounting to
$80,840.
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 (63)+*# President and Chairman of the Board and Vice President, Director
Director Managing Director of and Assistant Treasurer
Scudder, Stevens & Clark,
Inc.
David S. Lee (63)+*# Chairman of the Managing Director of President, Director and
Board and Director Scudder, Stevens & Clark, Assistant Treasurer
Inc.
Edgar R. Fiedler (68)# Director Senior Fellow and Economic --
50023 Brogden Counselor, The Conference
Chapel Hill, NC 27514 Board, Inc.
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<PAGE>
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- ------- ---------------------- -----------------------
Peter B. Freeman (64) Director Corporate Director and --
100 Alumni Avenue Trustee
Providence, RI 02906
Robert W. Lear (79) Director Executive-in-Residence, --
429 Silvermine Road Visiting Professor, Columbia
New Canaan, CT 06840 University Graduate School
of Business
Stephen L. Akers+ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
K. Sue Cote (35)+ Vice President Principal of Scudder, --
Stevens & Clark, Inc.
Carol L. Franklin++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
Jerard K. Hartman (64)++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
Thomas W. Joseph (57)+ Vice President and Principal of Scudder, Vice President,
Assistant Secretary Stevens & Clark, Inc. Director, Treasurer and
Assistant Clerk
Kathryn L. Quirk (44)++ Vice President Managing Director of Senior Vice President,
Scudder, Stevens & Clark, Director and Clerk
Inc.
Thomas F. McDonough (50)+ Vice President and Principal of Scudder, Assistant Clerk
Secretary Stevens & Clark, Inc.
Pamela A. McGrath (43)+ Vice President Managing Director of --
and Treasurer Scudder, Stevens & Clark,
Inc.
</TABLE>
* 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
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
19
<PAGE>
reimburse such Directors for all out-of-pocket expenses relating to attendance
at meetings.
As of April 1, 1997, 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
Responsibilities of the Board--Board and Committee Meetings
The Board of Directors is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder, Stevens & Clark, Inc. (The "Advisor"). These "Independent Directors"
have primary responsibility for assuring that each Fund is managed in the best
interests of its shareholders.
The Board of Directors meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Directors review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Funds' investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by each Fund's independent public accountants and
by independent legal counsel selected by the Independent Directors.
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
The Independent Directors met five times during 1996, including Board and
Committee meetings and meetings to review each Fund's contractual arrangements
as described above. All of the Independent Directors attended at least 83.3% of
all such meetings.
Compensation of Officers and Directors
The Independent Directors receive compensation of $150 per Portfolio for
each Director's meeting attended and each Board Committee meeting attended and
an annual Director's fee payable quarterly of $500 for each Portfolio with
average daily net assets less than $100 million, and $1,500 for each Portfolio
with average daily net assets in excess of $100 million. No additional
compensation is paid to any Independent Director for travel time to meetings,
attendance at directors' educational seminars or conferences, service on
industry or association committees, participation as speakers at directors'
conferences, service on special trustee task forces or subcommittees or service
as lead or liaison trustee. Independent Directors do not receive any employee
benefits such as pension, retirement or health insurance.
The Independent Directors also serve in the same capacity for other funds
managed by the Adviser. These funds differ broadly in type an complexity and in
some cases have substantially different Directors fee schedules. The following
table shows the aggregate compensation received by each Independent Directors
during 1996 from the Trust and from all of Scudder funds as a group.
20
<PAGE>
<TABLE>
<CAPTION>
Name Scudder Institutional Fund* All Scudder Funds
---- --------------------------- -----------------
<S> <C> <C>
Edgar R. Fiedler, Director** $________ $108,083 (20 funds)
Peter B. Freeman, Director $________ $131,734 (33 funds)
Robert W. Lear, Director $________ $34,049 (11 funds)
</TABLE>
* Scudder Institutional Fund, Inc. consists of Institutional Government
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, 199 , Mr. Fiedler had a total of $______ accrued in a deferred
compensation program for serving on the Board of Directors of the Company.
Members of the Board of Directors who are employees of Scudder or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of Scudder, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
(See "Company Organization--Distributor" in the Portfolio's Prospectus)
Pursuant to a contract with the Portfolio, Scudder Investor Services, Inc.
(the "Distributor"), a subsidiary of the Adviser, serves as the Company's
principal underwriter in connection with a continuous offering of shares of the
Portfolio. The Distributor receives no remuneration for its services as
principal underwriter and is not obligated to sell any specific amount of
Company shares. As principal underwriter, it accepts purchase orders for shares
of the Portfolio. In addition, the Underwriting Agreement obligates the
Distributor to pay certain expenses in connection with the offering of the
shares of the Portfolio. After the Prospectuses and periodic reports have been
prepared, set in type and mailed to shareholders, the Distributor will pay for
the printing and distribution of copies thereof used in connection with the
offering to prospective investors. The Distributor will also pay for
supplemental sales literature and advertising costs.
TAXES
(See "Distribution and Performance Information--Taxes" in the
Portfolio's Prospectus.)
The Prospectus describes generally the tax treatment of distributions by
the Portfolio. This section of the Statement includes additional information
concerning federal taxes.
The Portfolio has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute. As a regulated
investment company, the Portfolio is required to distribute to its shareholders
at least 90 percent of its investment company taxable income (including net
short-term capital gain) and generally is not subject to federal income tax to
the extent that it distributes annually its investment company taxable income
and net realized capital gains in the manner required under the Code.
The Portfolio is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Portfolio's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gains
for prior years that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Portfolio.
21
<PAGE>
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.
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.
22
<PAGE>
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.
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
23
<PAGE>
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.
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.
24
<PAGE>
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
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.
In the fiscal year ended December 31, 1996, the Fund paid brokerage
commissions of $70,492. For the fiscal year ended December 31, 1996, $63,094
(90%) of the total brokerage commissions paid by the Fund resulted from orders
for transactions, placed consistent with the policy of seeking to obtain the
most favorable net results, with brokers and dealers who provided supplementary
research, market and statistical information to the Fund or the Adviser. The
balance of such brokerage was not allocated to particular broker or dealer with
regard to the above-mentioned or other special factors.
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<PAGE>
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. The
portfolio turnover rate for the period April 3, 1996 (commencement of
operations) to December 31, 1996 was 10.1%.
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
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.
26
<PAGE>
Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Portfolio will be included in the
Prospectus and the Financial Statement is included in this Statement of
Additional Information in reliance on the report of Price Waterhouse LLP,
independent accountants, and given upon their authority as experts in accounting
and auditing.
Other Information
The CUSIP number of the Portfolio is 811161-88-4.
The Portfolio has a fiscal year end of December 31.
The law firm of Sullivan and Cromwell is counsel to the Company and the law
firm of Dechert Price and Rhoads acts as special counsel to the Portfolio.
Price Waterhouse LLP are the independent accountants for the Portfolio.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Portfolio. The Portfolio pays SFAC an annual fee equal to
0.065% of the first $150 million of average daily net assets, 0.040% of the next
$850 million, and 0.020% of such assets in excess of $1 billion, plus holding
and transaction charges for this service. For the period April 3, 1996
(commencement of operations) to December 31, 1996, the amount charged to the
Portfolio by SFAC aggregated $36,458, all of which was unpaid at December 31,
1996.
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. For the period April 3, 1996 (commencement of operations) to
December 31, 1996, the amount charged to the Portfolio by SSC aggregated $17,723
of which $2,292 was unpaid at December 31, 1996.
The Portfolio's Prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Portfolio has filed with the SEC under the Securities Act
of 1933 and reference is hereby made to the Registration Statement for further
information with respect to the Portfolio and the securities offered hereby. The
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.
The Portfolio employs Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, as Custodian.
Costs of $28,742 incurred by the Portfolio in conjunction with its
organization are amortized over the five year period beginning April 3, 1996.
27
<PAGE>
No Portfolio of the Company shall be liable for the obligations of any
other Portfolio of the Company.
FINANCIAL STATEMENTS
The financial statements including the investment portfolios of the
Company, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements are incorporated herein by
reference to the Annual Report to the Shareholders of the Company dated December
31, 1996 and are hereby deemed to be part of this Statement of Additional
Information.
28
<PAGE>
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds.
Ratings of Corporate Bonds
S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
<PAGE>
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX-FREE PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Board of Directors
<S> <C>
DAVID S. LEE^(1) Chairman of the Board; Managing Director, Scudder, Stevens
& Clark, Inc.
EDGAR R. FIEDLER^(1)^(2)^(3) Vice President and Economic Counsellor, The Conference Board;
formerly Assistant Secretary of the Treasury for Economic Policy
PETER B. FREEMAN^(2)^(3) Corporate Director and Trustee
ROBERT W. LEAR^(2)^(3) Executive-in-Residence and Visiting Professor, Columbia
University Graduate School of Business; Director or Trustee,
Various Organizations
DANIEL PIERCE^(1) President; Chairman of the Board, Scudder, Stevens & Clark, Inc.
^(1)Member of Executive Committee
^(2)Member of Nominating Committee
^(3)Member of Audit Committee
</TABLE>
- --------------------------------------------------------------------------------
Officers
DAVID S. LEE Chairman of the Board
DANIEL PIERCE President
STEPHEN L. AKERS Vice President
K. SUE COTE Vice President
CAROL L. FRANKLIN Vice President
JERARD K. HARTMAN Vice President
KATHRYN L. QUIRK Vice President
THOMAS W. JOSEPH Vice President and Assistant Secretary
THOMAS F. McDONOUGH Vice President and Secretary
PAMELA A. McGRATH Vice President and Treasurer
2
<PAGE>
Dear Shareholder:
Operated exclusively for institutions and their clients, Scudder Institutional
Fund, Inc., which includes Institutional Government Portfolio, Institutional
Cash Portfolio, and Institutional Tax-Free Portfolio, provided competitive
investment results in 1996. These three money market portfolios seek to provide
high levels of current income while preserving capital and maintaining
liquidity.
All three portfolios seek to maintain a net asset value of $1.00, and have done
so since their inception. (There is no guarantee, of course, that each portfolio
will maintain stable net asset values.) The Institutional Tax-Free Portfolio
seeks to provide income exempt from Federal income tax.
Total net assets for Institutional Government Portfolio, Institutional Cash
Portfolio, and Institutional Tax-Free Portfolio were $423 million on December
31, compared with $408 million at the start of the year, which does not include
the assets of Institutional Federal Portfolio. Institutional Federal Portfolio
ceased operations on September 30, 1996. A table showing dividend payments and
other financial information for the twelve months ended December 31, 1996, as
well as the last five years ended December 31 for each portfolio is on page 16.
In addition, please see the following pages for financial statements for the
year ended December 31, 1996, as well as a list of each portfolio's investments.
If you have any questions concerning the Scudder Institutional Fund, Inc.,
please call toll free (800) 854-8525.
/s/David S. Lee
David S. Lee
Chairman
3
<PAGE>
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2a)
---------- ------------- -------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - 9.1%
Repurchase Agreement with State Street Bank dated
12/31/96 at 6.0% (proceeds at maturity $4,304,434)
collateralized by a $4,055,000 U.S. Treasury Bond,
7.125%, 2/15/23, (Cost $4,303,000) (note 3) ................ 1/2/97 $ 4,303,000 $ 4,303,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 91.1%
Federal Home Loan Bank Discount Note .......................... 1/16/97 4,500,000 4,490,213
Federal Home Loan Bank Discount Note .......................... 1/17/97 4,000,000 3,990,738
Federal Home Loan Bank Discount Note .......................... 4/24/97 2,500,000 2,458,959
Federal Home Loan Bank Discount Note .......................... 5/5/97 2,000,000 1,961,629
Federal Home Loan Mortgage Corp. Discount Note ................ 1/17/97 5,300,000 5,287,727
Federal National Mortgage Association Discount Note ........... 1/7/97 2,000,000 1,998,267
Federal National Mortgage Association Discount Note ........... 6/5/97 3,000,000 2,933,608
Student Loan Marketing Association, 5.39% ..................... 1/14/97* 11,700,000 11,700,000
Student Loan Marketing Association, 5.57% ..................... 1/7/97* 8,000,000 8,011,851
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (cost $42,832,992) ...................................... 42,832,992
------------
TOTAL INVESTMENTS - 100.2% (cost $47,135,992)** .................................................. 47,135,992
------------
OTHER ASSETS AND LIABILITIES - (0.2%)
Cash ............................................................................................. 907
Interest receivable and other assets ............................................................. 192,294
Dividend payable ................................................................................. (206,724)
Management fee payable (note 4) .................................................................. (8,882)
Accrued expenses (note 4) ........................................................................ (83,992)
------------
(106,397)
------------
NET ASSETS - 100.0%
Applicable to 47,029,595 shares of $.001 par value Capital Stock outstanding;
5,000,000,000 shares authorized (note 5) ...................................................... $ 47,029,595
============
NET ASSET VALUE PER SHARE ........................................................................ $1.00
=====
</TABLE>
* Date of next interest rate change.
** Cost for federal income tax purposes.
See notes to financial statements.
4
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
CASH PORTFOLIO
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2a)
-------- ------------- ------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- 3.7%
Societe Generale, 5.37% (cost $10,000,000) .................... 1/22/97 $ 10,000,000 $ 10,000,000
------------
COMMERCIAL PAPER -- 62.3%
American Express Credit Corp. ................................. 1/7/97 12,000,000 11,989,400
AVCO Financial Services Inc. .................................. 1/21/97 11,000,000 10,967,550
Barclays U.S. Funding Corp. ................................... 1/15/97 12,000,000 11,974,193
Beneficial Corp. .............................................. 9/25/97 5,000,000 4,803,458
Centric Funding Corp. ......................................... 1/13/97 10,000,000 9,981,833
Ciesco L.P. ................................................... 1/3/97 15,000,000 14,995,521
CIT Group Holdings, Inc. ...................................... 1/23/97 10,000,000 9,967,428
Commerzbank AG ................................................ 2/28/97 10,000,000 9,914,772
Dresdner U.S. Finance, Inc. ................................... 1/7/97 10,000,000 9,990,933
General Electric Credit Corp. ................................. 1/28/97 10,000,000 9,960,100
Household Finance Corp. ....................................... 1/15/97 12,000,000 11,975,173
New Center Asset Trust ........................................ 1/14/97 13,000,000 12,974,650
Norfolk Southern Corp. ........................................ 1/6/97 10,000,000 9,992,653
Rabobank Nederland N.V. ....................................... 1/7/97 8,000,000 7,992,800
Rabobank Nederland N.V. ....................................... 6/9/97 5,000,000 4,883,621
Receivables Capital Corp. ..................................... 1/8/97 7,252,000 7,244,273
Republic New York Corp. ....................................... 1/15/97 10,000,000 9,979,078
------------
TOTAL COMMERCIAL PAPER (cost $169,587,436) ....................................................... 169,587,436
------------
REPURCHASE AGREEMENTS -- 2.2%
State Street Bank dated 12/31/96 at 6.0%
(proceeds at maturity $5,987,995)
collateralized by $5,645,000 U.S. Treasury
Bond, 7.125%, 2/15/23 (cost $5,986,000) (note 3) ........... 1/2/97 5,986,000 5,986,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 14.3%
Federal National Mortgage Association, 5.18% .................. 3/14/97* 15,000,000 15,000,000
Student Loan Marketing Association, 5.39% ..................... 1/14/97* 14,000,000 14,000,000
Student Loan Marketing Association, 5.57% ..................... 1/7/97* 10,000,000 10,014,813
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (cost $39,014,813) ...................................... 39,014,813
------------
</TABLE>
See notes to financial statements.
5
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
CASH PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2a)
-------- ------------- ------------
<S> <C> <C> <C>
NOTES -- 16.7%
Bank of America, 5.49% ........................................ 5/7/97 $ 11,000,000 $ 11,000,000
Bank of America Illinois, 5.7% ................................ 5/28/97 2,500,000 2,498,921
Fifth Third Bank, 5.36% ....................................... 1/8/97 10,000,000 10,000,009
FCC National Bank, 5.5% ....................................... 4/25/97 12,000,000 12,003,470
Pittsburgh National Bank, 5.275% .............................. 1/1/97* 10,000,000 9,995,126
-------------
TOTAL NOTES (cost $45,497,526) .................................................................. 45,497,526
-------------
TOTAL INVESTMENTS -- 99.2% (cost $270,085,775)** ................................................ 270,085,775
-------------
OTHER ASSETS AND LIABILITIES -- 0.8%
Cash ............................................................................................ 146
Receivable for Portfolio shares sold ............................................................ 2,843,195
Interest receivable and other assets ............................................................ 779,143
Dividend payable ................................................................................ (1,359,898)
Payable for Portfolio shares redeemed ........................................................... (1,144)
Management fee payable (note 4) ................................................................. (39,584)
Accrued expenses (note 4) ....................................................................... (137,799)
-------------
2,084,059
-------------
NET ASSETS -- 100.0%
Applicable to 272,169,834 shares of $.001 par value Capital Stock outstanding;
5,000,000,000 shares authorized (note 5) ..................................................... $ 272,169,834
=============
NET ASSET VALUE PER SHARE ....................................................................... $1.00
=====
</TABLE>
* Date of next interest rate change.
** Cost for federal income tax purposes.
See notes to financial statements
6
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
TAX-FREE PORTFOLIO
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* SHORT-TERM MUNICIPAL SECURITIES -- 99.8% AMOUNT (NOTE 2a)
- ------- ------------ ------------
<S> <C> <C>
ALASKA
A-1+ Alaska Housing Finance Corp., General Mortgage Revenue, Series 1991-A,
VRDN, 4.3%, 6/1/26 ...................................................... $ 3,000,000 $ 3,000,000
MIG-1 Valdez, Alaska, Marine Terminal ARCO Transportation Alaska Inc. Project,
Series 1994A, TECP, 3.4%, 3/11/97 ...................................... 3,000,000 3,000,000
------------
TOTAL ALASKA ........................................................ 6,000,000
------------
ARIZONA
A-1 Apache County, Arizona, Industrial Development Revenue, Tucson Electric
Co., Springerville Project, VRDN, 4.10%, 12/15/18 ....................... 2,500,000 2,500,000
A-1+ Apache County, Arizona, Industrial Development Revenue, Tucson Electric
Co., Springerville Project, Series 1985 A, VRDN, 4.10%, 12/1/20 ......... 500,000 500,000
A-1+ Pima County, Arizona, Industrial Development Authority, Tucson Electric
Power Co., Series 1982 A, VRDN, 4.10%, 7/1/22 ........................... 1,900,000 1,900,000
------------
TOTAL ARIZONA ....................................................... 4,900,000
------------
CALIFORNIA
P-1 California State General Obligation, TECP, Series 1996, 3.55%, 1/14/97 ..... 1,750,000 1,750,000
SP-1+ California State General Obligation, RAN, Series 1996, 4.5%, 6/30/97 ....... 1,000,000 1,002,513
SS&C City of Riverside, California, Countrywood Apartments, Multi-Family
Revenue, Series 1985D, Weekly Demand Bonds, 4.125%, 5/1/05 .............. 1,500,000 1,500,000
A-1 Lancaster, California, Willows Project Series, Weekly Demand Bonds,
4.15%, 2/1/05 ........................................................... 1,000,000 1,000,000
MIG-1 Los Angeles County California, TRAN, 4.5%, 6/30/97 ......................... 3,000,000 3,010,206
------------
TOTAL CALIFORNIA .................................................... 8,262,719
------------
COLORADO
A-1+ Clear Creek County, Colorado, Colorado Counties Financing Program,
Series 1988, VRDN, 4.05%, 6/1/98 ........................................ 205,000 205,000
A-1+ Regional Transportation District, Colorado, Special Passenger Fare
Revenue Bond, Series 1989 A, VRDN, 4%, 6/1/99 ........................... 2,500,000 2,500,000
------------
TOTAL COLORADO ...................................................... 2,705,000
------------
</TABLE>
See notes to financial statements.
7
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
TAX-FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------- ------------ ------------
<S> <C> <C>
CONNECTICUT
AAA Hartford Redevelopment Agency, VRDN, 3.85%, 6/1/20 ......................... $ 2,000,000 $ 2,000,000
------------
FLORIDA
A-1+ Orlando, Florida, Wastewater System Revenues, Series 1990 A, TECP,
3.6%, 2/25/97 ........................................................... 1,000,000 1,000,000
A-1 Sarasota County, Florida, Public Hospital District, Sarasota Memorial
Hospital, Series 1993A, TECP, 3.7%, 2/18/97 ............................. 2,500,000 2,500,000
MIG-1 University of Northern Florida, Capital Improvement Revenue, VRDN,
4.05%, 11/1/24 .......................................................... 2,000,000 2,000,000
------------
TOTAL FLORIDA ....................................................... 5,500,000
------------
GEORGIA
A-1+ Burke County, Georgia, Pollution Control Revenue, Ogelthorpe Power,
Vogtle Project, Series 1994-A, VRDN, FGIC Insured, 4%, 1/1/19 ........... 1,000,000 1,000,000
A-1+ DeKalb Private Hospital Authority, Egleston Children's Hospital at Emory
University, Series 1994 B, VRDN, 4.15%, 3/1/24 .......................... 1,400,000 1,400,000
------------
TOTAL GEORGIA ....................................................... 2,400,000
------------
ILLINOIS
MIG-1 Illinois Educational Facilities Authority, University Pooled Finance
Program, VRDN, FGIC Insured, 4.25%, 12/1/05 ............................. 1,810,000 1,810,000
------------
KENTUCKY
MIG-1 Mayfield, Kentucky, Multi-City Lease Revenue, Kentucky League of Cities
Funding Trust, VRDN, Series 1996, 4.3%, 7/1/26 .......................... 1,000,000 1,000,000
------------
LOUISIANA
MIG-1 Louisiana Public Facilities Authority, Hospital Revenue, Willis Knighton
Medical Center, VRDN, AMBAC Insured, 4.2%, 9/1/25 ....................... 3,000,000 3,000,000
------------
MARYLAND
A-1 Anne Arundel County, Maryland, Baltimore Electric & Gas Company, TECP,
3.6%, 3/5/97 ............................................................ 1,200,000 1,200,000
------------
MASSACHUSETTS
SP-1 Massachusetts Bay Transportation Authority, Series B, 4.75%, 9/5/97 ........ 1,000,000 1,005,204
------------
MINNESOTA
A-1+ Regents of the University of Minnesota, Series 1996 A, TECP, 3.6%,
2/10/97 ................................................................. 1,000,000 1,000,000
------------
MISSOURI
SP-1+ Missouri HEFA School District, Advance Funding Notes, Series 1996 C,
Kansas City School District, 4.5%, 9/8/97 ............................... 1,000,000 1,003,959
------------
</TABLE>
See notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------- ------------ ------------
<S> <C> <C>
MONTANA
MIG-1 Montana State General Obligation, Unlimited, TRAN, Series 1996, 4.5%,
6/27/97 ................................................................. $ 2,000,000 $ 2,007,806
------------
NEW MEXICO
A-1+ Albuquerque, New Mexico, Gross Receipts/Lodgers Tax, Series 1991, VRDN,
4.10%, 7/1/22 ........................................................... 2,000,000 2,000,000
P-1 Farmington, New Mexico, Pollution Control Revenue, Arizona Public
Service Co., Series 1994 B, VRDN, 5%, 9/1/24 ............................ 570,000 570,000
------------
TOTAL NEW MEXICO .................................................... 2,570,000
------------
NEW YORK
MIG-1 New York City, New York, General Obligation, Series A-4, VRDN,
5%, 8/1/22 .............................................................. 3,000,000 3,000,000
A-1+ New York City, New York, General Obligation, Series 1994 H-3, TECP, FSA
Insured, 3.5%, 2/11/97 ................................................. 600,000 600,000
------------
TOTAL NEW YORK ...................................................... 3,600,000
------------
NORTH CAROLINA
MIG-1 North Carolina Medical Care Commission, Carol Woods Project, VRDN,
5%, 4/1/21 .............................................................. 300,000 300,000
A-1+ North Carolina Municipal Power Agency #1, Catawaba Project, Series
1996A, TECP, 3.55%, 2/20/97 ............................................. 2,000,000 2,000,000
------------
TOTAL NORTH CAROLINA ................................................ 2,300,000
------------
OHIO
MIG-1 Cuyahoga County, Ohio, Health & Education, University Hospital of
Cleveland, VRDN, 5%, 1/1/16 ............................................. 2,300,000 2,300,000
A-1+ Ohio State University Revenue, General Receipts Bonds, VRDN,
Series 1986 B, 4.05%, 12/1/06 ........................................... 1,600,000 1,600,000
------------
TOTAL OHIO .......................................................... 3,900,000
------------
OREGON
MIG-1 Oregon General Obligation, Series 1973-G, VRDN, 4%, 12/1/18 ................ 1,900,000 1,900,000
------------
PENNSYLVANIA
SS&C Elk County, Pennsylvania, Industrial Development Authority, VRDN,
3.795%, 3/1/04 .......................................................... 1,000,000 1,000,000
A-1+ Emmaus, General Authority Pennsylvania, Local Government, VRDN,
4.15%, 3/1/24 ........................................................... 1,000,000 1,000,000
A-1 Emmaus, Pennsylvania, General Authority, Local Government Revenue Bond
Pool Program, 1989 Series G-5, VRDN, 4.20%, 3/1/24 ...................... 1,200,000 1,200,000
A-1+ Emmaus, Pennsylvania, General Authority, Local Government Revenue Bond
Pool Program, Series 1989 G, VRDN, 4.15%, 3/1/24 ........................ 1,500,000 1,500,000
MIG-1 Philadelphia, Pennsylvania, TRAN, 4.5%, 6/30/97 ............................ 1,000,000 1,002,606
</TABLE>
See notes to financial statements.
9
<PAGE>
SCUDDER INTUTIONAL FUND, INC.
STATEMENT NET ASSETS
DECEMBER 31, 1996
TAX-FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------- ------------ ------------
<S> <C> <C>
SP-1 Philadelphia, Pennsylvania, School District, TRAN, Series 1996-1997,
4.5%, 6/30/97 ........................................................... $ 2,000,000 $ 2,004,748
------------
TOTAL PENNSYLVANIA .................................................. 7,707,354
------------
SOUTH CAROLINA
MIG-1 South Carolina Jobs-Economic Development Authority, Franciscan Sisters
of the Poor, St. Francis Hospital, VRDN, 4.95%, 7/1/22 .................. 1,900,000 1,900,000
------------
TENNESSEE
MIG-1 Clarksville, Tennessee, Public Building Authority, Pooled Financing,
Series 1990, VRDN, MBIA Insured, 4.0%, 7/1/13 ........................... 2,785,000 2,785,000
MIG-1 Franklin, Tennessee, Industrial Development Revenue, Franklin Oaks
Apartments, VRDN, 4.25%, 12/1/07 ........................................ 2,000,000 2,000,000
A-1+ Metropolitan Nashville Airport Authority, Tennessee, VRDN, 4.95%,
10/1/12 ................................................................. 900,000 900,000
------------
TOTAL TENNESSEE ..................................................... 5,685,000
------------
TEXAS
P-1 Angelina & Neches River Authority, Solid Waste Disposal, VRDN, Series
1984 B, 5%, 5/1/14 ...................................................... 1,000,000 1,000,000
MIG-1 Angelina & Neches River Authority, IDC, Solid Waste Disposal, Series
1984 D, VRDN, 5%, 5/1/14 ................................................ 900,000 900,000
A-1+ Austin, Texas, Utility Systems Revenue, TECP, 3.4%, 3/18/97 ................ 3,000,000 3,000,000
P-1 Grapevine, Texas, Industrial Development Authority Corp., VRDN, 4.95%,
12/1/24 ................................................................. 300,000 300,000
A-1+ Harris County Children's Hospital, VRDN, 4.0%, 8/1/20 ...................... 1,000,000 1,000,000
MIG-1 Harris County, Texas, TAN, Series 1996, 4.5%, 2/28/97 ...................... 1,000,000 1,001,150
MIG-1 Lone Star, Texas, Airport Improvement Authority, Series A-4, VRDN,
4.95%, 12/1/14 .......................................................... 400,000 400,000
A-1+ San Antonio, Texas, Electric & Gas City Public Services, Series 1995 A,
TECP, 3.5%, 1/28/97 ..................................................... 3,000,000 3,000,000
P-1 San Antonio, Texas, Electric & Gas City Public Services, Series 1988 A,
TECP, 3.45%, 3/10/97 .................................................... 1,500,000 1,500,000
A-1+ San Antonio, Texas, Water System Revenue, Series 1995, TECP, 3.6%,
2/7/97 .................................................................. 1,500,000 1,500,000
MIG-1 Texas, TRAN, Series 1996, 4.75%, 8/29/97 ................................... 1,000,000 1,005,202
SP-1+ Texas, TRAN, Series 1996, 4.75%, 8/29/97 ................................... 3,000,000 3,015,620
------------
TOTAL TEXAS ......................................................... 17,621,972
------------
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------- ------------ ------------
<S> <C> <C>
VERMONT
SS&C Vermont Industrial Development Authority, Mount Snow, Limited
Series 1904, VRDN, 3.795%, 4/1/99 ....................................... $ 630,000 $ 630,000
MIG-1 Vermont Student Assistance Corporation, VRDN, 3.65%, 1/1/04 ................ 2,700,000 2,700,000
------------
TOTAL VERMONT ....................................................... 3,330,000
------------
WASHINGTON
A-1+ State of Washington, Various Purpose General Obligation, Series 96B,
VRDN, 4%, 6/1/20 ........................................................ 2,400,000 2,400,000
MIG-1 Washington Healthcare Facilities Authority Revenue, Fred Hutchinson
Cancer Center, VRDN, Series 1996, 5.25%, 1/1/23 ......................... 300,000 300,000
A-1 Washington Public Power Supply System, Nuclear Project #1, 1993
Series 1A-1, VRDN, 4.10%, 7/1/17 ........................................ 4,800,000 4,800,000
MIG-1 Washington Public Power Supply System, Projects #1 and #3, Refunding
Revenue, Series 1993-1A1, VRDN, 4.10%, 7/1/18 ........................... 1,475,000 1,475,000
------------
TOTAL WASHINGTON .................................................... 8,975,000
------------
WISCONSIN
AAA Wausau, Wisconsin, Pollution Control Revenue, Minnesota Mining and
Manufacturing, Series 1982, VRDN, 4.22%, 8/1/17 ......................... 500,000 500,000
------------
TOTAL INVESTMENTS (Cost $103,784,014)** .................................... 103,784,014
------------
OTHER ASSETS AND LIABILITIES -- 0.2%
Interest receivable and other assets .................................................. 594,597
Receivable for investments sold ....................................................... 100,000
Due to custodian bank ................................................................. (37,618)
Dividend payable ...................................................................... (300,570)
Management fee payable (note 4) ....................................................... (13,255)
Accrued expenses (note 4) ............................................................. (103,055)
------------
240,099
------------
NET ASSETS -- 100.0%
Applicable to 104,024,113 shares of $.001 par value Capital Stock outstanding;
2,000,000,000 shares authorized (note 5) ........................................... $104,024,113
============
NET ASSET VALUE PER SHARE ............................................................. $1.00
=====
</TABLE>
** Cost for federal income tax purposes.
See notes to financial statements.
11
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
TAX-FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
* CREDIT RATINGS (UNAUDITED) SHOWN ARE EITHER BY MOODY'S INVESTORS SERVICE,
INC., STANDARD & POOR'S CORPORATION OR SCUDDER:
MOODY'S STANDARD & POOR'S
P-1 A-1/A-1+ Commercial paper of the highest quality.
MIG-1/MIG-1+ SP-1/SP-1+ Short-term tax-exempt instrument of the best
quality with strong protection.
VMIG-1 Short-term tax-exempt variable rate demand
instrument of the best quality with strong
protection.
ABBREVIATIONS USED IN THE STATEMENT:
TECP Tax Exempt Commercial Paper
TAN Tax Anticipation Note
SS&C These securities are not rated by either Moody's or Standard &
Poor's. Scudder has determined that these securities are of
comparable quality to rated acceptable notes on a cash flow basis
and are of appropriate credit for the standards required by the
Fund's investment objective.
VRDN Variable Rate Demand Note
TRAN Tax Revenue Anticipation Note
RAN Revenue Anticipation Note
See notes to financial statements.
12
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT CASH TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income ............................................... $ 3,458,695 $ 15,518,054 $ 3,518,859
------------ ------------- ------------
EXPENSES (note 2c):
Management fee (note 4) ....................................... 96,302 430,252 149,789
Shareholder services (note 4) ................................. 27,640 26,666 24,808
Directors' fees and expenses (note 4) ......................... 9,389 12,530 10,324
Custodian and accounting fees (note 4) ........................ 44,726 69,392 61,584
Professional services ......................................... 7,906 43,360 14,166
Reports to shareholders ....................................... 1,900 6,096 8,192
Registration fees ............................................. 2,839 3,604 3,114
Miscellaneous ................................................. 12,739 15,342 5,346
------------ ------------- ------------
Net expenses ............................................... 203,441 607,242 277,323
------------ ------------- ------------
NET INVESTMENT INCOME AND INCREASE IN NET
ASSETS FROM OPERATIONS ..................................... $ 3,255,254 $ 14,910,812 $ 3,241,536
============ ============= ============
</TABLE>
See notes to financial statements.
13
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
GOVERNMENT PORTFOLIO
-------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income and increase in
net assets from operations ......... $ 3,255,254 $ 3,796,930
Dividends (notes 2b and 2d) ........... (3,255,254) (3,796,930)
-------------- --------------
-- --
-------------- --------------
CAPITAL STOCK TRANSACTIONS (note 5):
Proceeds from sales of shares ......... 264,453,259 432,240,116
Net asset value of shares issued in
reinvestment of dividends .......... 974,278 1,131,510
-------------- --------------
265,427,537 433,371,626
Cost of shares redeemed ............... (298,316,303) (471,317,385)
-------------- --------------
Increase (decrease) in net assets
from capital stock transactions .... (32,888,766) (37,945,759)
-------------- --------------
Total increase (decrease) in net assets .. (32,888,766) (37,945,759)
NET ASSETS:
Beginning of period ................... 79,918,361 117,864,120
-------------- --------------
End of period ......................... $ 47,029,595 79,918,361
============== ==========
</TABLE>
See notes to financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
CASH PORTFOLIO TAX-FREE PORTFOLIO
------------------------------- -------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income and increase in
net assets from operations ......... $ 14,910,812 $ 18,218,019 $ 3,241,536 $ 3,440,240
Dividends (notes 2b and 2d) ........... (14,910,812) (18,218,019) (3,241,536) (3,440,240)
-------------- -------------- -------------- ---------------
-- -- -- --
-------------- -------------- -------------- ---------------
Capital Stock Transactions (note 5):
Proceeds from sales of shares ......... 752,470,938 924,578,235 323,081,752 522,266,284
Net asset value of shares issued in
reinvestment of dividends .......... 4,463,405 6,908,170 390,286 907,361
-------------- -------------- -------------- ---------------
756,934,343 931,486,405 323,472,038 523,173,645
Cost of shares redeemed ............... (734,192,638) (953,063,076) (298,497,238) (611,981,728)
-------------- -------------- -------------- ---------------
Increase (decrease) in net assets
from capital stock transactions .... 22,741,705 (21,576,671) 24,974,800 (88,808,083)
-------------- -------------- -------------- ---------------
Total increase (decrease) in net assets .. 22,741,705 (21,576,671) 24,974,800 (88,808,083)
NET ASSETS:
Beginning of period ................... 249,428,129 271,004,800 79,049,313 167,857,396
-------------- -------------- -------------- ---------------
End of period ......................... $ 272,169,834 $ 249,428,129 $ 104,024,113 $ 79,049,313
============== ============== ============== ===============
</TABLE>
See notes to financial statements.
15
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH YEAR AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
RATIO OF RATIO OF NET
OPERATING INVESTMENT
NET ASSET NET ASSET EXPENSES INCOME NET ASSETS
VALUE, AT NET VALUE, AT TO AVERAGE TO AVERAGE END OF
BEGINNING INVESTMENT DIVIDENDS END TOTAL DAILY DAILY PERIOD
PERIOD OF PERIOD INCOME PAID OF PERIOD RETURN NET ASSETS NET ASSETS (MILLIONS)
- --------------------------- --------- ---------- --------- --------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended 12/31/96 ........ $ 1.00 $ .051 $ (.051) $ 1.00 5.17% 0.32% 5.06% $47
Year ended 12/31/95 ........ 1.00 .055 (.055) 1.00 5.60 0.39 5.46 80
Year ended 12/31/94 ........ 1.00 .040 (.040) 1.00 4.09 0.28 3.89 118
Year ended 12/31/93 ........ 1.00 .030 (.030) 1.00 3.01 0.26 2.97 196
Year ended 12/31/92 ........ 1.00 .037 (.037) 1.00 3.74 0.24 3.69 247
CASH PORTFOLIO
Year ended 12/31/96 ........ 1.00 .052 (.052) 1.00 5.33 0.21 5.21 272
Year ended 12/31/95 ........ 1.00 .057 (.057) 1.00 5.88 0.25 5.73 249
Year ended 12/31/94 ........ 1.00 .041 (.041) 1.00 4.13 0.24 3.94 271
Year ended 12/31/93 ........ 1.00 .031 (.031) 1.00 3.16 0.22 3.12 468
Year ended 12/31/92 ........ 1.00 .038 (.038) 1.00 3.88 0.25 3.66 662
TAX-FREE PORTFOLIO
Year ended 12/31/96 ........ 1.00 .032 (.032) 1.00 3.29 0.28 3.25 104
Year ended 12/31/95 ........ 1.00 .036 (.036) 1.00 3.69 0.35 3.61 79
Year ended 12/31/94(a)(b) .. 1.00 .027 (.027) 1.00 2.74 0.27 2.73 168
Year ended 12/31/93 ........ 1.00 .023 (.023) 1.00 2.32 0.29 2.30 125
Year ended 12/31/92 ........ 1.00 .029 (.029) 1.00 2.92 0.31 2.82 96
</TABLE>
(a) The annualized operating expense ratio including expenses, reimbursed
management fee, and other expenses not imposed would have been 0.29% for the
year ended December 31, 1994 for the Tax-Free Portfolio.
(b) Total returns are higher, for the period indicated, due to the maintenance
of the Portfolio's expenses.
16
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Scudder Institutional Fund, Inc. (the "Fund") is an open-end diversified
management investment company which currently has three active money market
investment portfolios: the Government Portfolio, Cash Portfolio and Tax-Free
Portfolio (collectively the "Portfolios"). The Federal Portfolio ceased
operations on September 30, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by the Fund are:
(a) Security Valuation-Each of the Portfolios values its investments using
the amortized cost method, which involves initially valuing an investment at its
cost and thereafter assuming a constant rate of amortization to maturity of any
premium or discount. This method results in a value approximating market.
(b) Federal Income Taxes-The Fund intends to qualify each Portfolio as a
regulated investment company under subchapter M of the Internal Revenue Code and
to distribute all of its taxable and tax-exempt income, including any realized
net capital gains, to shareholders. Therefore, no Federal income tax provision
is required.
(c) Allocation of Expenses-Expenses not directly chargeable to a specific
Portfolio are allocated primarily on the basis of relative net assets.
(d) Dividends-Dividends from net investment income are declared each
business day to shareholders of record that day and paid on the first business
day of the following month.
(e) Other-Investment transactions are recorded on trade date. Interest
income, including the accretion or amortization of discount or premium, is
recorded on the accrual basis. Discounts or premiums on securities purchased are
accreted or amortized, respectively, on a straight line basis over the life of
the respective securities. Distributions to shareholders are recorded on the
ex-dividend date.
3. REPURCHASE AGREEMENTS
It is the Fund's policy to obtain possession, through its custodian, of the
securities underlying each repurchase agreement to which it is a party, either
through physical delivery or book entry transfer in the Federal Reserve System
or Participants Trust Company. Payment by the Fund in respect of a repurchase
agreement is authorized only when proper delivery of the underlying securities
is made to the Fund's custodian. The Fund's investment manager values such
underlying securities each business day using quotations obtained from a
reputable, independent source. If the Fund's investment manager determines that
the value of such underlying securities (including accrued interest thereon)
does not at least equal the value of each repurchase agreement (including
accrued interest thereon) to which such securities are subject, the investment
manager will ask for additional securities to be delivered to the Fund's
custodian. In connection with each repurchase agreement transaction, if the
seller defaults and the value of the collateral declines or if the seller enters
an insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
4. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory agreements between Scudder, Stevens & Clark, Inc.
("Scudder"), the Fund's investment manager, and the Fund on behalf of each
Portfolio provide for a management fee payable each month, based upon the
average daily value of each Portfolio's net assets, at annual rates of 0.15%.
Scudder Service Corporation ("SSC"), a subsidiary of Scudder, is the
Portfolio's shareholders service, transfer and dividend disbursing agent. For
the year ended December 31, 1996, the amount charged to each of the Portfolios
by SSC was $23,477, of which $2,292, remains unpaid.
17
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records for the Portfolios. For the year
ended December 31, 1996, the amount charged to the Portfolios by SFAC was
$30,000 for the Government Portfolio, $42,445 for the Cash Portfolio, and
$30,340 for the Tax-Free Portfolio, of which $2,500, $3,669, and $2,500,
respectively, remain unpaid at December 31, 1996.
The Fund has a compensation arrangement under which payment of directors'
fees may be deferred. Interest is accrued (based on the rate of return earned on
the 90 day Treasury Bill as determined at the beginning of each calendar
quarter) on the deferred balances and is included in "Directors' fees and
expenses." The accumulated balance of deferred directors' fees and interest
thereon relating to all active Portfolios comprising the Fund aggregates
$189,254 an applicable portion of which is included in accrued expenses of each
of the Portfolios.
5. CAPITAL STOCK
At December 31, 1996, the Fund had 25,000,000,000 shares of $.001 par value
capital stock authorized, of which 5,000,000,000 shares each have been
designated for the Government Portfolio and Cash Portfolio, and 2,000,000,000
shares have been designated for the Tax-Free Portfolio. Net paid in capital in
excess of par value was $46,982,565 for the Government Portfolio, $271,897,664
for the Cash Portfolio and $103,920,089 for the Tax-Free Portfolio. At December
31, 1996, one holder of record of the Government Portfolio held approximately
99% of the outstanding shares; one holder of the Cash Portfolio held
approximately 75% of the outstanding shares; and one holder of the Tax-Free
Portfolio held approximately 79% of the outstanding shares.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
SCUDDER INSTITUTIONAL FUND, INC.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Institutional Government Portfolio, Institutional Cash Portfolio, and
Institutional Tax-Free Portfolio (each a separate Portfolio of Scudder
Institutional Fund, Inc., hereafter referred to as the "Fund") at December 31,
1996, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF 1996 DIVIDENDS (UNAUDITED)
The total amount of dividends declared in 1996 by both the Government
Portfolio and Cash Portfolio of Scudder Institutional Fund, Inc. is taxable as
ordinary dividend income for Federal income tax purposes. None of this amount
qualifies for the dividends received deduction available to corporations.
All of the dividends from the Tax-Free Portfolio declared in 1996 are
exempt from Federal income tax. However, in accordance with the Internal Revenue
Code, you are required to report them on your 1996 Federal income tax return.
Although dividend income from the Tax-Free Portfolio is exempt from Federal
taxation, it may not be exempt from state or local taxation. You should consult
your tax advisor as to the state and local tax status of the dividends you
received.
- --------------------------------------------------------------------------------
19
<PAGE>
Institutional Government Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio
345 Park Avenue, New York, New York 10154
(800) 854-8525
Investment Manager
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
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
Sullivan & Cromwell
New York, New York
- --------------------------------------------------------------------------------
The Portfolios are neither insured nor guaranteed by the U.S. Government. Each
Portfolio intends to maintain a net asset value per share of $1.00 but there is
no assurance that it will be able to do so.
This report is for the information of the shareholders. Its use in connection
with any offering of the Company's shares is authorized only in case of a
concurrent or prior delivery of the Company's current prospectus.
<PAGE>
BARRETT INTERNATIONAL SHARES
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Board of Directors
<S> <C>
DAVID S. LEE^(1) Chairman of the Board; Managing Director, Scudder, Stevens
& Clark, Inc.
EDGAR R. FIEDLER^(1)^(2)^(3) Vice President and Economic Counsellor, The Conference Board;
formerly Assistant Secretary of the Treasury for Economic Policy
PETER B. FREEMAN^(2)^(3) Corporate Director and Trustee
ROBERT W. LEAR^(2)^(3) Executive-in-Residence and Visiting Professor, Columbia
University Graduate School of Business; Director or Trustee,
Various Organizations
DANIEL PIERCE^(1) President; Chairman of the Board, Scudder, Stevens & Clark, Inc.
^(1)Member of Executive Committee
^(2)Member of Nominating Committee
^(3)Member of Audit Committee
</TABLE>
- --------------------------------------------------------------------------------
Officers
DAVID S. LEE Chairman of the Board
DANIEL PIERCE President
STEPHEN L. AKERS Vice President
K. SUE COTE Vice President
CAROL L. FRANKLIN Vice President
JERARD K. HARTMAN Vice President
KATHRYN L. QUIRK Vice President
THOMAS W. JOSEPH Vice President and Assistant Secretary
THOMAS F. McDONOUGH Vice President and Secretary
PAMELA A. McGRATH Vice President and Treasurer
2
<PAGE>
Dear Shareholder:
We are pleased to provide you with the first annual report for the
Institutional International Equity Portfolio (the "Portfolio"). The Portfolio is
currently comprised of a single class of shares ("Barrett International
Shares"). The report covers the period from when the Portfolio commenced
operations on April 3, 1996, through December 31, 1996.
Since the Portfolio has been in operation, the Portfolio has provided a
positive total return of 4.93%, reflecting in part a generally positive market
environment for international equities. Going forward, the Portfolio will
continue to seek to provide long-term growth of capital by investing principally
in the equity securities of companies which do business primarily outside of the
United States. The management discussion which follows outlines key elements of
the current market environment and Portfolio strategy.
Thank you for your investment in the Portfolio. If you have any questions
about the Portfolio, please call us at (800) 854-8525.
/s/David S. Lee
David S. Lee
Chairman
3
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO/BARRETT INTERNATIONAL SHARES
PERFORMANCE UPDATE
DECEMBER 31, 1996
- --------------------------------------------
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------
Total Return
Period Growth ------------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
Life of
Fund* $10,493 4.93% --
- --------------------------------------
MSCI EAFE & CANADA INDEX
- --------------------------------------
Total Return
Period Growth ------------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
Life of
Fund* $10,076 0.76% --
- --------------------------------------
*The Portfolio commenced operations on
April 3, 1996. Index comparisons begin
April 30, 1996.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
Year Amount
- ----------------------
4/96* $10,000
5/96 $ 9,951
6/96 $10,066
7/96 $ 9,671
8/96 $ 9,778
9/96 $ 9,934
10/96 $ 9,893
11/96 $10,272
12/96 $10,372
MSCI EAFE & CANADA INDEX
Year Amount
- ----------------------
4/96* $10,000
5/96 $ 9,829
6/96 $ 9,872
7/96 $ 9,583
8/96 $ 9,619
9/96 $ 9,880
10/96 $ 9,814
11/96 $10,218
12/96 $10,076
The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far
East (EAFE) & Canada Index is an unmanaged capitalization-weighted measure of
stock markets in Europe, Australia, the Far East and Canada. Index returns
assume dividends reinvested net of withholding tax and, unlike Portfolio
returns, do not reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
PERIOD ENDED DECEMBER 31
1996*
-------------------------
NET ASSET VALUE... $12.48
INCOME DIVIDENDS.. $ .11
FUND TOTAL
RETURN (%)........ 4.93
INDEX TOTAL
RETURN (%)........ .76
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
If the Manager had not maintained the Portfolio's expenses, total return for
the life of the Portfolio would have been lower.
4
<PAGE>
INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO/BARRETT INTERNATIONAL SHARES
PORTFOLIO SUMMARY
DECEMBER 31, 1996
- -------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
COUNTRY/REGION (Excludes Cash Equivalents of 10%)
- ---------------------------------------------------------------------------
Japan 21%
Emerging Markets 20%
Germany 15%
United Kingdom 11%
Switzerland 8%
France 8%
Sweden 5%
Netherlands 5%
Italy 3%
Other 4%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS (Excludes Cash Equivalents of 10%)
- --------------------------------------------------------------------------
Manufacturing 24%
Financial 11%
Service Industries 8%
Consumer Discretionary 7%
Metals & Minerals 6%
Communications 6%
Technology 6%
Energy 6%
Utilities 6%
Other 20%
-----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------------------------------------------------
10 LARGEST EQUITY HOLDINGS (13% of Portfolio)
- -----------------------------------------------------------------------
1. HOESCHT AG
Chemical producer in Germany
2. HENNES & MAURITZ AB
Clothing and cosmetics retailer throughout Europe
3. MANNESMANN AG
Diversified construction and technology company in Germany
4. BASF AG
Leading international chemical producer in Germany
5. BAYER AG
Leading chemical producer in Germany
6. CARLTON COMMUNICATIONS PLC
Television post production products and services in the United Kingdom
7. NOVARTIS AG
Pharmaceutical company in Switzerland
8. HSBC HOLDINGS LTD.
Bank in Hong Kong
9. L.M. ERICSSON TELEPHONE CO.
Leading manufacturer of cellular telephone equipment in Sweden
10. COMPANIA TELEFONICA NACIONAL DE ESPANA SA
Telecommunication services in Spain
For more complete details about the Portfolio's Investment Portfolio,
see page 9.
5
<PAGE>
Dear Shareholder:
The following portfolio management discussion summarizes the performance of
the key markets in which portfolio holdings are invested, reviews the economic
and investment fundamentals underlying these markets, and summarizes the
portfolio's investment strategy with respect to these markets.
Performance Summary
The Institutional International Equity Portfolio provided a total return of
4.93% for the abbreviated fiscal year ended December 31, 1996, compared with
0.76% for the MSCI EAFE and Canada Index for the same time period. The Portfolio
commenced operations on April 3, 1996.
Although there were some important exceptions, most world markets turned in
performances that ranged from solid to strong. In Europe falling interest rates,
ongoing corporate restructuring, takeover activity, and greater management focus
on shareholder value propelled markets upwards. Investors seem to be
increasingly aware of the beneficial effects of structural changes on European
equity markets. Several bourses reached new peaks, including France, whose
market was characterized by takeover-related activity and renewed confidence in
French progress towards monetary union. Germany rose on the back of the strong
U.S. market, corporate restructuring, and a weaker Deutschemark. Deutsche
Telekom's initial public offering, the largest in Europe's history, also
provided additional focus. Nordic markets also benefited from falling interest
rates. In Spain, declining interest rates and optimism regarding currency
convergence drove the market significantly higher in the final quarter of the
year. The portfolio's tenth-largest holding as of year end, Compania Telefonica
Nacional de Espana SA, rose 24.5% in the last three months for a total gain of
65.4% this year. And the U.K. market turned in strong 1996 performance with a
gain of 27.4%, propelled by takeover activity and a buoyant consumer outlook.
Asian markets were mixed. Japan's market returned -15.5% for the year,
falling beneath the 19,000 level for the first time in more than a year while
the yen fell to a 45-month low against the dollar. Concerns about the feeble
economic recovery and the absence of domestic investors from the market
contributed to selling pressures. Korea's market fell 38.1% troubled by
corporate earnings, a widening trade gap, a depreciating currency, and a
collapse in the prices of semiconductors, which account for an important part of
national output. As concerns about the 1997 handover to China faded, improved
prospects for the local economy and property market caused the Hong Kong market
to rally 12.2% in the final quarter, contributing to a total return of 33.1% for
the year. Brazil continued its spectacular ascent, gaining another 7.3% in the
fourth quarter for a total gain of 53.2% this year, driven by an improving
macroeconomic backdrop, continued
6
<PAGE>
positive news on the privatization front, and the perception Brazilians are
likely to experience an extended period of low -- even single digit -- inflation
for the first time since the 1940s.
Portfolio Strategy
In Europe, we believe moderate growth and a benign inflation environment
will provide the basis for corporate profit growth in 1997. Industry
consolidation and corporate restructuring are being propelled by the forces of
global competition and the trend toward deregulation. Against this backdrop, we
continue to seek out companies with sound management strategies positioned to
benefit from these structural changes. The restructuring theme is most notable
in Germany at present, with strong performance from German-based holdings
Hoechst, BASF, and Daimler-Benz, all of which benefited from restructuring
efforts. But restructurings are also evident elsewhere in Europe. A prime
example is U.K.-based Pearson, which over the past three years has transformed
itself from a disparate group of businesses into a focused media company
featuring properties such as the Financial Times, the Economist, Penguin Books,
and Addison-Wesley. Pearson has taken steps to increase subscriptions to the
well-regarded Financial Times, including the use of electronic distribution
sites, and is using the paper's image to increase sales in the Penguin Books
division. Addison-Wesley, ranking in third place among U.S. educational
publishers, is also pursuing business expansion via electronic publishing
opportunities. With underworked intellectual property, Pearson is a potential
takeover target for a handful of European media empire builders.
Industry consolidation continues to be a successful theme in the portfolio.
Holding Carrefour rose substantially in the wake of a bid for 33% of Cora, the
eighth largest retailer in France. Consolidation of the retail sector in France
has been hastened by government restrictions on building new sites. Carrefour's
takeover bid for competitor Cora will enable the company to expand its
distribution network and become the predominant food retailer in France.
Consolidations are also reshaping the engineering sector in the United Kingdom,
as evidenced in portfolio holding General Electric Company. The company is a
recognized leader in the defense arena, and is considered the most likely
partner for U.S. defense companies seeking a foothold in Europe. GE also is
positioned to emerge as one of the few surviving players in global power
generation, and has a successful joint venture in power systems with Alcatel
Alsthom.
Japanese portfolio holdings constituted 21% of the portfolio as of
year-end, versus 31% at mid-year. Economic recovery remains elusive, marked by a
sluggish consumer environment, although the weakening yen should help reflate
the economy. Against this backdrop, we continue to seek out companies with
unique franchises and high-quality global blue chip stocks benefiting from a
weaker yen. One such unique franchise in the portfolio is supermarket operator
Jusco, which continued to outperform. The company has a very successful strategy
of establishing joint ventures with strong international
7
<PAGE>
firms such as Body Shop, Laura Ashley and Talbots, a factor underpinning strong
earnings growth. Jusco has also recently established joint ventures with
U.S.-based Sports Authority and Office Max to introduce the country's first
superstores, which are being introduced via lower-cost leasing of premises in
modestly priced shopping locations. Exposure to high-quality blue chip stocks
was rewarded by excellent performance from Canon, a Japanese leader in office
automation with impressive growth due to strong sales of copiers, steppers, and
printers. With 78% of sales overseas, the company is also a beneficiary of a
depreciating yen.
Our strategy in Asia has been to identify well-run, financially strong
companies in a good position to benefit from the opportunities created by
ongoing economic development in the Pacific Basin. Growth expectations are more
subdued than in prior years, due primarily to pricing problems in semiconductors
and consumer electronics, the falling yen's negative effect on Asian export
competitiveness, and weak demand in industrial countries. But we believe the
long-term growth story in Asia remains intact. We like players such as First
Pacific and HSBC in Hong Kong, which feature good managements and intra-regional
business strength. We are also invested in companies benefiting from strong
consumer spending and rising disposable incomes, including such standouts as
mall operator SM Prime in the Philippines and HM Sampoerna in Indonesia.
Looking Ahead
The core investment strategies for your portfolio remain essentially
unchanged. In Europe, we will continue to focus on structural change at the
industry and corporate level. In Japan, we have reduced exposure to domestic
growth and plan to focus on current or emerging globally oriented blue chip
companies. Expectations are limited for a sustained growth resurgence in Europe
or Japan, and as a result, we intend to avoid investments that we believe are
exposed to near-term cyclical economic risk.
Thank you for your interest in the Institutional International Equity
Portfolio.
/s/Carol L. Franklin /s/J. Gregory Garret
Lead Portfolio Manager Portfolio Manager
Carol L. Franklin J. Gregory Garrett
- --------------------------------------------------------------------------------
A Team Approach to Investing
Lead Portfolio Manager Carol L. Franklin has been responsible for setting the
Portfolio's investment strategy and overseeing security selection since the
Portfolio's inception. Ms. Franklin, who has 20 years of experience in finance
and investing joined Scudder in 1981. J. Gregory Garrett, Portfolio Manager,
joined Scudder in 1990, and the Portfolio's team in 1997. Mr. Garrett
specializes in international client service and international equity management
and has over ten years of investment experience.
- --------------------------------------------------------------------------------
8
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio
December 31, 1996
<TABLE>
<CAPTION>
Principal Market
Amount (b) Value ($)
---------- ---------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 9.9%
Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/31/96 at 6.7% to be repurchased at $1,760,655
on 1/2/97, collateralized by a $1,737,000 U.S. Treasury
Note, 6.375%, 3/31/01 (Cost $1,760,000) ................................... 1,760,000 1,760,000
-------------
CONVERTIBLE BONDS -- 0.2%
Japan
Softbank Corp., 0.5%, 3/29/02 (Cost $63,199) ....................... JPY 5,000,000 40,152
-------------
Shares
----------
PREFERRED STOCKS -- 1.8%
Germany
RWE AG (Producer and marketer of petroleum and chemical products) ......... 5,000 168,903
SAP AG (Computer software manufacturer) ................................... 1,100 153,636
-------------
Total Preferred Stocks (Cost $299,949) 322,539
-------------
COMMON STOCKS -- 88.1%
Argentina 0.9%
YPF S.A. "D" (ADR) (Petroleum company) .................................... 6,500 164,125
-------------
Brazil 4.3%
Centrais Eletricas Brasileiras S/A "B" (pfd.) (Electric utility) .......... 520,000 193,167
Companhia Energetica de Minas Gerais (pfd.) (Electric power utility) ...... 6,000,000 204,408
Petroleo Brasileiro S/A (pfd.) (Petroleum company) ........................ 1,300,000 207,054
Usinas Siderurgicas de Minas Gerais S/A (pfd.) (Non-coated
flat products and electrolytic galvanized products) .................... 150,000,000 153,017
-------------
757,646
-------------
Canada 1.1%
Canadian Pacific Ltd. (Ord.) (Transportation and natural resource
conglomerate) ........................................................... 7,523 198,015
-------------
</TABLE>
See notes to financial statements.
9
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
France 6.8%
Carrefour (Hypermarket operator and food retailer) ........................ 300 195,257
Christian Dior (Leading fashion house) .................................... 1,000 161,365
Compagnie Financiere de Paribas (Finance and investment company) .......... 3,060 207,009
Lafarge SA (Leading producer of cement, concrete and aggregates) .......... 1,300 78,020
Pinault-Printemps, SA (Distributor of consumer goods) ..................... 500 198,381
Rhone-Poulenc SA "A" (Medical, agricultural and consumer chemicals) ....... 516 17,598
Schneider SA (Manufacturer of electronic components and
automated manufacturing systems) ....................................... 4,164 192,586
Total SA "B" (International oil and gas exploration, development
and production) ........................................................ 2,052 166,945
-------------
1,217,161
-------------
Germany 12.0%
Adidas AG (Manufacturer of sport shoes, clothing and equipment) ........... 1,200 103,680
BASF AG (Leading international chemical producer) ......................... 6,500 250,313
Bayer AG (Leading chemical producer) ...................................... 5,700 232,540
Bayerische Vereinsbank AG (Commercial bank) ............................... 3,500 143,697
Commerzbank AG (Worldwide multi-service bank) ............................. 6,300 160,022
Daimler-Benz AG (Automobile and truck manufacturer)* ...................... 2,500 172,151
Deutsche Telekom AG (Telecommunication services)* ......................... 1,698 35,794
Deutsche Telekom AG (ADR) (Telecommunication services)* ................... 2,268 46,211
Hoechst AG (Chemical producer) ............................................ 6,000 283,366
Mannesmann AG (Bearer) (Diversified construction and technology
company) ............................................................... 600 259,980
Schering AG (Pharmaceutical and chemical producer) ........................ 2,000 168,773
Siemens AG (Leading electrical engineering and electronics
company) ............................................................... 2,500 117,745
VEBA AG (Electric utility, distributor of oil and chemicals) .............. 2,800 161,887
-------------
2,136,159
-------------
Ghana 0.5%
Ashanti Goldfields Co. Ltd. (ADS) (Leading gold producer) ................. 7,000 86,625
-------------
Hong Kong 4.6%
First Pacific Co. Ltd. (International management and investment company) .. 100,000 129,937
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
HSBC Holdings Ltd. (Bank) ................................................. 10,130 216,758
Hutchison Whampoa Ltd. (Container terminal and real estate
company) ............................................................... 22,000 172,797
Kerry Properties, Ltd. (Real estate company)* ............................. 54,000 148,012
Television Broadcasts Ltd. (Television broadcasting) ...................... 38,000 151,813
-------------
819,317
-------------
Indonesia 1.4%
Darya Varia Laboratoria (Foreign registered) (Producer of medicines
and pharmaceuticals) ................................................... 68,960 110,943
HM Sampoerna (Foreign registered) (Tobacco company) ....................... 26,000 138,696
-------------
249,639
-------------
Italy 2.5%
Ente Nazionale Idrocarburi SPA (Exploration and production of oil,
natural gas and chemicals) ............................................. 32,000 164,062
Luxottica Group SPA (ADR) (Manufacturer and marketer of
eyeglasses) ............................................................ 2,000 104,000
Telecom Italia Mobile SPA (Cellular telecommunication services) ........... 70,000 176,792
-------------
444,854
-------------
Japan 19.0%
Bridgestone Corp. (Leading automobile tire manufacturer) .................. 10,000 189,966
Canon Inc. (Leading producer of visual image and information
equipment) ............................................................. 8,000 176,841
DDI Corp. (Long distance telephone and cellular operator) ................. 18 119,057
East Japan Railway Co. (Railroad operator) ................................ 15 67,481
Fujitsu, Ltd. (Leading manufacturer of computers) ......................... 15,000 139,884
Hitachi, Ltd. (General electronics manufacturer) .......................... 12,000 111,907
Ishikawajima-Harima Heavy Industries Co. Ltd. (Comprehensive
heavy machinery manufacturer in aerospace and defense fields) .......... 21,000 93,386
Itochu Corp. (Leading general trading company) ............................ 19,000 102,046
Japan Associated Finance Co. (Venture capital company) .................... 2,000 158,017
Jusco Co. Ltd. (Major supermarket operator) ............................... 5,000 169,674
Kajima Corp. (Leading contractor engaged in large-scale civil
engineering projects) .................................................. 13,000 92,945
Kawasaki Steel Corp. (Major integrated steelmaker) ........................ 40,000 115,016
</TABLE>
See notes to financial statements.
11
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
Keyence Corp. (Specialized manufacturer of sensors) ....................... 1,000 123,478
Kokuyo Corp. (Leading manufacturer of paper stationery) ................... 5,000 123,478
Komori Corp. (Leading manufacturer of offset printing machines) ........... 6,000 127,450
Kyocera Corp. (Leading ceramic package manufacturer) ...................... 2,000 124,687
Mabuchi Motor Co., Ltd. (Manufacturer of DC motors) ....................... 1,000 50,341
Matsushita Electric Industrial Co., Ltd. (Leading manufacturer of
consumer electronic products) .......................................... 9,000 146,879
Matsushita Electric Works, Inc. (Leading maker of building materials
and lighting equipment) ................................................ 5,000 43,045
Mitsubishi Heavy Industries, Ltd. (Diversified heavy machinery
manufacturer and leading shipbuilder) .................................. 16,000 127,105
Pioneer Electronics Corp. (Leading manufacturer of audio
equipment) ............................................................. 7,000 133,581
Ricoh Co., Ltd. (Leading maker of copiers and information
equipment) ............................................................. 13,000 149,296
SMC Corp. (Leading maker of pneumatic equipment) .......................... 2,000 134,531
Secom Co., Ltd. (Electronic security system operator) ..................... 2,000 121,060
Sumitomo Electric Industries, Ltd. (Leading manufacturer of
electric wires and cables) ............................................. 11,000 153,873
Sumitomo Metal Industries, Ltd. (Leading integrated crude steel
producer) .............................................................. 45,000 110,742
Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and copper
mining company) ........................................................ 14,000 94,413
THK Co., Ltd. (Manufacturer of linear motion systems for industrial
machinery) ............................................................. 6,000 82,376
-------------
3,382,555
-------------
Korea 0.7%
Pohang Iron & Steel Co., Ltd. (ADR) (Leading steel producer) .............. 5,800 117,450
-------------
Malaysia 1.5%
Malayan Banking Berhad (Leading banking and financial services
group) ................................................................. 12,000 133,043
Renong Berhad (Holding company involved in engineering,
construction, financial services, telecommunication and
information technology) ................................................ 72,000 127,721
-------------
260,764
-------------
</TABLE>
See notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
Netherlands 4.2%
AEGON Insurance Group NV (Insurance company) .............................. 3,000 191,190
Elsevier NV (International publisher of scientific, professional,
business and consumer information books) ............................... 9,000 152,119
Getronics NV (Provider of computer installation and maintenance
services) .............................................................. 5,000 135,737
Heineken Holdings N.V. "A" (Brewery) ...................................... 700 109,400
Wolters Kluwer CVA (Publisher) ............................................ 1,200 159,412
-------------
747,858
-------------
New Zealand 0.9%
Telecom Corp. of New Zealand (Telecommunication services) ................. 33,000 168,438
-------------
Philippines 3.0%
C & P Homes, Inc. (Home construction company) ............................. 247,500 127,044
Manila Electric Co. "B" (Electric utility) ................................ 19,500 159,411
Metropolitan Bank and Trust Company (Commercial bank and trust
company) ............................................................... 4,625 114,306
SM Prime Holdings Corp. (Leader in commercial center
operations) ............................................................ 552,000 142,722
-------------
543,483
-------------
Portugal 1.0%
Portugal Telecom SA (Telecommunication services) .......................... 6,500 185,295
-------------
Spain 2.1%
Acerinox, S.A. (Stainless steel producer) ................................. 1,200 173,403
Compania Telefonica Nacional de Espana SA (ADR)
(Telecommunication services) ........................................... 3,000 207,750
-------------
381,153
-------------
Sweden 4.3%
AGA AB "B" (Free) (Producer and distributor of industrial and
medical gases) ......................................................... 8,600 128,632
Astra AB "A" (Free) (Pharmaceutical company) .............................. 1,600 79,068
Hennes & Mauritz AB "B" (Free) (Clothing and cosmetics retailer
throughout Europe) ..................................................... 2,000 276,855
L.M. Ericsson Telephone Co. "B" (ADR) (Leading manufacturer of
cellular telephone equipment) .......................................... 7,000 211,313
</TABLE>
See notes to financial statements.
13
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Investment Portfolio (continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
S.K.F. AB "B" (Free) (Manufacturer of roller bearings) .................... 3,000 71,047
-------------
766,915
-------------
Switzerland 7.2%
ABB AG (Bearer) (Manufacturer of electrical equipment) .................... 120 149,160
Adecco SA (Bearer) (Personnel and temporary employment company) ........... 600 150,504
CS Holdings (Registered) (Provider of bank services, management
services and life insurance) ........................................... 1,500 153,975
Clariant AG (Registered) (Manufacturer of color chemicals) ................ 328 140,309
Elektrowatt AG (Bearer) (Holding company: owner of electric
plants and interests in hydro and nuclear power plants) ................ 375 149,216
Holderbank Financiere Glaris AG (Bearer) (Cement producer) ................ 200 142,740
Novartis AG (Registered) (Pharmaceutical company) ......................... 190 217,447
SGS Holdings SA (Bearer) (Trade inspection company) ....................... 70 171,930
-------------
1,275,281
-------------
Thailand 0.0%
Thai Farmers Bank FRN Warrants (expire 9/15/02)* .......................... 750 709
-------------
United Kingdom 10.1%
BOC Group PLC (Producer of industrial gases) .............................. 11,000 164,592
British Petroleum PLC (Major integrated world oil company) ................ 16,287 195,183
Carlton Communications PLC (Television post production products
and services) .......................................................... 25,500 223,344
General Electric Co., PLC (Manufacturer of power, communications
and defense equipment and other various electrical components) ......... 25,000 163,924
Pearson PLC (Diversified media and entertainment holding
company) ............................................................... 14,000 178,562
PowerGen PLC (Electric utility) ........................................... 16,478 161,363
RTZ Corp. PLC (Mining and finance company) ................................ 10,000 160,586
Reuters Holdings PLC (International news agency) .......................... 12,000 154,183
WPP Group PLC (Advertising agency) ........................................ 46,000 199,243
</TABLE>
See notes to financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
---------- ---------
<S> <C> <C>
Zeneca Group PLC (Holding company: manufacturing and marketing
of pharmaceutical and agrochemical products and specialty
chemicals) ............................................................. 7,000 197,137
-------------
1,798,117
-------------
Total Common Stocks (Cost $14,829,632) ....................................... 15,701,559
-------------
- ----------------------------------------------------------------------------------------------------------------
Total Investments -- 100.0% (cost $16,952,780) (a) ........................... $ 17,824,250
=============
</TABLE>
* Non-income producing security.
(a) Cost for federal income tax purposes was $16,954,977. At December 31, 1996,
net unrealized appreciation for all securities based on tax cost was
$869,273. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$1,730,239 and unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $860,966.
(b) Principal amount stated in U.S. dollars unless otherwise noted.
Currency Abbreviations
----------------------
JPY Japanese Yen
Sector breakdown of the Portfolio's equity securities is noted on page 5.
15
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<S> <C> <C>
Assets
Investments, at market (identified cost $16,952,780) (note 2) ................ $ 17,824,250
Receivable for Portfolio shares sold ......................................... 44,593
Dividend and interest receivable ............................................. 10,166
Foreign tax recoverable ...................................................... 11,100
Deferred organizational expenses (note 2) .................................... 24,587
Due from manager (note 5) .................................................... 80,840
-------------
Total assets ........................................................... 17,995,536
Liabilities
Accrued expenses (note 5) .................................................... $ 97,627
Other payables ............................................................... 401
----------
Total liabilities ...................................................... 98,028
-------------
Net assets, at market value .................................................. $ 17,897,508
=============
Net Assets
Net assets consist of:
Distributions in excess of net investment income .......................... $ (853)
Net unrealized appreciation on investments ................................ 871,470
Accumulated net realized loss ............................................. (162,805)
Paid-in capital ........................................................... 17,189,696
-------------
Net assets, at market value .................................................. $ 17,897,508
=============
Net asset value, offering and redemption price per share
($17,897,508 / 1,433,768 outstanding shares of
Capital Stock, $.001 par value, 100,000,000
shares authorized) ........................................................ $12.48
======
</TABLE>
See notes to financial statements.
16
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statement of Operations
For the period April 3, 1996* to December 31, 1996
<TABLE>
<S> <C> <C>
Investment Income
Dividend (net of foreign taxes withheld of $18,811) .......................... $ 147,755
Interest ..................................................................... 106,448
-----------
254,203
Expenses:
Management fee (note 5) ...................................................... $ 104,861
Custodian and accounting fees (note 5) ....................................... 84,453
Shareholder services (note 5) ................................................ 18,182
Directors' fees and expenses (note 5) ........................................ 5,328
Registration fees ............................................................ 32,409
Auditing ..................................................................... 27,557
Reports to shareholders ...................................................... 12,351
Amortization of organization expenses (note 2) ............................... 4,155
Legal ........................................................................ 3,211
Miscellaneous fees ........................................................... 3,640
----------
Total expenses before reductions ............................................. 296,147
Expense reductions (note 5) .................................................. (185,701)
Expenses, net ............................................................. ---------- 110,446
-----------
Net investment income ........................................................ 143,757
-----------
Net realized and unrealized gain (loss) on investments
Net realized loss from:
Investments ............................................................... (162,805)
Foreign currency related transactions ..................................... (11,452) (174,257)
----------
Net unrealized appreciation from investments ................................. 871,470
-----------
Net gain on investments ...................................................... 697,213
-----------
Net increase in net assets resulting from operations ......................... $ 840,970
===========
</TABLE>
* Commencement of operations
See notes to financial statements.
17
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Statements of Changes in Net Assets
For the period
April 3, 1996
(commencement of
operations) to
December 31, 1996
-----------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ......................................... $ 143,757
Net realized loss on investments .............................. (174,257)
Net unrealized appreciation on investments during the period .. 871,470
-----------
Net increase in net assets resulting from operations .......... 840,970
-----------
Distributions to shareholders from net investment income ...... (156,525)
-----------
Capital Stock Transactions:
Proceeds from sale of shares .................................. 17,436,410
Reinvestment of distributions ................................. 88,761
Cost of shares redeemed ....................................... (313,308)
-----------
Net increase in assets from Portfolio share transactions ...... 17,211,863
-----------
Increase in net assets ........................................ 17,896,308
-----------
Net Assets:
Beginning of period ........................................... 1,200
-----------
End of period (including distributions in excess of net
investment income of $853) ................................. $17,897,508
===========
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ..................... 100
-----------
Shares sold ................................................... 1,451,638
Shares issued to shareholders in reinvestment of
distributions .............................................. 7,199
Shares redeemed ............................................... (25,169)
-----------
Net increase in Portfolio shares .............................. 1,433,668
-----------
Shares outstanding at end of period ........................... 1,433,768
===========
See notes to financial statements.
18
<PAGE>
International International Equity Portfolio/Barrett International Shares
Financial Highlights
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
For the period
April 3, 1996
(commencement of
operations) to
December 31, 1996
-----------------
Net asset value, beginning of period .......................... $ 12.00
-------
Income from Investment Operations:
Net investment income ......................................... .11
Net realized and unrealized gain (loss) on investments ........ .48
-------
Total from investment operations .............................. .59
-------
Less distributions from income ................................ (.11)
-------
Net asset value, end of period ................................ $ 12.48
=======
Total return (%) (b) .......................................... 4.93**
Ratios and Supplementary Data
Net assets, end of period ($ millions) ........................ 18
Ratio of operating expenses, to average daily net assets (%)... .95*
Ratio of operating expenses before expense reductions,
to average daily net assets (%).............................. 2.55*
Ratio of net investment income, to average daily net assets (%) 1.24*
Portfolio turnover rate (%).................................... 10.1*
Average commission rate paid (c)............................... $ .0004
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
(c) Average commission rate paid per share of common and preferred stock
securities.
* Annualized
** Not annualized
19
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Notes to Financial Statements
1. Organization
Institutional International Equity Portfolio (the "Portfolio") is a
portfolio of Scudder Institutional Fund, Inc. (the "Company") which is an
open-end, diversified management investment company. Currently the Portfolio is
comprised of a single class of shares ("Barrett International Shares").
2. Significant Accounting Policies
The Portfolio's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of management
estimates. Significant accounting policies followed by the Portfolio are:
(a) Security Valuation-Portfolio securities which are traded on U.S. or
foreign stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used. Portfolio debt
securities with remaining maturities greater than sixty days are valued by
pricing agents approved by the officers of the Portfolio, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
(b) Foreign Currency Transactions -- The books and records of the Portfolio
are maintained in U.S. dollars. Foreign currency transactions are translated
into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and other
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Portfolio does not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
(c) Forward Foreign Currency Exchange Contracts. A forward foreign currency
exchange contract (forward contract) is a commitment to purchase or sell a
foreign currency at the settlement date at a negotiated rate. During the period,
the Portfolio utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss)
20
<PAGE>
is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Portfolio gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.
(d) Federal Income Taxes -- The Portfolio intends to qualify as a regulated
investment company under subchapter M of the Internal Revenue Code and to
distribute all taxable income, including any realized net capital gains, to
shareholders. Therefore, no Federal income tax provision is required.
As of December 31, 1996, the Portfolio had a net tax basis capital loss
carryforward of approximately $147,000, which may be applied against any
realized net capital gains of each succeeding year until fully utilized or until
December 31, 2004, the expiration date. In addition, from November 1, 1996
through December 31, 1996, the Portfolio incurred approximately $14,000 of net
realized capital losses and $1,000 of net realized currency losses. As permitted
by tax regulations, the Portfolio intends to elect to defer these losses and
treat them as having arisen in the year ended December 31, 1997.
(e) Distribution of Income and Gains -- Distributions of net investment
income are made annually. During any particular year, net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Portfolio if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to foreign currency denominated securities. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Portfolio may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Portfolio.
(f) Organization Costs -- Costs incurred by the Portfolio in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period.
(g) Other -- Investment transactions are recorded on a trade date basis.
Interest income is recorded on the accrual basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend dates.
3. Repurchase Agreements
It is the Portfolio's policy to obtain possession, through its custodian,
of the securities underlying each repurchase agreement to which it is a party,
either through physical delivery or book entry transfer in the Federal Reserve
System or Participants Trust Portfolio. Payment by the Portfolio in respect of a
repurchase agreement is authorized only when proper delivery of the underlying
securities is made to the Portfolio custodian. The Portfolio's investment
manager values such underlying securities each business day using quotations
obtained from a reputable, independent source. If the Portfolio's investment
manager determines that the value of such underlying securities (including
accrued interest thereon) does not at least equal the value of each repurchase
agreement (including accrued interest thereon) to which such securities are
subject, it will ask for additional securities to be delivered to the
Portfolio's custodian. In connection with each repurchase agreement transaction,
if the seller defaults and the value of the collateral declines or if the seller
enters an insolvency proceeding, realization of the collateral by the Portfolio
may be delayed or limited.
21
<PAGE>
Institutional International Equity Portfolio/Barrett International Shares
Notes to Financial Statements (continued)
4. Purchases and Sales of Securities
For the period April 3, 1996 (commencement of operations) to December 31,
1996, purchases and sales of securities (excluding short-term investments)
aggregated $16,433,501 and $1,077,915, respectively.
5. Management Fee and Other Transactions with Affiliates
The Portfolio retains Scudder, Stevens & Clark, Inc. ("Scudder") as
investment manager for the Portfolio, pursuant to an investment advisory
agreement between Scudder and the Company on behalf of the Portfolio, for a
management fee payable each month, based upon the average daily value of the
Portfolio's net assets, at an annual rate of 0.90%. Scudder has agreed not to
impose all or a portion of its management fee until April 30, 1997, and during
such period to maintain the annualized expenses of the Portfolio at not more
than 0.95% of average daily net assets. For the period April 3, 1996
(commencement of operations) to December 31, 1996, Scudder did not impose any of
its fee amounting to $104,861. In addition, Scudder reimbursed expenses
amounting to $80,840.
Scudder Service Corporation ("SSC"), a subsidiary of Scudder, is the
Portfolio's shareholder service, transfer and dividend disbursing agent. For the
period April 3, 1996 (commencement of operations) to December 31, 1996, the
amount charged by SSC aggregated $17,723 of which $ 2,292 is unpaid at December
31, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records for the Portfolio. For the period
April 3, 1996 (commencement of operations) to December 31, 1996, the amount
charged to the Portfolio by SFAC aggregated $36,458, all of which is unpaid at
December 31, 1996.
The Portfolio has a compensation arrangement under which payment of
Directors' fees may be deferred. Interest is accrued (based on the rate of
return earned on the 90 day Treasury Bill as determined at the beginning of each
calendar quarter) on the deferred balances and is included in "Directors' fees
and expenses." For the period April 3, 1996 (commencement of operations) to
December 31, 1996, directors' fees and expenses amounted to $3,452. The
accumulated balance of deferred directors' fees and interest thereon relating to
the Portfolio aggregated $1,876, which is included in accrued expenses of the
Portfolio.
6. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in these markets may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
22
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
SCUDDER INSTITUTIONAL FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Institutional International
Equity Portfolio, a portfolio of Scudder Institutional Fund, Inc. (hereafter
referred to as the "Portfolio") at December 31, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
period April 3, 1996 (commencement of operations) through December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at December
31, 1996 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997
- --------------------------------------------------------------------------------
Federal Tax Status of 1996 Dividends (Unaudited)
The total amount of dividends declared in 1996 for Scudder Institutional
International Equity Portfolio is taxable as ordinary dividend income for
Federal income tax purposes. None of this amount qualifies for the dividends
received deduction available to corporations.
The Fund paid foreign taxes of $18,811 and recognized $103,592 of foreign
source income during the period ended December 31, 1996. Pursuant to section 853
of the Internal Revenue Code, the fund designates $0.013 per share of foreign
taxes and $0.073 per share of income from foreign sources as having been paid in
the period ended December 31, 1996.
- --------------------------------------------------------------------------------
23
<PAGE>
BARRETT INTERNATIONAL SHARES
345 Park Avenue, New York, New York 10154
(800) 854-8525
Investment Manager
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
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
Sullivan & Cromwell
New York, New York
- --------------------------------------------------------------------------------
This report is for the information of the shareholders. Its use in connection
with any offering of the Company's shares is authorized only in case of a
concurrent or prior delivery of the Company's current prospectus.
BARRETT INTERNATIONAL
SHARES
---------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
PART C. - OTHER INFORMATION
---------------------------
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C> <C>
a. Financial Statements
Included in Part A of this Registration Statement
For Institutional Government Portfolio:
Financial Highlights for the period June 3, 1986 (commencement of operations) to
December 31, 1987 and for the ten fiscal years ended December 31, 1996
For Institutional Cash Portfolio:
Financial Highlights for the period June 18, 1986 (commencement of operations) to
December 31, 1987 and for the ten fiscal years ended December 31, 1996
For Institutional Tax-Free Portfolio:
Financial Highlights for the period May 12, 1986 (commencement of operations) to
December 31, 1987 and for the ten fiscal years ended December 31, 1996
For Institutional International Equity Portfolio:
Financial Highlights for the period April 3, 1996 (commencement of operations) to
June 30, 1996 and for the fiscal year ended December 31, 1996.
Included in Part B of this Registration Statement
For Institutional Government Portfolio:
Statement of Net Assets as of December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statements of Changes in Net Assets for the two fiscal years ended December 31,
1995 and 1996
Financial Highlights for the five years ended December 31, 1996
Notes to Financial Statements
Report of Independent Accountants
For Institutional Cash Portfolio:
Statement of Net Assets as of December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statements of Changes in Net Assets for the two fiscal years ended December 31,
1995 and 1996
Financial Highlights for the five years ended December 31, 1996
Notes to Financial Statements
Report of Independent Accountants
For Institutional Tax-Free Portfolio:
Statement of Net Assets as of December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Part C - Page 1
<PAGE>
Statements of Changes in Net Assets for the two fiscal years ended December 31,
1995 and 1996
Financial Highlights for the five years ended December 31, 1996
Notes to Financial Statements
Report of Independent Accountants
For Institutional International Equity Portfolio:
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statement of Changes in Net Assets for the period April 3, 1996 (commencement of
operations) to June 30, 1996 and the fiscal year ended December 31, 1996.
Financial Highlights for the period April 3, 1996 (commencement of operations) to
June 30, 1996 and the fiscal year ended December 31, 1996.
Notes to Financial Statements
Report of Independent Accountants
b. Exhibits:
1. (a) Articles of Incorporation.
(Incorporated by reference to Exhibit 1(a) to original Registration Statement
filed on January 10, 1986.)
(b) Articles Supplementary.
(Incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No.
9 to this Registration Statement filed on March 3, 1988.)
(c) Articles of Amendment.
(Incorporated by reference to Exhibit 1(c) to Post-Effective Amendment No.
9 to this Registration Statement filed on April 29, 1991.)
(d) Articles Supplementary to the Articles of Incorporation. (Incorporated by
reference to Exhibit 1(d) to Post-Effective Amendment No. 14 to this
Registration Statement filed on January 19, 1996.)
(e) Articles Supplementary to the Articles of Incorporation.
(Incorporated by reference to Exhibit 1(e) to Post-Effective Amendment No.
16 to this Registration Statement filed on April 30, 1996.)
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.
(Incorporated by reference to Exhibit 2(b) to Post Effective Amendment No.
14 to this Registration Statement filed on January 19, 1996.).
(c) By-laws as amended through October 24, 1996 are filed herein.
3. Not Applicable
4. Specimen stock certificate.
(Incorporated by reference to Exhibit 4 to original Registration Statement
filed on January 10, 1986.)
Part C - Page 2
<PAGE>
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.
(Incorporated by reference to Exhibit a(ix) to Post-Effective Amendment No.
16 to this Registration Statement filed on April 30, 1996.)
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.
8. (a) Custodian Contract.
(Incorporated by reference to Exhibit 8(a) to Pre-Effective Amendment No. 1
filed on April 16, 1986.)
Part C - Page 3
<PAGE>
(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.)
(b)(i) Fee Schedule for Exhibit 8(b).
(Incorporated by reference to Exhibit 8(b)(i) to Post-Effective Amendment
No. 16 to this Registration Statement filed on April 30, 1996.)
(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.
(Incorporated by reference to Exhibit 8(c)(vi) to Post-Effective Amendment
No. 16 to this Registration Statement filed on April 30, 1996.)
(c)(vii) Fee Schedule for Exhibit 8(c)(vi).
(Incorporated by reference to Exhibit 8(c)(vii) to Post-Effective Amendment
No. 15 filed on April 3, 1996.)
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) Form of Fund Accounting Services Agreement between the Registrant, on behalf
of Institutional International Equity Portfolio, and Scudder Fund Accounting
Corporation.
(Incorporated by reference to Exhibit 9(b)(v) to Post-Effective Amendment No.
15 filed on April 3, 1996.)
10. Opinion and Consent of Counsel is filed herein.
11. Consent of Price Waterhouse LLP, Independent Accountants of Scudder
Institutional Fund, Inc. is filed herein.
12. Not Applicable.
13. Purchase Agreement and Investment Letter of Lazard Freres & Co. (Incorporated
by reference to Exhibit 13 to Pre-Effective Amendment No. 1 filed on April
16, 1986.)
14. Not Applicable.
15. Not Applicable.
16. (a) Schedules for Computations of Performance Quotations.
(Incorporated by reference to Exhibit 16 to Post-Effective Amendment No. 4
filed on March 1, 1989.)
(b) Schedules for Computations of Performance Quotations.
(Incorporated by reference to Exhibit 16(b) to Post-Effective Amendment No.
13 filed on April 28, 1995.)
(c) Schedules for Computations of Performance Quotations to be filed by amendment.
17. Financial Data Schedules for Institutional Government Portfolio,
Institutional Cash Portfolio, Institutional Tax-Free Portfolio and
International Equity Portfolio are filed herein.
18. Inapplicable.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities.
- -------- --------------------------------
Set forth below is a table showing the number of record
holders of each class of securities of Scudder Institutional
Fund, Inc. as of March 31, 1997:
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
<S> <C>
Institutional Government Portfolio 15
Institutional Cash Portfolio 45
Part C - Page 5
<PAGE>
Institutional Tax-Free Portfolio 15
Institutional International Equity Portfolio 311
</TABLE>
Item 27. Indemnification.
- -------- ----------------
As permitted by Sections 17(h) and 17(i) of the Investment
Company Act of 1940, as amended (the "1940 Act"), pursuant to
Article IV of the Registrant's By-Laws (filed as Exhibit No. 2
to the Registration Statement), officers, directors, employees
and representatives of the Funds may be indemnified against
certain liabilities in connection with the Funds, and pursuant
to Section 12 of the Underwriting Agreement dated January 18,
1989 (filed as Exhibit No. 6(b) to the Registration
Statement), Scudder Investor Services, Inc. (formerly "Scudder
Fund Distributors, Inc."), as principal underwriter of the
Registrant, may be indemnified against certain liabilities
that it may incur. Said Article IV of the By-Laws and Section
12 of the Underwriting Agreement are hereby incorporated by
reference in their entirety.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be
permitted to directors, officers and controlling persons of
the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or
controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant
by such director, officer or controlling person or the
principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ---------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
President, The Japan Fund, Inc. (investment company)**
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, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund(investment company)#
Director, Sovereign High Yield Investment Company (investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
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. (President on all series except Scudder
Global Fund) (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
E. Michael Brown Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Cash Investment Trust (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust
company)+++ Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director & Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Trustee, AARP Cash Investment Funds (investment company)**
Chairman & Trustee, AARP Growth Trust (investment company)**
Chairman & Trustee, AARP Income Trust (investment company)**
Chairman & Trustee, AARP Tax Free Income Trust (investment company)**
Chairman & Trustee, AARP Managed Investment Portfolios Trust (investment company)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
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 Fund, Inc. (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 Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Part C - Page 7
<PAGE>
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 Pathway Series (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)**
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)**
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Director, Scudder Global Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
Director, Scudder Mutual Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Equity Trust (investment company)**
Trustee, Scudder Funds Trust (investment company)**
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
President & Director, SFA, Inc. (advertising agency)*
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
Vice President & Director, Scudder Precious Metals, Inc. xxx
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
Part C - Page 8
<PAGE>
President & Trustee, Scudder Investment Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Vice President & Trustee, Scudder Pathway Series (investment company)*
Trustee, Scudder California Tax Free Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
President & Director, Scudder Precious Metals, Inc. xxx
Vice President, Director & Assistant Secretary, Scudder Realty Holdings Corporation
(a real estate holding company)*
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Scudder Latin America Investment Trust PLC (investment 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
Incorporator, Scudder Trust Company (a trust company)+++
Kathryn L. Quirk Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment
company)**
Director, Vice President & Assistant Secretary, Scudder International Fund, Inc.
(investment company)**
Director, Vice President & Assistant Secretary, Scudder New Asia Fund (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Equity Trust (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Securities Trust (investment
company)*
Trustee, Vice President & Assistant Secretary, Scudder Funds Trust (investment
company)**
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Vice President & Trustee, Scudder Tax Free Trust (investment company)*
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust (investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President & Secretary, AARP Managed Investment Portfolios Trust (investment
company)**
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment
company)**
Part C - Page 9
<PAGE>
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Pathway Series (investment company)*
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Director, Senior Vice President & Clerk, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation (in-house
fund accounting agent)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Director & Clerk, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, AARP Cash Investment Funds (investment company)**
President, AARP Growth Trust (investment company)**
President, AARP Income Trust (investment company)**
President, AARP Tax Free Income Trust (investment company)**
President, AARP Managed Investment Portfolio Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
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 Japan, Inc. (investment adviser)###
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Director, IBJ Global Investment Management S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company) o
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
Part C - Page 10
<PAGE>
** 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
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon, U.K.
</TABLE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Pathway Series
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
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Part C - Page 11
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President and
Two International Place Treasurer and Assistant Clerk Assistant Secretary
Boston, MA 02110
Dudley H. Ladd Director and Senior Vice President None
Two International Place
Boston, MA 02110
David S. Lee Director, President and Assistant Chairman and Director
Two International Place Treasurer
Boston, MA 02110
Thomas F. McDonough Assistant Clerk Vice President and
Two International Place 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
Daniel Pierce Director, Vice President President and Director
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President and Vice President
345 Park Avenue Clerk
New York, NY 10154
Edmund J. Thimme Vice President None
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Part C - Page 12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
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 Compensation
Underwriter Commissions and Repurchases Commissions
----------- ----------- --------------- -----------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
All accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
thereunder are maintained at the offices of the Custodian, the
Transfer Agent, the Distributor or the Registrant. Documents
required by paragraphs (b)(4), (5), (6), (7), (9), (10), and
(11) and (f) of Rule 31a-1 (the "Rule"), will be kept at the
offices of the Registrant, 345 Park Avenue, New York, New
York; certain documents required to be kept under paragraphs
(b)(1) and (b)(2)(iv) of the Rule will be kept at the offices
of Scudder Service Corporation, Two International Place,
Boston, Massachusetts 02110-4103; documents required to be
kept under paragraph (d) of the Rule will be kept at the
offices of Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103; and the remaining
accounts, books and other documents required by the Rule will
be kept at State Street Bank and Trust Company, 1776 Heritage
Drive, North Quincy, Massachusetts 02171 (on behalf of
Institutional Government Portfolio, Institutional Federal
Portfolio, Institutional Cash Portfolio and Institutional
Tax-Free Portfolio) and at Brown Brothers Harriman & Co., 40
Water Street, Boston, Massachusetts 02109 (on behalf of
Institutional International Equity Portfolio).
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts on the 24th day of April, 1997.
SCUDDER INSTITUTIONAL FUND, INC.
By /s/David S. Lee
---------------
David S. Lee,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/David S. Lee
- --------------------------------------
David S. Lee Chairman of the Board (Principal April 24, 1997
Executive Officer) and Director
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce President and Director April 24, 1997
/s/Edgar R. Fiedler
- --------------------------------------
Edgar R. Fiedler Director April 24, 1997
/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman Director April 24, 1997
/s/Robert W. Lear
- --------------------------------------
Robert W. Lear Director April 24, 1997
/s/Pamela A. McGrath
- --------------------------------------
Pamela A. McGrath Vice President and Treasurer April 24, 1997
(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. 18
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 16
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER INSTITUTIONAL FUND, INC.
<PAGE>
SCUDDER INSTITUTIONAL FUND, INC.
EXHIBIT INDEX
-------------
Exhibit 2 (c)
Exhibit 10
Exhibit 11
Exhibit 17
Exhibit 2(c)
SCUDDER INSTITUTIONAL FUND, INC.
Amendment to the By-Laws
Approved October 24, 1996
RESOLVED, that, pursuant to the provision of Article X of the Fund's
By-Laws, the first sentence of Article I, Section 3, and Article II,
Section 4 of the Fund's By-Laws are hereby amended to read as follows
(additions underlined, deletions struck out):
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 fifty (50%) twenty-five
percent of all the votes entitled to be cast at such meeting.
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 providing for or
establishing a method or procedure for determining the maximum number of
shares to be issued, a committee of the Board, in accordance with that
general authorization or any a general formula or method specified by the
Board by resolution or be adoption of a stock option or other plan, may
authorize or 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.
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004-2498
Telephone: (212) 558-4000
Facsimile: (212) 558-3588
April 18, 1997
Scudder Institutional Fund, Inc.,
345 Park Avenue,
New York, New York 10154.
Dear Sirs:
You have requested our opinion in connection with Post-Effective Amendment
No. 18 under the Securities Act of 1933 to the Registration Statement on Form
N-1A that you propose to file pursuant to Rule 24e-2 under the Investment
Company Act of 1940 with respect to 32,888,766 shares of your Common Stock of
the Institutional Government Portfolio, $.001 par value (the "Shares").
As your counsel, we are familiar with your organi zation and corporate
status and the validity of your Shares.
We advise you that, in our opinion, you have taken proper corporate
proceedings so that the Shares have been validly authorized, and when any of the
Shares have been issued and sold, for not less than the net asset value thereof,
the Shares will be legally and validly issued, fully paid and nonassessable.
<PAGE>
Scudder Institutional Fund, Inc. -2-
The foregoing opinion is limited to the General Corporation Law of the
State of Maryland, and we are expressing no opinion as to the effect of the laws
of any other jurisdiction.
We consent to the filing of this opinion with the Securities and Exchange
Commission in connection with the Post-Effective Amendment referred to above. In
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/Sullivan & Cromwell
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 18 to the registration statement on Form N-1A (the "Registration
Statement") of Scudder Institutional Fund, Inc., of our reports dated February
19, 1997, relating to the financial statements and financial highlights
appearing in the December 31, 1996 Annual Reports to Shareholders of
Institutional Government Portfolio, Institutional Cash Portfolio, Institutional
Tax-Free Fund and Institutional International Equity Portfolio, constituting
Scudder Institutional Fund, Inc., which are also incorporated by reference into
the Registration Statement. We also consent to the reference to us under the
heading "Financial Highlights" in the Prospectuses and under the heading
"Experts" in the Statements of Additional Information.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Institutional Cash Portfolio AnnualReport for the fiscal year ended December 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Institutional Cash Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 270,085,775
<INVESTMENTS-AT-VALUE> 270,085,775
<RECEIVABLES> 3,622,338
<ASSETS-OTHER> 146
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 273,708,259
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,538,425
<TOTAL-LIABILITIES> 1,538,425
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 272,169,834
<SHARES-COMMON-STOCK> 272,169,834
<SHARES-COMMON-PRIOR> 249,428,129
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 272,169,834
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,518,054
<OTHER-INCOME> 0
<EXPENSES-NET> 607,242
<NET-INVESTMENT-INCOME> 22,741,705
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (14,910,812)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,910,812
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 752,470,938
<NUMBER-OF-SHARES-REDEEMED> (734,192,638)
<SHARES-REINVESTED> 4,463,405
<NET-CHANGE-IN-ASSETS> 22,741,255
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 430,252
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 607,242
<AVERAGE-NET-ASSETS> 286,382,683
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .052
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.052)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Institutional Tax-Free Portfolio AnnualReport for the fiscal year ended December
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Institutional Tax-Free Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 103,784,014
<INVESTMENTS-AT-VALUE> 103,784,014
<RECEIVABLES> 694,597
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,478,611
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 454,498
<TOTAL-LIABILITIES> 454,498
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,024,113
<SHARES-COMMON-STOCK> 104,024,113
<SHARES-COMMON-PRIOR> 79,049,313
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 104,024,113
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,518,859
<OTHER-INCOME> 0
<EXPENSES-NET> 277,323
<NET-INVESTMENT-INCOME> 3,241,536
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,974,800
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,241,536)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 323,081,752
<NUMBER-OF-SHARES-REDEEMED> (298,497,238)
<SHARES-REINVESTED> 390,286
<NET-CHANGE-IN-ASSETS> 24,974,800
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149,789
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 277,323
<AVERAGE-NET-ASSETS> 99,843,655
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .032
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.032)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Institutional Government Portfolio Annual Report for the fiscal year ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Institutional Government Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 47,135,992
<INVESTMENTS-AT-VALUE> 47,135,992
<RECEIVABLES> 192,294
<ASSETS-OTHER> 907
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,329,193
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 299,598
<TOTAL-LIABILITIES> 299,598
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,029,595
<SHARES-COMMON-STOCK> 47,029,595
<SHARES-COMMON-PRIOR> 79,918,361
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 47,029,595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,458,695
<OTHER-INCOME> 0
<EXPENSES-NET> 203,441
<NET-INVESTMENT-INCOME> 3,255,254
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (32,888,766)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,255,254)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 264,453,259
<NUMBER-OF-SHARES-REDEEMED> (298,316,303)
<SHARES-REINVESTED> 974,278
<NET-CHANGE-IN-ASSETS> (32,888,766)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96,302
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 203,441
<AVERAGE-NET-ASSETS> 64,281,632
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .051
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.051)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Institutional International Equity Portfolio Annual Report for the fiscal year
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> Institutional International Equity Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 16,952,780
<INVESTMENTS-AT-VALUE> 17,824,250
<RECEIVABLES> 54,759
<ASSETS-OTHER> 116,527
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,995,536
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98,028
<TOTAL-LIABILITIES> 98,028
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,189,696
<SHARES-COMMON-STOCK> 1,433,768
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (853)
<ACCUMULATED-NET-GAINS> (162,805)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 871,470
<NET-ASSETS> 17,897,508
<DIVIDEND-INCOME> 147,755
<INTEREST-INCOME> 106,448
<OTHER-INCOME> 0
<EXPENSES-NET> 110,446
<NET-INVESTMENT-INCOME> 143,757
<REALIZED-GAINS-CURRENT> (174,257)
<APPREC-INCREASE-CURRENT> 871,470
<NET-CHANGE-FROM-OPS> 840,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (156,525)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,451,638
<NUMBER-OF-SHARES-REDEEMED> (25,169)
<SHARES-REINVESTED> 7,199
<NET-CHANGE-IN-ASSETS> 17,896,308
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 104,861
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 296,147
<AVERAGE-NET-ASSETS> 16,118,800
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> .48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.48
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
