<PAGE> PAGE 1
000 B000000 12/31/97
000 C000000 787628
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
000 H000000 N
000 I000000 3.0.a
000 J000000 A
001 A000000 SCUDDER INSTITUTIONAL FUND, INC.
001 B000000 811-4555
001 C000000 2123266656
002 A000000 345 PARK AVENUE
002 B000000 NEW YORK
002 C000000 NY
002 D010000 10154
002 D020000 0010
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 Y
007 B000000 4
007 C010100 1
007 C010200 2
007 C020200 INSTITUTIONAL GOVERNMENT PORTFOLIO
007 C030200 Y
007 C010300 3
007 C010400 4
007 C020400 INSTITUTIONAL CASH PORTFOLIO
007 C030400 Y
007 C010500 5
007 C010600 6
007 C010700 7
007 C020700 INSTITUTIONAL TAX-FREE PORTFOLIO
007 C030700 Y
007 C010800 8
007 C010900 9
007 C020900 INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIO
007 C030900 N
007 C011000 10
008 A00AA01 SCUDDER KEMPER INVESTMENTS, INC.
008 B00AA01 A
008 C00AA01 801-252
008 D01AA01 NEW YORK
008 D02AA01 NY
008 D03AA01 10154
008 D04AA01 0010
010 A00AA01 SCUDDER FUND ACCOUNTING CORPORATION
010 C01AA01 BOSTON
010 C02AA01 MA
<PAGE> PAGE 2
010 C03AA01 02110
011 A00AA01 SCUDDER INVESTOR SERVICES, INC.
011 B00AA01 8-298
011 C01AA01 BOSTON
011 C02AA01 MA
011 C03AA01 02110
012 A00AA01 SCUDDER SERVICE CORPORATION
012 B00AA01 84-1489
012 C01AA01 BOSTON
012 C02AA01 MA
012 C03AA01 02110
013 A00AA01 PRICE WATERHOUSE, LLP
013 B01AA01 NEW YORK
013 B02AA01 NY
013 B03AA01 10022
015 A00AA01 STATE STREET BANK & TRUST COMPANY
015 B00AA01 C
015 C01AA01 BOSTON
015 C02AA01 MA
015 C03AA01 02110
015 E01AA01 X
015 A00AA02 BROWN BROTHERS HARRIMAN & COMPANY
015 B00AA02 C
015 C01AA02 BOSTON
015 C02AA02 MA
015 C03AA02 02109
015 E01AA02 X
015 A00AA03 BANKBOSTON, N.A.
015 B00AA03 S
015 C01AA03 BUENOS AIRES
015 D01AA03 ARGENTINA
015 E04AA03 X
015 A00AA04 NATIONAL AUSTRALIA BANK LTD
015 B00AA04 S
015 C01AA04 MELBOURNE
015 D01AA04 AUSTRALIA
015 E04AA04 X
015 A00AA05 CREDITANSTALT BANKVEREIN
015 B00AA05 S
015 C01AA05 XXX
015 D01AA05 AUSTRIA
015 E04AA05 X
015 A00AA06 STANDARD CHARTERED BANK, DHAKA
015 B00AA06 S
015 C01AA06 XXX
015 D01AA06 BANGLADESH
015 E04AA06 X
015 A00AA07 BANQUE BRUXELLES LAMBERT
015 B00AA07 S
015 C01AA07 XXX
015 D01AA07 BELGIUM
<PAGE> PAGE 3
015 E04AA07 X
015 A00AA08 BARCLAYS BANK OF BOTSWANA LIMITED
015 B00AA08 S
015 C01AA08 XXX
015 D01AA08 BOTSWANA
015 E04AA08 X
015 A00AA09 BANKBOSTON, N.A., SAO PAULO
015 B00AA09 S
015 C01AA09 XXX
015 D01AA09 BRAZIL
015 E04AA09 X
015 A00AA10 CANADIAN IMPERIAL BANK OF COMMERCE
015 B00AA10 S
015 C01AA10 XXX
015 D01AA10 CANADA
015 E04AA10 X
015 A00AA11 CITIBANK, N.A., SANTIAGO
015 B00AA11 S
015 C01AA11 XXX
015 D01AA11 CHILE
015 E04AA11 X
015 A00AA12 STANDARD CHARTERED BANK, SHENZHEN
015 B00AA12 S
015 C01AA12 XXX
015 D01AA12 CHINA
015 E04AA12 X
015 A00AA13 CITITRUST COLOMBIA, S.A. SOCIEDAD FIDUCIARIA
015 B00AA13 S
015 C01AA13 XXX
015 D01AA13 COLOMBIA
015 E04AA13 X
015 A00AA14 CESKOSLOVENSKA OBCHODNI BANKA, A.S., PRAGUE
015 B00AA14 S
015 C01AA14 XXX
015 D01AA14 CZECH REPUBLIC
015 E04AA14 X
015 A00AA15 DEN DANSKE BANK
015 B00AA15 S
015 C01AA15 XXX
015 D01AA15 DENMARK
015 E04AA15 X
015 A00AA16 CITIBANK, N.A., QUITO
015 B00AA16 S
015 C01AA16 XXX
015 D01AA16 ECUADOR
015 E04AA16 X
015 A00AA17 CITIBANK, N.A., CAIRO
015 B00AA17 S
015 C01AA17 XXX
015 D01AA17 EGYPT
015 E04AA17 X
<PAGE> PAGE 4
015 A00AA18 MERITA BANK
015 B00AA18 S
015 C01AA18 XXX
015 D01AA18 FINLAND
015 E04AA18 X
015 A00AA19 BANQUE PARIBAS
015 B00AA19 S
015 C01AA19 XXX
015 D01AA19 FRANCE
015 E04AA19 X
015 A00AA20 DRESDNER BANK
015 B00AA20 S
015 C01AA20 XXX
015 D01AA20 GERMANY
015 E04AA20 X
015 A00AA21 BARCLAYS BANK OF GHANA LIMITED
015 B00AA21 S
015 C01AA21 XXX
015 D01AA21 GHANA
015 E04AA21 X
015 A00AA22 CITIBANK, N.A., ATHENS
015 B00AA22 S
015 C01AA22 XXX
015 D01AA22 GREECE
015 E04AA22 X
015 A00AA23 HONGKONG & SHANGHAI BANKING CORP. LTD.
015 B00AA23 S
015 C01AA23 XXX
015 D01AA23 HONG KONG
015 E04AA23 X
015 A00AA24 CITIBANK BUDAPEST RT.
015 B00AA24 S
015 C01AA24 XXX
015 D01AA24 HUNGARY
015 E04AA24 X
015 A00AA25 CITIBANK, N.A., MUMBAI
015 B00AA25 S
015 C01AA25 XXX
015 D01AA25 INDIA
015 E04AA25 X
015 A00AA26 CITIBANK, N.A., JAKARTA
015 B00AA26 S
015 C01AA26 XXX
015 D01AA26 INDONESIA
015 E04AA26 X
015 A00AA27 ALLIED IRISH BANKS PLC
015 B00AA27 S
015 C01AA27 XXX
015 D01AA27 IRELAND
015 E04AA27 X
015 A00AA28 BANK HAPOALIM B.M.
<PAGE> PAGE 5
015 B00AA28 S
015 C01AA28 XXX
015 D01AA28 ISRAEL
015 E04AA28 X
015 A00AA29 BANCA COMMERCIALE ITALIANA
015 B00AA29 S
015 C01AA29 XXX
015 D01AA29 ITALY
015 E04AA29 X
015 A00AA30 SUMITOMO TRUST & BANKING COMPANY, LTD.
015 B00AA30 S
015 C01AA30 XXX
015 D01AA30 JAPAN
015 E04AA30 X
015 A00AA31 ARAB BANK PLC
015 B00AA31 S
015 C01AA31 XXX
015 D01AA31 JORDAN
015 E04AA31 X
015 A00AA32 BARCLAYS BANK OF KENYA LIMITED
015 B00AA32 S
015 C01AA32 XXX
015 D01AA32 KENYA
015 E04AA32 X
015 A00AA33 CITIBANK, N.A., SEOUL
015 B00AA33 S
015 C01AA33 XXX
015 D01AA33 KOREA
015 E04AA33 X
015 A00AA34 HONGKONG BANK MALAYSIA BERHAD
015 B00AA34 S
015 C01AA34 XXX
015 D01AA34 MALAYSIA
015 E04AA34 X
015 A00AA35 CITIBANK, MEXICO, S.A.
015 B00AA35 S
015 C01AA35 XXX
015 D01AA35 MEXICO
015 E04AA35 X
015 A00AA36 BANQUE MAROCAINE DU COMMERCE EXTERIEUR
015 B00AA36 S
015 C01AA36 XXX
015 D01AA36 MOROCCO
015 E04AA36 X
015 A00AA37 ABN-AMRO BANK
015 B00AA37 S
015 C01AA37 XXX
015 D01AA37 NETHERLANDS
015 E04AA37 X
015 A00AA38 NATIONAL AUSTRALIA BANK LTD., AUCKLAND
015 B00AA38 S
<PAGE> PAGE 6
015 C01AA38 XXX
015 D01AA38 NEW ZEALAND
015 E04AA38 X
015 A00AA39 DEN NORSKE BANK
015 B00AA39 S
015 C01AA39 XXX
015 D01AA39 NORWAY
015 E04AA39 X
015 A00AA40 STANDARD CHARTERED BANK, KARACHI
015 B00AA40 S
015 C01AA40 XXX
015 D01AA40 PAKISTAN
015 E04AA40 X
015 A00AA41 CITIBANK, N.A., LIMA
015 B00AA41 S
015 C01AA41 XXX
015 D01AA41 PERU
015 E04AA41 X
015 A00AA42 CITIBANK, N.A., MANILA
015 B00AA42 S
015 C01AA42 XXX
015 D01AA42 PHILIPPINES
015 E04AA42 X
015 A00AA43 CITIBANK (POLAND), S.A. FOR CITIBANK, N.A.
015 B00AA43 S
015 C01AA43 XXX
015 D01AA43 POLAND
015 E04AA43 X
015 A00AA44 BANCO ESPIRITO SANTO E COMERCIAL DE LISBOA SA
015 B00AA44 S
015 C01AA44 XXX
015 D01AA44 PORTUGAL
015 E04AA44 X
015 A00AA45 HONGKONG & SHANGHAI BANKING CORP. LTD.
015 B00AA45 S
015 C01AA45 XXX
015 D01AA45 SINGAPORE
015 E04AA45 X
015 A00AA46 CESKOSLOVENSKA OBCHODNA BANKA A.S.,BRATISLAVA
015 B00AA46 S
015 C01AA46 XXX
015 D01AA46 SLOVAKIA
015 E04AA46 X
015 A00AA47 FIRST NATIONAL BANK OF SOUTHERN AFRICA
015 B00AA47 S
015 C01AA47 XXX
015 D01AA47 SOUTH AFRICA
015 E04AA47 X
015 A00AA48 BANCO SANTANDER
015 B00AA48 S
015 C01AA48 XXX
<PAGE> PAGE 7
015 D01AA48 SPAIN
015 E04AA48 X
015 A00AA49 HONGKONG & SHANGHAI BANKING CORP. LTD,COLOMBO
015 B00AA49 S
015 C01AA49 XXX
015 D01AA49 SRI LANKA
015 E04AA49 X
015 A00AA50 BARCLAYS BANK OF SWAZILAND LIMITED
015 B00AA50 S
015 C01AA50 XXX
015 D01AA50 SWAZILAND
015 E04AA50 X
015 A00AA51 SKANDINAVISKA ENSKILDA BANKEN
015 B00AA51 S
015 C01AA51 XXX
015 D01AA51 SWEDEN
015 E04AA51 X
015 A00AA52 SWISS BANK CORPORATION
015 B00AA52 S
015 C01AA52 XXX
015 D01AA52 SWITZERLAND
015 E04AA52 X
015 A00AA53 CENTRAL TRUST OF CHINA
015 B00AA53 S
015 C01AA53 XXX
015 D01AA53 TAIWAN
015 E04AA53 X
015 A00AA54 HONGKONG & SHANGHAI BANKING CORP.LTD.,BANGKOK
015 B00AA54 S
015 C01AA54 XXX
015 D01AA54 THAILAND
015 E04AA54 X
015 A00AA55 CITIBANK, N.A., ISTANBUL
015 B00AA55 S
015 C01AA55 XXX
015 D01AA55 TURKEY
015 E04AA55 X
015 A00AA56 LLOYDS BANK PLC
015 B00AA56 S
015 C01AA56 XXX
015 D01AA56 UNITED KINGDOM
015 E04AA56 X
015 A00AA57 BANKBOSTON, N.A., MONTEVIDEO
015 B00AA57 S
015 C01AA57 XXX
015 D01AA57 URUGUAY
015 E04AA57 X
015 A00AA58 CITIBANK, N.A., CARACAS
015 B00AA58 S
015 C01AA58 XXX
015 D01AA58 VENEZUELA
<PAGE> PAGE 8
015 E04AA58 X
015 A00AA59 STANBIC BANK ZAMBIA LTD.
015 B00AA59 S
015 C01AA59 XXX
015 D01AA59 ZAMBIA
015 E04AA59 X
015 A00AA60 STANBIC BANK ZIMBABWE LTD.
015 B00AA60 S
015 C01AA60 XXX
015 D01AA60 ZIMBABWE
015 E04AA60 X
015 A00AA61 THE BANK OF NEW YORK
015 B00AA61 S
015 C01AA61 NEW YORK
015 C02AA61 NY
015 C03AA61 10015
015 E04AA61 X
015 A00AA62 STANDARD CHARTERED BANK, SHANGHAI
015 B00AA62 S
015 C01AA62 XXX
015 D01AA62 CHINA
015 E04AA62 X
018 00AA00 Y
019 A00AA00 Y
019 B00AA00 4
019 C00AA00 SCUDINSTFD
020 A000001 MORGAN STANLEY
020 B000001 13-2655998
020 C000001 6
020 A000002 UBS SECURITIES L.L.C.
020 B000002 13-3873456
020 C000002 5
020 A000003 LEHMAN BROTHERS, INC.
020 B000003 13-2518466
020 C000003 5
020 A000004 DEUTSCHE BANK A.G.
020 B000004 13-6124068
020 C000004 5
020 A000005 GOLDMAN SACHS
020 B000005 13-5108880
020 C000005 4
020 A000006 ING BARING SECURITIES INC.
020 C000006 4
020 A000007 EXANE S.A.
020 C000007 3
020 A000008 MERRILL LYNCH, PIERCE FENNER & SMITH, INC.
020 B000008 13-5674085
020 C000008 3
020 A000009 SALOMON BROTHERS, INC.
020 B000009 13-3082694
020 C000009 2
<PAGE> PAGE 9
020 A000010 SBC WARBURG, INC.
020 B000010 13-3340045
020 C000010 2
021 000000 64
022 A000001 WARTSILA
022 C000001 29994
022 D000001 400847
022 A000002 MERRILL LYNCH
022 B000002 13-5674085
022 C000002 95330
022 D000002 54160
022 A000003 NATIONS BANK OF NC
022 C000003 144260
022 D000003 976
022 A000004 WILLIAMS CAPITAL
022 B000004 13-3747879
022 C000004 130195
022 D000004 4592
022 A000005 SANWA-BGK SEC
022 B000005 13-3046258
022 C000005 76632
022 D000005 1589
022 A000006 PRUDENTIAL FUNDING
022 C000006 67378
022 D000006 0
022 A000007 THE FIRST BOSTON CORP.
022 B000007 13-5659485
022 C000007 63189
022 D000007 0
022 A000008 CANADIAN IMPERIAL
022 C000008 41872
022 D000008 14924
022 A000009 MESEROW
022 C000009 54849
022 D000009 0
022 A000010 DRESDNER
022 B000010 13-6172414
022 C000010 47913
022 D000010 5995
023 C000000 7042776
023 D000000 652686
024 00AA00 N
026 A000000 N
026 B000000 Y
026 C000000 Y
026 D000000 Y
026 E000000 Y
026 F000000 N
026 G010000 N
026 G020000 Y
026 H000000 N
<PAGE> PAGE 10
027 000000 Y
029 00AA00 N
030 A00AA00 0
030 B00AA00 0.00
030 C00AA00 0.00
034 00AA00 N
035 00AA00 0
036 B00AA00 0
037 00AA00 N
038 00AA00 0
039 00AA00 N
040 00AA00 N
042 A00AA00 0
042 B00AA00 0
042 C00AA00 0
042 D00AA00 0
042 E00AA00 0
042 F00AA00 0
042 G00AA00 0
042 H00AA00 0
043 00AA00 0
044 00AA00 0
055 A00AA00 Y
055 B00AA00 N
056 00AA00 Y
057 00AA00 N
058 A00AA00 N
059 00AA00 Y
060 A00AA00 Y
060 B00AA00 Y
061 00AA00 1000
077 A000000 Y
077 B000000 Y
077 C000000 Y
077 Q020000 Y
078 000000 N
080 A00AA00 ICI MUTUAL INSURANCE COMPANY
080 B00AA00 NATIONAL UNION FIRE INS. CO. OF PITTSBURGH
080 C00AA00 60000
081 A00AA00 Y
081 B00AA00 115
082 A00AA00 N
082 B00AA00 0
083 A00AA00 N
083 B00AA00 0
084 A00AA00 N
084 B00AA00 0
085 A00AA00 Y
085 B00AA00 N
025 D000101 0
025 D000102 0
<PAGE> PAGE 11
025 D000103 0
025 D000104 0
025 D000105 0
025 D000106 0
025 D000107 0
025 D000108 0
028 A010100 9327
028 A020100 50
028 A030100 0
028 A040100 24214
028 B010100 804
028 B020100 56
028 B030100 0
028 B040100 829
028 C010100 0
028 C020100 2
028 C030100 0
028 C040100 0
028 D010100 0
028 D020100 0
028 D030100 0
028 D040100 0
028 E010100 0
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028 E030100 0
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028 F010100 0
028 F020100 0
028 F030100 0
028 F040100 0
028 G010100 10131
028 G020100 108
028 G030100 0
028 G040100 25043
028 H000100 0
045 000100 Y
046 000100 N
047 000100 Y
048 000100 0.150
048 A010100 0
048 A020100 0.000
048 B010100 0
048 B020100 0.000
048 C010100 0
048 C020100 0.000
048 D010100 0
048 D020100 0.000
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048 E020100 0.000
048 F010100 0
048 F020100 0.000
<PAGE> PAGE 12
048 G010100 0
048 G020100 0.000
048 H010100 0
048 H020100 0.000
048 I010100 0
048 I020100 0.000
048 J010100 0
048 J020100 0.000
048 K010100 0
048 K020100 0.000
049 000100 N
050 000100 N
051 000100 N
052 000100 N
053 A000100 N
054 A000100 Y
054 B000100 Y
054 C000100 N
054 D000100 N
054 E000100 N
054 F000100 N
054 G000100 Y
054 H000100 Y
054 I000100 N
054 J000100 Y
054 K000100 N
054 L000100 N
054 M000100 Y
054 N000100 N
054 O000100 N
062 A000100 Y
062 B000100 0.0
062 C000100 0.0
062 D000100 0.0
062 E000100 0.0
062 F000100 0.0
062 G000100 0.0
062 H000100 0.0
062 I000100 0.0
062 J000100 0.0
062 K000100 0.0
062 L000100 0.0
062 M000100 0.0
062 N000100 0.0
062 O000100 0.0
062 P000100 0.0
062 Q000100 0.0
062 R000100 0.0
063 A000100 0
063 B000100 0.0
064 A000100 Y
<PAGE> PAGE 13
064 B000100 N
066 A000100 N
067 000100 N
068 A000100 N
068 B000100 N
069 000100 N
070 A010100 Y
070 A020100 N
070 B010100 N
070 B020100 N
070 C010100 N
070 C020100 N
070 D010100 N
070 D020100 N
070 E010100 N
070 E020100 N
070 F010100 N
070 F020100 N
070 G010100 N
070 G020100 N
070 H010100 N
070 H020100 N
070 I010100 N
070 I020100 N
070 J010100 Y
070 J020100 N
070 K010100 N
070 K020100 N
070 L010100 N
070 L020100 N
070 M010100 N
070 M020100 N
070 N010100 Y
070 N020100 N
070 O010100 N
070 O020100 N
070 P010100 Y
070 P020100 N
070 Q010100 N
070 Q020100 N
070 R010100 N
070 R020100 N
071 A000100 0
071 B000100 0
071 C000100 0
071 D000100 0
072 A000100 9
072 B000100 561
072 C000100 0
072 D000100 0
072 E000100 0
<PAGE> PAGE 14
072 F000100 16
072 G000100 0
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072 I000100 18
072 J000100 6
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073 A010100 0.0332
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074 A000100 539
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074 K000100 0
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074 M000100 0
074 N000100 539
074 O000100 0
074 P000100 16
074 Q000100 0
074 R010100 0
074 R020100 0
<PAGE> PAGE 15
074 R030100 0
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074 S000100 0
074 T000100 503
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075 A000100 14807
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025 D000201 0
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028 B040200 5601134
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028 G040200 5601134
028 H000200 0
<PAGE> PAGE 16
045 000200 Y
046 000200 N
047 000200 Y
048 000200 0.150
048 A010200 0
048 A020200 0.000
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048 H020200 0.000
048 I010200 0
048 I020200 0.000
048 J010200 0
048 J020200 0.000
048 K010200 0
048 K020200 0.000
049 000200 N
050 000200 N
051 000200 N
052 000200 N
053 A000200 N
054 A000200 Y
054 B000200 Y
054 C000200 N
054 D000200 N
054 E000200 N
054 F000200 N
054 G000200 Y
054 H000200 Y
054 I000200 N
054 J000200 Y
054 K000200 N
054 L000200 N
054 M000200 Y
054 N000200 N
054 O000200 N
062 A000200 Y
062 B000200 0.0
062 C000200 0.0
062 D000200 0.0
062 E000200 0.0
<PAGE> PAGE 17
062 F000200 0.0
062 G000200 0.0
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062 L000200 0.2
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062 O000200 0.0
062 P000200 0.0
062 Q000200 0.0
062 R000200 0.0
063 A000200 0
063 B000200 0.0
064 A000200 Y
064 B000200 N
066 A000200 N
067 000200 N
068 A000200 N
068 B000200 N
069 000200 N
070 A010200 Y
070 A020200 Y
070 B010200 N
070 B020200 N
070 C010200 N
070 C020200 N
070 D010200 N
070 D020200 N
070 E010200 N
070 E020200 N
070 F010200 N
070 F020200 N
070 G010200 N
070 G020200 N
070 H010200 N
070 H020200 N
070 I010200 N
070 I020200 N
070 J010200 Y
070 J020200 N
070 K010200 Y
070 K020200 N
070 L010200 N
070 L020200 N
070 M010200 N
070 M020200 N
070 N010200 Y
070 N020200 N
070 O010200 N
<PAGE> PAGE 18
070 O020200 N
070 P010200 Y
070 P020200 N
070 Q010200 N
070 Q020200 N
070 R010200 N
070 R020200 N
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<PAGE> PAGE 19
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<PAGE> PAGE 20
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<PAGE> PAGE 21
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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<PAGE> PAGE 24
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<PAGE> PAGE 25
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<PAGE> PAGE 26
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<PAGE> PAGE 27
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<PAGE> PAGE 28
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<PAGE> PAGE 29
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<PAGE> PAGE 30
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<PAGE> PAGE 31
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<PAGE> PAGE 32
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<PAGE> PAGE 33
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<PAGE> PAGE 34
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<PAGE> PAGE 35
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<PAGE> PAGE 36
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<PAGE> PAGE 37
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<PAGE> PAGE 38
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<PAGE> PAGE 39
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054 J000900 Y
054 K000900 N
054 L000900 N
054 M000900 Y
054 N000900 N
054 O000900 N
062 A000900 N
062 B000900 0.0
062 C000900 0.0
062 D000900 0.0
062 E000900 0.0
062 F000900 0.0
062 G000900 0.0
062 H000900 0.0
062 I000900 0.0
062 J000900 0.0
062 K000900 0.0
062 L000900 0.0
062 M000900 0.0
062 N000900 0.0
062 O000900 0.0
062 P000900 0.0
062 Q000900 0.0
062 R000900 0.0
063 A000900 0
063 B000900 0.0
066 A000900 Y
066 B000900 N
066 C000900 Y
066 D000900 N
066 E000900 N
066 F000900 N
066 G000900 N
<PAGE> PAGE 40
067 000900 N
068 A000900 N
068 B000900 Y
069 000900 N
070 A010900 Y
070 A020900 Y
070 B010900 Y
070 B020900 N
070 C010900 Y
070 C020900 N
070 D010900 Y
070 D020900 N
070 E010900 Y
070 E020900 N
070 F010900 Y
070 F020900 N
070 G010900 Y
070 G020900 N
070 H010900 Y
070 H020900 N
070 I010900 Y
070 I020900 N
070 J010900 Y
070 J020900 N
070 K010900 Y
070 K020900 N
070 L010900 Y
070 L020900 Y
070 M010900 Y
070 M020900 Y
070 N010900 N
070 N020900 N
070 O010900 N
070 O020900 N
070 P010900 Y
070 P020900 N
070 Q010900 N
070 Q020900 N
070 R010900 N
070 R020900 N
071 A000900 11904
071 B000900 11220
071 C000900 18066
071 D000900 62
072 A000900 12
072 B000900 63
072 C000900 307
072 D000900 0
072 E000900 0
072 F000900 173
072 G000900 0
<PAGE> PAGE 41
072 H000900 0
072 I000900 49
072 J000900 142
072 K000900 0
072 L000900 13
072 M000900 8
072 N000900 16
072 O000900 0
072 P000900 0
072 Q000900 0
072 R000900 35
072 S000900 31
072 T000900 0
072 U000900 6
072 V000900 0
072 W000900 9
072 X000900 482
072 Y000900 279
072 Z000900 168
072AA000900 472
072BB000900 0
072CC010900 970
072CC020900 0
072DD010900 199
072DD020900 0
072EE000900 170
073 A010900 0.1400
073 A020900 0.0000
073 B000900 0.1200
073 C000900 0.0000
074 A000900 3
074 B000900 1003
074 C000900 0
074 D000900 18210
074 E000900 0
074 F000900 0
074 G000900 0
074 H000900 0
074 I000900 0
074 J000900 50
074 K000900 106
074 L000900 27
074 M000900 20
074 N000900 19419
074 O000900 99
074 P000900 0
074 Q000900 0
074 R010900 0
074 R020900 0
074 R030900 0
074 R040900 98
<PAGE> PAGE 42
074 S000900 0
074 T000900 19222
074 U010900 1441
074 U020900 0
074 V010900 13.34
074 V020900 0.00
074 W000900 0.0000
074 X000900 300
074 Y000900 0
075 A000900 0
075 B000900 19490
076 000900 0.00
SIGNATURE THOMAS F. MCDONOUGH
TITLE VICE PRESIDENT
nstitutional International Equity Portfolio/Barrett International Shares
Stockholder Meeting Results
December 31, 1997
A Special Meeting of Stockholders (the "Meeting") of Institutional International
Equity Portfolio ("International Equity Portfolio") was held on October 23,
1997, at the offices of Scudder Kemper Investments, Inc. (formerly Scudder,
Stevens & Clark, Inc.), 25th Floor, 345 Park Avenue (at 51st Street), New York,
New York 10154. The following matters were voted upon by the stockholders (the
resulting votes for each matter are presented below).
1. To approve an Agreement and Plan of Reorganization.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,386,319 0 0 0
2. To approve the new Investment Management Agreement between International
Equity Portfolio and Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,386,319 0 0 0
3. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Dr. Rosita P. Chang 1,386,319 0
Edgar R. Fiedler 1,386,319 0
Peter B. Freeman 1,386,319 0
Dr. J. D. Hammond 1,386,319 0
Richard M. Hunt 1,386,319 0
25
<PAGE>
4. To ratify the selection of Price Waterhouse LLP as the independent
accountants for the International Equity Portfolio's current fiscal year.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
1,386,319 0 0
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
26
Scudder Institutional Fund, Inc.
345 Park Avenue
New York, New York 10154
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Institutional International Equity Portfolio
Ladies and Gentlemen:
Scudder Institutional Fund, Inc. (the "Corporation") has been
established as a Maryland corporation to engage in the business of an investment
company. Pursuant to the Corporation's Articles of Incorporation, as amended
from time-to-time (the "Articles"), the Board of Directors has divided the
Corporation's shares of capital stock, par value $0.001 per share, (the
"Shares") into separate series, or portfolios, including Institutional
International Equity Portfolio (the "Portfolio"). Series may be abolished and
dissolved, and additional series established, from time to time by action of the
Directors.
The Corporation, on behalf of the Portfolio, has selected you to act as
the sole investment manager of the Portfolio and to provide certain other
services, as more fully set forth below, and you have indicated that you are
willing to act as such investment manager and to perform such services under the
terms and conditions hereinafter set forth. Accordingly, the Corporation on
behalf of the Portfolio agrees with you as follows:
1. Delivery of Documents. The Corporation engages in the business of
investing and reinvesting the assets of the Portfolio in the manner and in
accordance with the investment objectives, policies and restrictions specified
in the currently effective Prospectus (the "Prospectus") and Statement of
Additional Information (the "SAI") relating to the Portfolio included in the
Corporation's Registration Statement on Form N-1A, as amended from time to time,
(the "Registration Statement") filed by the Corporation under the Investment
Company Act of 1940, as amended, (the "1940 Act") and the Securities Act of
1933, as amended. Copies of the documents referred to in the preceding sentence
have been furnished to you by the Corporation. The Corporation has also
furnished you with copies properly certified or authenticated of each of the
following additional documents related to the Corporation and the Portfolio:
(a) The Articles dated January 2, 1986, as amended to date.
(b) By-Laws of the Corporation as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Directors of the Corporation and the shareholders of
the Portfolio selecting you as investment manager and approving the form
of this Agreement.
<PAGE>
The Corporation will furnish you from time to time with copies,
properly certified or authenticated, of all amendments of or supplements, if
any, to the foregoing, including the Prospectus, the SAI and the Registration
Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of
the rights to use and sublicense the use of the "Scudder," "Scudder Kemper
Investments, Inc." and "Scudder, Stevens & Clark, Inc." trademarks (together,
the "Scudder Marks"), you hereby grant the Corporation a nonexclusive right and
sublicense to use (i) the "Scudder" name and mark as part of the Corporation's
name (the "Portfolio Name"), and (ii) the Scudder Marks in connection with the
Corporation's investment products and services, in each case only for so long as
this Agreement, any other investment management agreement between you (or any
organization which shall have succeeded to your business as investment manager
("your Successor")) and the Corporation, or any extension, renewal or amendment
hereof or thereof remains in effect, and only for so long as you are a licensee
of the Scudder Marks, provided however, that you agree to use your best efforts
to maintain your license to use and sublicense the Scudder Marks. The
Corporation agrees that it shall have no right to sublicense or assign rights to
use the Scudder Marks, shall acquire no interest in the Scudder Marks other than
the rights granted herein, that all of the Corporation's uses of the Scudder
Marks shall inure to the benefit of Scudder Trust Company as owner and licensor
of the Scudder Marks (the "Trademark Owner"), and that the Corporation shall not
challenge the validity of the Scudder Marks or the Trademark Owner's ownership
thereof. The Corporation further agrees that all services and products it offers
in connection with the Scudder Marks shall meet commercially reasonable
standards of quality, as may be determined by you or the Trademark Owner from
time to time, provided that you acknowledge that the services and products the
Corporation rendered during the one-year period preceding the date of this
Agreement are acceptable. At your reasonable request, the Corporation shall
cooperate with you and the Trademark Owner and shall execute and deliver any and
all documents necessary to maintain and protect (including but not limited to in
connection with any trademark infringement action) the Scudder Marks and/or
enter the Corporation as a registered user thereof. At such time as this
Agreement or any other investment management agreement shall no longer be in
effect between you (or your Successor) and the Corporation, or you no longer are
a licensee of the Scudder Marks, the Corporation shall (to the extent that, and
as soon as, it lawfully can) cease to use the Portfolio Name or any other name
indicating that it is advised by, managed by or otherwise connected with you (or
your Successor) or the Trademark Owner. In no event shall the Corporation use
the Scudder Marks or any other name or mark confusingly similar thereto
(including, but not limited to, any name or mark that includes the name
"Scudder") if this Agreement or any other investment advisory agreement between
you (or your Successor) and the Portfolio is terminated.
3. Portfolio Management Services. As manager of the assets of the
Portfolio, you shall provide continuing investment management of the assets of
the Portfolio in accordance with the investment objectives, policies and
restrictions set forth in the Prospectus and SAI; the applicable provisions of
the 1940 Act and the Internal Revenue Code of 1986, as amended, (the "Code")
relating to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and regulations of
which you have knowledge; subject always to policies and instructions adopted by
the Corporation's Board of Directors. In connection therewith, you shall use
reasonable efforts to manage the Portfolio so that it will qualify as a
regulated investment company under Subchapter M of the Code and regulations
issued thereunder. The Portfolio shall have the benefit of the investment
analysis and research, the review of current economic conditions and trends and
the consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Portfolio in accordance with the
requirements set forth in this section 3, you shall be entitled to receive and
act upon advice of counsel to the Corporation or counsel to you. You shall also
make available to the Corporation promptly upon request all of the Portfolio's
investment records and ledgers as are necessary to assist the Corporation in
2
<PAGE>
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Corporation are being conducted in a
manner consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Portfolio and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Portfolio policies as expressed in the Registration Statement. You shall
determine what portion of the Portfolio's portfolio shall be invested in
securities and other assets and what portion, if any, should be held uninvested.
You shall furnish to the Corporation's Board of Directors periodic
reports on the investment performance of the Portfolio and on the performance of
your obligations pursuant to this Agreement, and you shall supply such
additional reports and information as the Corporation's officers or Board of
Directors shall reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Portfolio such office space and facilities in the United States as
the Portfolio may require for its reasonable needs, and you (or one or more of
your affiliates designated by you) shall render to the Corporation
administrative services on behalf of the Portfolio necessary for operating as an
open-end investment company and not provided by persons not parties to this
Agreement including, but not limited to, preparing reports to and meeting
materials for the Corporation's Board of Directors and reports and notices to
Portfolio shareholders; supervising, negotiating contractual arrangements with,
to the extent appropriate, and monitoring the performance of, accounting agents,
custodians, depositories, transfer agents and pricing agents, accountants,
attorneys, printers, underwriters, brokers and dealers, insurers and other
persons in any capacity deemed to be necessary or desirable to Portfolio
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Portfolio's transfer agent; assisting in the
preparation and filing of the Portfolio's federal, state and local tax returns;
preparing and filing the Portfolio's federal excise tax return pursuant to
Section 4982 of the Code; providing assistance with investor and public
relations matters; monitoring the valuation of portfolio securities and the
calculation of net asset value; monitoring the registration of Shares of the
Portfolio under applicable federal and state securities laws; maintaining or
causing to be maintained for the Portfolio all books, records and reports and
any other information required under the 1940 Act, to the extent that such
books, records and reports and other information are not maintained by the
Portfolio's custodian or other agents of the Portfolio; assisting in
establishing the accounting policies of the Portfolio; assisting in the
resolution of accounting issues that may arise with respect to the Portfolio's
operations and consulting with the Portfolio's independent accountants, legal
counsel and the Portfolio's other agents as necessary in connection therewith;
establishing and monitoring the Portfolio's operating expense budgets; reviewing
the Portfolio's bills; processing the payment of bills that have been approved
by an authorized person; assisting the Portfolio in determining the amount of
dividends and distributions available to be paid by the Portfolio to its
shareholders, preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Corporation as it may reasonably request in the conduct of the
3
<PAGE>
Portfolio's business, subject to the direction and control of the Corporation's
Board of Directors. Nothing in this Agreement shall be deemed to shift to you or
to diminish the obligations of any agent of the Portfolio or any other person
not a party to this Agreement which is obligated to provide services to the
Portfolio.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Directors, officers and executive employees of the Corporation (including the
Portfolio's share of payroll taxes) who are affiliated persons of you, and you
shall make available, without expense to the Portfolio, the services of such of
your directors, officers and employees as may duly be elected officers of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law. You shall provide at your expense the portfolio management
services described in section 3 hereof and the administrative services described
in section 4 hereof.
You shall not be required to pay any expenses of the Portfolio other
than those specifically allocated to you in this section 5. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of the Portfolio's
Directors and officers as are directors, officers or employees of you whose
services may be involved, for the following expenses of the Portfolio:
organization expenses of the Portfolio (including out-of-pocket expenses, but
not including your overhead or employee costs); fees payable to you and to any
other Portfolio advisors or consultants; legal expenses; auditing and accounting
expenses; maintenance of books and records which are required to be maintained
by the Portfolio's custodian or other agents of the Corporation; telephone,
telex, facsimile, postage and other communications expenses; taxes and
governmental fees; fees, dues and expenses incurred by the Portfolio in
connection with membership in investment company trade organizations; fees and
expenses of the Portfolio's accounting agent, custodians, subcustodians,
transfer agents, dividend disbursing agents and registrars; payment for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates and,
except as provided below in this section 5, other expenses in connection with
the issuance, offering, distribution, sale, redemption or repurchase of
securities issued by the Portfolio; expenses relating to investor and public
relations; expenses and fees of registering or qualifying Shares of the
Portfolio for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Portfolio's portfolio securities; the compensation and all expenses
(specifically including travel expenses relating to Corporation business) of
Directors, officers and employees of the Corporation who are not affiliated
persons of you; brokerage commissions or other costs of acquiring or disposing
of any portfolio securities of the Portfolio; expenses of printing and
distributing reports, notices and dividends to shareholders; expenses of
printing and mailing Prospectuses and SAIs of the Portfolio and supplements
thereto; costs of stationery; any litigation expenses; indemnification of
Directors and officers of the Corporation; costs of shareholders' and other
meetings; and travel expenses (or an appropriate portion thereof) of Directors
and officers of the Corporation who are directors, officers or employees of you
to the extent that such expenses relate to attendance at meetings of the Board
of Directors of the Corporation or any committees thereof or advisors thereto
held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Portfolio if and to the
extent that (i) such expenses are required to be borne by a principal
underwriter which acts as the distributor of the Portfolio's Shares pursuant to
an underwriting agreement which provides that the underwriter shall assume some
or all of such expenses, or (ii) the Corporation on behalf of the Portfolio
shall have adopted a plan in conformity with Rule 12b-1 under the 1940 Act
providing that the Portfolio (or some other party) shall assume some or all of
such expenses. You shall be required to pay such of the foregoing sales expenses
as are not required to be paid by the principal underwriter pursuant to the
4
<PAGE>
underwriting agreement or are not permitted to be paid by the Portfolio (or some
other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Corporation on behalf of the Portfolio shall pay you in United States Dollars on
the last day of each month the unpaid balance of a fee equal to the excess of
1/12 of 0.90 of 1 percent of the average daily net assets as defined below of
the Portfolio for such month over any compensation waived by you from time to
time (as more fully described below). You shall be entitled to receive during
any month such interim payments of your fee hereunder as you shall request,
provided that no such payment shall exceed 75 percent of the amount of your fee
then accrued on the books of the Portfolio and unpaid.
The "average daily net assets" of the Portfolio shall mean the average
of the values placed on the Portfolio's net assets as of 4:00 p.m. (New York
time) on each day on which the net asset value of the Portfolio is determined
consistent with the provisions of Rule 22c-1 under the 1940 Act or, if the
Portfolio lawfully determines the value of its net assets as of some other time
on each business day, as of such time. The value of the net assets of the
Portfolio shall always be determined pursuant to the applicable provisions of
the Articles and the Registration Statement. If the determination of net asset
value does not take place for any particular day, then for the purposes of this
section 6, the value of the net assets of the Portfolio as last determined shall
be deemed to be the value of its net assets as of 4:00 p.m. (New York time), or
as of such other time as the value of the net assets of the Portfolio's
portfolio may be lawfully determined on that day. If the Portfolio determines
the value of the net assets of its portfolio more than once on any day, then the
last such determination thereof on that day shall be deemed to be the sole
determination thereof on that day for the purposes of this section 6.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Portfolio's expenses, as
if such waiver or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Portfolio, neither you nor any of your directors,
officers or employees shall act as a principal or agent or receive any
commission. You or your agent shall arrange for the placing of all orders for
the purchase and sale of portfolio securities and other investments for the
Portfolio's account with brokers or dealers selected by you in accordance with
Portfolio policies as expressed in the Registration Statement. If any occasion
should arise in which you give any advice to clients of yours concerning the
Shares of the Portfolio, you shall act solely as investment counsel for such
clients and not in any way on behalf of the Portfolio.
Your services to the Portfolio pursuant to this Agreement are not to be
deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Corporation. Whenever
the Portfolio and one or more other accounts or investment companies advised by
the Manager have available Portfolios for investment, investments suitable and
appropriate for each shall be allocated in accordance with procedures believed
by the Manager to be equitable to each entity. Similarly, opportunities to sell
securities shall be allocated in a manner believed by the Manager to be
equitable. The Portfolio recognizes that in some cases this procedure may
5
<PAGE>
adversely affect the size of the position that may be acquired or disposed of
for the Portfolio.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Corporation
agrees that you shall not be liable under this Agreement for any error of
judgment or mistake of law or for any loss suffered by the Portfolio in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect you
against any liability to the Corporation, the Portfolio or its shareholders to
which you would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties, or by reason of your
reckless disregard of your obligations and duties hereunder. Any person, even
though also employed by you, who may be or become an employee of and paid by the
Portfolio shall be deemed, when acting within the scope of his or her employment
by the Portfolio, to be acting in such employment solely for the Portfolio and
not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall
remain in force until July 31, 1998, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Directors who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Directors of the Corporation, or by the vote of a majority of the
outstanding voting securities of the Portfolio. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Portfolio at any
time, without the payment of any penalty, by the vote of a majority of the
outstanding voting securities of the Portfolio or by the Corporation's Board of
Directors on 60 days' written notice to you, or by you on 60 days' written
notice to the Corporation. This Agreement shall terminate automatically in the
event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
6
<PAGE>
This Agreement shall be construed in accordance with the laws of the
State of Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, or in a manner which would cause the Portfolio
to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Corporation on behalf of
the Portfolio.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Corporation, whereupon this letter shall become a binding
contract effective as of the date of this Agreement.
Yours very truly,
SCUDDER INSTITUTIONAL FUND, INC., on
behalf of
Institutional International Equity Portfolio
By: ______________________________
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: ______________________________
Managing Director
7
PROPOSAL 1: APPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION
The Board of Directors of Institutional Fund Inc., including all of the
Directors who are not "interested persons" of Institutional Fund Inc. (as
defined in the 1940 Act) (the "Non- interested Directors"), approved on August
6, 1997 an Agreement and Plan of Reorganization dated as of September 18, 1997
(the "Reorganization Agreement"). Subject to its approval by the stockholders of
the International Equity Portfolio, the Reorganization Agreement provides for
(a) the transfer of all or substantially all of the assets and all of the
identified and stated liabilities of the International Equity Portfolio to
International Fund, a series of shares of common stock of International Fund
Inc., in exchange solely for Barrett Shares of the International Fund; (b) the
distribution of such Barrett Shares to the stockholders of the International
Equity Portfolio in complete liquidation of the International Equity Portfolio;
and (c) the deregistration of Institutional Fund Inc. as an investment company
under the 1940 Act and its termination under state law (the "Reorganization").
As a result of the Reorganization, each stockholder of the International
Equity Portfolio will become a stockholder of the International Fund and will
hold, immediately after the closing of the Reorganization (the "Closing"), that
number of full and fractional Barrett Shares of the International Fund having an
aggregate net asset value equal to the aggregate net asset value of such
stockholder's shares held in the International Equity Portfolio as of the close
of business on the business day preceding the Closing. The investment objective,
policies and restrictions of the Barrett Shares class of International Fund will
be substantially similar to those of the International Equity Portfolio at the
time of the Closing.
A copy of the Reorganization Agreement is attached to this Proxy
Statement/Prospectus as Exhibit C, and the description of the Reorganization
Agreement which follows is qualified in its entirety by reference to Exhibit C.
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete information contained elsewhere in this Proxy Statement/Prospectus, the
Prospectus of the International Fund, the Prospectus of the International Equity
Portfolio and the Reorganization Agreement, which is attached to this Proxy
Statement/Prospectus as Exhibit C. Stockholders should read this entire Proxy
Statement/Prospectus carefully.
The Proposed Reorganization. The Board of Directors of Institutional Fund
Inc., including a majority of the Non- interested Directors, has approved the
Reorganization Agreement pursuant to which all or substantially all of the
assets of the International Equity Portfolio would be acquired by the
International Fund, in exchange solely for Barrett Shares of the International
Fund and the assumption by the International Fund of all of the identified and
stated liabilities of the International Equity Portfolio. Barrett Shares of the
International Fund thereby received would then be distributed to the
stockholders of the International Equity Portfolio in liquidation of the
International Equity Portfolio, and Institutional Fund Inc. would then be
deregistered as an investment company under the 1940 Act and terminated under
applicable state law. As a result of the Reorganization, each stockholder of the
International Equity Portfolio would become a stockholder of the International
Fund and would hold, immediately after the Closing, that number of full and
fractional Barrett Shares of the International Fund having an aggregate net
asset
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value equal to the aggregate net asset value of such stockholder's shares
held in the International Equity Portfolio as of the close of business on the
business day preceding the Closing.
The exchange of all or substantially all of the International Equity
Portfolio's assets for Barrett Shares of International Fund and the assumption
of all of the identified and stated liabilities of the International Equity
Portfolio by the International Fund are expected to occur on December 15, 1997,
or on such later date as the parties may agree in writing (the "Closing Date").
For the reasons set forth below under "The Proposed Transaction - Reasons
for the Proposed Transaction," the Board of Directors of Institutional Fund
Inc., including the Non- interested Directors, has concluded that the
Reorganization is in the best interests of the International Equity Portfolio
and its stockholders and that the interests of stockholders of the International
Equity Portfolio will not be diluted as a result of the transactions
contemplated by the Reorganization Agreement. Accordingly, the Board of
Directors recommends approval of the Reorganization Agreement. If the
Reorganization Agreement is not approved, the International Equity Portfolio
will continue in existence, unless the Board of Directors advocates other
action, which may include the termination and liquidation of the International
Equity Portfolio.
Approval of the Reorganization Agreement with respect to the International
Equity Portfolio requires the affirmative vote of the holders of a majority of
the shares of stock of the International Equity Portfolio outstanding and
entitled to vote thereon.
Form of Organization. The International Fund is a diversified series of
International Fund Inc., an open-end management investment company registered
under the 1940 Act. International Fund Inc. is a Maryland corporation whose
predecessor was organized in 1953. International Fund Inc. offers five (5) other
existing portfolios, none of which is involved in the Reorganization: Scudder
Emerging Markets Growth Fund, Scudder Greater Europe Growth Fund, Scudder
International Growth and Income Fund, Scudder Latin America Fund and Scudder
Pacific Opportunities Fund. The International Equity Portfolio is a diversified
series of Institutional Fund Inc., an open-end management investment company
registered under the 1940 Act. Institutional Fund Inc. was formed as a
corporation on January 2, 1986 under the laws of the State of Maryland.
Investment Objectives and Policies. Each of the International Fund and the
International Equity Portfolio (each also referred to herein as a "Fund" and
collectively the "Funds") seeks long-term growth of capital primarily through a
diversified portfolio of marketable foreign equity securities. These securities
are selected primarily to permit each Fund to participate in non-United States
companies and economies with prospects for growth. Each Fund invests in
companies, wherever organized, which do business primarily outside the United
States. Each Fund 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 in the case of the
International Equity Portfolio, and not less than three different countries in
the case of the International Fund.
The International Fund generally invests in equity securities of
established companies, listed on foreign exchanges, which the Investment Manager
believes have favorable characteristics. When the Investment Manager believes
that it is appropriate to do so in order to achieve the International Fund's
investment objective of long-term capital growth, the International Fund may
invest up to 20% of its total assets in debt securities. The International Fund
may purchase "investment- grade" bonds, which are those rated Aaa, Aa, A or Baa
by Moody's Investor Services, Inc. ("Moody's") or AAA, AA, A or BBB by Standard
& Poor's Corporation ("S&P") or, if unrated, judged by the Investment Manager to
be of equivalent quality. The International Fund may also invest up to 5% of its
total assets in debt securities which are rated below investment grade.
The International Equity Portfolio generally invests at least 90% of its
total assets in equity securities of established companies, listed on foreign
exchanges, which the Investment Manager believes have favorable characteristics.
When the Investment Manager believes that it is appropriate to do so in order to
achieve the International Equity Portfolio's investment objective of long-term
capital growth, the International Equity Portfolio may invest up to 10% of its
total assets in debt securities. The International Equity 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 by
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the Investment Manager to be of equivalent quality. The International
Equity Portfolio may also invest up to 5% of its total assets in debt securities
which are rated below investment grade.
When the Investment Manager determines that exceptional conditions exist
abroad, each Fund 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. See "Special Considerations and Risk Factors" and "Comparison
of Policies and Restrictions" below.
Fees and Expenses. The International Fund retains as its investment manager
the investment management firm of Scudder, Stevens & Clark, Inc., a Delaware
corporation located at 345 Park Avenue, New York, New York 10154, to manage its
daily investment and business affairs subject to the policies established by the
Directors of International Fund Inc. The management fee payable under the
current Investment Management Agreement for International Fund is equal to an
annual rate of 0.90% on the first $500 million of average daily net assets,
0.85% of such assets in excess of $500 million, 0.80% of such assets in excess
of $1 billion, 0.75% of such assets in excess of $2 billion and 0.70% of such
assets in excess of $3 billion. The International Fund's fee is graduated so
that increases in the Fund's net assets may result in a lower fee rate and
decreases in the Fund's net assets may result in a higher fee rate. The fee is
payable monthly, provided the Fund will make such interim payments as may be
requested by the Investment Manager not to exceed 75% of the amount of the fee
then accrued on the books of the Fund and unpaid. The fee is higher than that
charged to many funds which invest primarily in U.S. securities, but not
necessarily higher than the fees charged to funds with investment objectives
similar to that of the International Fund. As of March 31, 1997, the
International Fund had total net assets of $2,583,030,686. The total fees
incurred by the International Fund to the Investment Manager for the fiscal year
ended March 31, 1997 were $20,989,160, which includes fees paid under the
International Fund's investment management agreement which was in effect prior
to September 5, 1996.
For the fiscal year ended March 31, 1997, the International Fund's total
expense ratio (total annual operating expenses as a percentage of average net
assets) was 1.15%. The Investment Manager projects that after the proposed
Reorganization is effected, the expense ratio of the Barrett Shares class of the
International Fund will be approximately 1.10%. The actual expense ratio for the
Barrett Shares class of International Fund for the fiscal years ending March 31,
1998 and March 31, 1999 may be higher or lower than 1.10% depending upon the
International Fund's performance, general stock market and economic conditions,
sales and redemptions of International Fund shares (including redemptions by
former International Equity Portfolio stockholders), and other factors.
The International Equity Portfolio also retains the Investment Manager to
manage its daily investment and business affairs subject to the policies
established by the Directors of Institutional Fund Inc. The management fee
payable under the current Investment Management Agreement for International
Equity Portfolio is equal to an annual rate of .90% of the Fund's average daily
net assets. The fee is payable monthly, provided the Fund will make such interim
payments as may be requested by the Investment Manager not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than that charged to many funds which invest primarily in U.S.
securities, but not necessarily higher than the fees charged to funds with
investment objectives similar to that of the International Equity Portfolio. As
of March 31, 1997, the International Equity Portfolio had total net assets of
$18,323,531. For the period April 3, 1996 (commencement of operations) to
December 31, 1996, the Investment Manager did not impose any of its fee
amounting to $104,861.
For the fiscal year ended December 31, 1996, the International Equity
Portfolio's total expense ratio (total annual operating expenses as a percentage
of average net assets) was 0.95%, including waivers and reimbursements. The
International Equity Portfolio's estimated total expense ratio for the fiscal
year ended December 31, 1997 includes an investment management fee of 0.00%,
Rule 12b-1 fees of 0.00% and other expenses of 1.04%, including waivers and
reimbursements.
Until July 31, 1997, the Investment Manager had agreed to waive its
investment management fee and reimburse other expenses to the extent necessary
so that the total annualized expenses of the International Equity Portfolio did
not exceed 0.95% of average daily net assets. Effective August 1, 1997 through
December 31, 1997, the Investment Manager has agreed to waive its
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management fee and reimburse other expenses to the extent necessary so that the
total annualized expenses of the International Equity Portfolio do not exceed
1.15% of average daily net assets. If the Investment Manager had not agreed to
waive its fee and reimburse other expenses, it is estimated that the annualized
expenses of the International Equity Portfolio would be: investment management
fee 0.90%, other expenses 1.36% and total operating expenses 2.26% for the
fiscal year ended December 31, 1997. Estimated expenses for the fiscal year
ended December 31, 1997 include the effect of a new transfer agency fee which
took effect July 1, 1997. The Investment Manager is not obligated to continue
its fee waivers and expense reimbursements after December 31, 1997. As
demonstrated by the table below, stockholders of the International Equity
Portfolio may experience an increase in expenses with respect to the Barrett
Class of shares of International Fund received pursuant to the Reorganization.
The current expenses of each Fund and pro forma expenses following the
proposed restructuring are outlined below:
Annual Fund Operating Expenses (as a percentage of average net assets)1
International International Pro Forma
Equity Fund (Barrett
Portfolio Shares)
Investment Management 0.00% 0.82% 0.82%
Fee
12b-1 Fees NONE NONE NONE
Other Expenses 0.95% 0.33% 0.28%
---- ---- ----
Total Fund Operating 0.95% 2 1.15% 1.10%
Expenses
1 The percentages in the above table expressing annual fund operating
expenses for the International Equity Portfolio and the International Fund
are based on amounts incurred during the year ended March 31, 1997,
International Fund's most recent fiscal year end.
2 Until July 31, 1997, the Investment Manager had agreed to waive its
investment management fee and reimburse other expenses to the extent
necessary so that the total annualized expenses of the International Equity
Portfolio did not exceed 0.95% of average daily net assets. If the
Investment Manager had not agreed to waive its fee and reimburse other
expenses for the period ended March 31, 1997, annualized expenses of the
International Equity Portfolio would be: investment management fee 0.90%,
other expenses 1.54% and total operating expenses 2.44%.
Example. Based on the level of total operating expenses for each of the
Funds listed in the table above for the year ended March 31, 1997, 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 Fund before it distributes its net
investment income to stockholders. Actual expenses may be greater or less than
those shown. Federal regulations require the example to assume a 5% annual
return, but actual annual return will vary.
International International Pro Forma
Equity Portfolio Fund
1 Year $10 $12 $11
3 Years $30 $37 $35
5 Years $53 $63 $61
10 Years $117 $140 $134
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Purchase, Redemption, and Exchange Information. The purchase, redemption
and exchange procedures and privileges for the International Equity Portfolio
and the Barrett Shares class of the International Fund are substantially
similar, except as discussed below. For example:
There is a $1,000 minimum initial investment requirement in the
International Equity Portfolio and a minimum account size requirement of $1,000.
The minimum investment requirement may be waived or lowered. The minimum
subsequent investment required for the International Equity Portfolio is $1,000.
The Barrett Shares class of the International Fund will have a $25,000
minimum initial investment requirement and a $1,000 minimum subsequent
investment requirement, which may be changed by the Board of Directors.
Shareholders of the International Equity Portfolio receiving shares of stock of
the Barrett Shares class of the International Fund in connection with the
proposed Reorganization will not be subject to the $25,000 minimum initial
investment requirement.
The Barrett Shares of the International Fund will not be exchangeable with
other funds within the Scudder Family of Funds. Shares of the International
Equity Portfolio currently are not exchangeable with other funds within the
Scudder Family of Funds.
Dividends and Other Distributions. Each of the Funds intends to distribute
dividends from its net investment income and any net realized capital gains
after utilization of capital loss carryforwards, if any, in December to prevent
application of a 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 stockholders for federal income tax
purposes as if received on December 31 of the calendar year in which it is
declared. Dividends and distributions of each Fund will be invested in
additional shares of the Fund at net asset value and credited to the
stockholder's account on the payment date or, at the stockholder's election,
paid in cash.
If the Reorganization Agreement is approved by the International Equity
Portfolio's stockholders, then as soon as practicable before the Closing Date
the International Equity Portfolio will pay its stockholders a cash distribution
of all undistributed 1997 net investment income and undistributed realized net
capital gains.
Federal Income Tax Consequences of the Reorganization. The International
Fund and the International Equity Portfolio will have received an opinion of
Dechert Price & Rhoads, counsel to the International Equity Portfolio, to the
effect that the Reorganization will constitute a tax-free reorganization within
the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Reorganization constitutes a tax-free
reorganization, no gain or loss will be recognized by the International Equity
Portfolio or its stockholders as a result of the Reorganization. See "The
Proposed Transaction - Tax Considerations."
SPECIAL CONSIDERATIONS AND RISK FACTORS
The principal investment risk of an investment in either the International
Equity Portfolio or the International Fund is fluctuations in the net asset
value of the Fund's shares. Portfolio management, market conditions, use of
investment policies, and other factors affect such fluctuations. Although the
investment objectives, policies and restrictions of the International Equity
Portfolio and the International Fund are substantially similar, there are
differences between them, which differences are outlined below. There can be no
assurance that either Fund will achieve its stated objective.
Comparison of Objectives. The principal investment objective of each of the
International Fund and the International Equity Portfolio is long-term growth of
capital primarily through a diversified portfolio of marketable foreign equity
securities.
Comparison of Policies and Restrictions. The securities in which the Funds
invest are selected primarily to permit each Fund to participate in non-United
States companies and economies with prospects for growth. Each Fund invests in
companies, wherever
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organized, which do business primarily outside the United States. Each Fund
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 in the case of the International Equity Portfolio,
and not less than three different countries in the case of the International
Fund.
The International Fund generally invests in equity securities of
established companies, listed on foreign exchanges, which the Investment Manager
believes have favorable characteristics. When the Investment Manager believes
that it is appropriate to do so in order to achieve the International Fund's
investment objective of long-term capital growth, the International Fund may
invest up to 20% of its total assets in debt securities. The International Fund
may purchase "investment- grade" bonds, which are those rated Aaa, Aa, A or Baa
by Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged by the Investment
Manager to be of equivalent quality. The International Fund may also invest up
to 5% of its total assets in debt securities which are rated below investment
grade.
The International Equity Portfolio generally invests at least 90% of its
total assets in equity securities of established companies, listed on foreign
exchanges, which the Investment Manager believes have favorable characteristics.
When the Investment Manager believes that it is appropriate to do so in order to
achieve the International Equity Portfolio's investment objective of long-term
capital growth, the International Equity Portfolio may invest up to 10% of its
total assets in debt securities. The International Equity 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 by the Investment Manager to be
of equivalent quality. The International Equity Portfolio may also invest up to
5% of its total assets in debt securities which are rated below investment
grade.
When the Investment Manager determines that exceptional conditions exist
abroad, each of the International Fund and the International Equity 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.
Primary Investments:
Foreign Securities. Each of the Funds invests primarily in foreign
securities. Investments in foreign securities involve special considerations due
to limited information, higher brokerage costs, different accounting standards,
thinner trading markets as compared to domestic markets and the likely impact of
foreign taxes on the income from securities. Such investments 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 governmental 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 Fund 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 a Fund'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. A Fund'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.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements. If the seller under a repurchase agreement becomes insolvent, a
Fund's right to dispose of the securities may be restricted, or the value of the
securities may decline before the Fund is able to dispose of them. In the event
of the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the securities before repurchase of the securities under a repurchase
agreement, a Fund may encounter delay and incur costs, including a decline in
the value of the securities, before being able to sell the securities.
Securities Lending. From time to time, International Fund may lend its
portfolio securities to registered broker/dealers as described above. The risks
of lending portfolio securities, as with other extensions of secured credit,
consist of possible
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delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. Loans will be made to registered broker/dealers deemed by the
Investment Manager to be in good standing and will not be made unless, in the
judgment of the Investment Manager, the consideration to be received in exchange
for such loans would justify the risk.
Debt Securities. Each of the Funds may, as described above, invest to a
limited extent in debt securities rated below investment grade, i.e. below Baa
by Moody's and 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. Each of the Funds 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 International Fund may invest up to 20% of its total
assets in debt securities. The International Equity Portfolio may invest up to
10% of total assets in debt securities. Each Fund may invest up to 5% of its
total assets in debt securities which are rated below investment grade ("junk
bonds").
Illiquid and Restricted Securities. Each of the Funds may invest in
illiquid and restricted securities. The absence of a trading market can make it
difficult to ascertain a market value for illiquid and restricted securities.
Disposing of illiquid and restricted securities may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for a Fund
to sell them promptly at an acceptable price. The risk factors involved in the
use of illiquid and restricted securities is substantially the same for each of
the Funds.
Strategic Transactions and Derivatives. From time to time, each of the
Funds may engage in 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 Investment Manager'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 a Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Fund can realize on its investments or cause
the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund's 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 transaction entails certain other risks. In particular, the variable
degree of correlation between price movements in the related portfolio position
of a Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund 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 the value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The risk factors involved in the use of
strategic transactions and derivatives is substantially the same for each of the
Funds.
Fundamental Policies. Each Fund has "fundamental" investment policies which
may be changed only with stockholder approval and "nonfundamental" investment
policies which may be changed only with the approval of a Fund's Board of
Directors. Following is a description of certain of the Funds' current
fundamental investment policies which are substantially similar:
Neither Fund may, 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.
Neither Fund may borrow money except as a temporary measure for
extraordinary or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset coverage of 300%
for all borrowings.
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Neither Fund may act as an underwriter of securities issued by others,
except to the extent that the Fund may be deemed an underwriter in connection
with the disposition of its portfolio securities.
Neither Fund may make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent that the entry into repurchase agreements and
the purchase of debt securities in accordance with the Fund's investment
objectives and investment policies may be deemed to be loans.
Neither Fund may purchase or sell real estate (except that each Fund 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 reserves
freedom of action to hold and to sell real estate acquired as a result of the
Fund's ownership of securities).
Neither Fund may purchase or sell physical commodities or contracts
relating to physical commodities.
Stockholders of the International Fund are being asked at a Special Meeting
of Stockholders on October 27, 1997 to approve certain changes to the
International Fund's fundamental investment restrictions. Except for the policy
on borrowing, none of the proposed policies differs from the International
Fund's current comparable policy in a material way. The current policy of
International Fund prohibits borrowing money, except as a temporary measure for
extraordinary or emergency purposes and except in connection with reverse
repurchase agreements; provided that the Fund maintains asset coverage of 300%
for all borrowings. Under its proposed borrowing policy, International Fund
would not be limited to borrowing for temporary or emergency purposes; however,
if the International Fund Inc. Directors determine with respect to International
Fund to permit borrowing for other purposes, which they currently do not intend
to do, the Fund's disclosure documents would be amended to disclose that fact.
Although the International Fund Inc. directors do not currently intend to permit
International Fund to borrow for investment leverage purposes, such borrowings
would increase the Fund's volatility and the risk of loss in a declining market.
Borrowings under reverse repurchase agreements are now permitted, and would be
permitted under the proposed policy. The 1940 Act requires borrowings to have
300% asset coverage, which requirement would, therefore, remain unchanged under
the proposed policy, except to the extent that reverse repurchase agreements
would not be subject, under the proposed policy, to the 300% asset coverage
requirement. Consequently, the proposed policy would permit International Fund
to engage in reverse repurchase agreements to a greater extent than under the
current policy. If approved, International Fund's foregoing policies would be
revised as follows.
International Fund will not:
(a) concentrate its investments in a particular industry, as that term is
used in the Investment Company Act of 1940, as amended and interpreted
by regulatory authority having jurisdiction from time to time;
(b) borrow money, except as permitted under the Investment Company Act of
1940, as amended and interpreted by regulatory authority having
jurisdiction from time to time;
(c) issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended and interpreted by regulatory
authority having jurisdiction from time to time;
(d) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;
(e) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;
(f) make loans to other persons, except (i) loans of portfolio securities,
and (ii) to the extent that entry into repurchase agreements and the
purchase of debt instruments or interests in indebtedness in
accordance with the Fund's investment objective and policies may be
deemed to be loans; or
(g) purchase physical commodities or contracts relating to physical
commodities.
In addition, International Fund will continue to be classified as a
diversified series of an open-end management investment company.
The nonfundamental investment restrictions of the International Equity
Portfolio and the International Fund are substantially similar, except as
described herein.
Description of the Reorganization Agreement. As stated above, the
Reorganization Agreement provides for the transfer of all or substantially all
of the assets of the International Equity Portfolio to the International Fund in
exchange for that number of full and fractional Barrett Shares in the
International Fund having an aggregate net asset value equal to the aggregate
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net asset value of each International Equity Portfolio stockholder's stock
held in the International Equity Portfolio as of the close of business on the
business day preceding the Closing. International Fund will assume all of the
identified and stated liabilities of the International Equity Portfolio. In
connection with the Closing, Institutional Fund Inc., on behalf of the
International Equity Portfolio, will distribute the shares of the International
Fund received in the exchange to the stockholders of the International Equity
Portfolio in complete liquidation of the International Equity Portfolio.
Institutional Fund Inc. will subsequently be deregistered as an investment
company under the 1940 Act and terminated under Maryland law.
Upon completion of the Reorganization, each stockholder of the
International Equity Portfolio will own that number of full and fractional
Barrett Shares in the International Fund having an aggregate net asset value
equal to the aggregate net asset value of such stockholder's stock held in the
International Equity Portfolio immediately as of the close of business on the
business day preceding the Closing. Each stockholder's account with Intenational
Fund Inc. will be identical in all material respects to the accounts currently
maintained by Institutional Fund Inc. for each stockholder. In the interest of
economy and convenience, shares of the International Equity Portfolio generally
are not represented by physical certificates, and shares of the International
Fund similarly generally will be in uncertificated form.
Until the closing, stockholders of the International Equity Portfolio will,
of course, continue to be able to redeem their shares at the net asset value
next determined after receipt by the International Equity Portfolio's Transfer
Agent of a redemption request in proper form. Redemption requests received by
Institutional Fund Inc. thereafter will be treated as requests received by
International Fund Inc. for the redemption of shares of the International Fund
received by the stockholder in the Reorganization.
The obligations of Institutional Fund Inc. and International Fund Inc.
under the Reorganization Agreement are subject to various conditions, as stated
therein. Among other things, the Reorganization requires that all filings be
made with, and all authority be received from, the SEC and state securities
commissions as may be necessary in the opinion of counsel to permit the parties
to carry out the transactions contemplated by the Reorganization Agreement.
Institutional Fund Inc. and International Fund Inc. are in the process of making
the necessary filings. To provide against unforeseen events, the Reorganization
Agreement may be terminated or amended at any time prior to the Closing by
action of the Directors of Institutional Fund Inc. and the Directors of
International Fund Inc., notwithstanding the approval of the Reorganization
Agreement by the stockholders of the International Equity Portfolio. However, no
amendment may be made that materially adversely affects the interests of the
stockholders of the International Equity Portfolio. Institutional Fund Inc. and
International Fund Inc. may at any time waive compliance with any of the
covenants and conditions contained in the Reorganization Agreement. For a
complete description of the terms and conditions of the Reorganization, see the
Reorganization Agreement at Exhibit C.
Reasons for the Reorganization. The proposed Reorganization was presented
to the Board of Directors of Institutional Fund Inc. for consideration and
approval at a special meeting on August 6, 1997. All of the Directors were
present at the meeting. For the reasons discussed below, the Board of Directors
of Institutional Fund Inc., including all of the Non-interested Directors, has
determined that the interests of the stockholders of the International Equity
Portfolio will not be diluted as a result of the proposed Reorganization, and
that the proposed Reorganization is in the best interests of the International
Equity Portfolio and its stockholders.
The proposed combination of the International Equity Portfolio and the
International Fund will allow the International Equity Portfolio's stockholders
to continue to participate in a professionally-managed portfolio consisting
primarily of foreign equity investments. The Directors of the International
Equity Portfolio believe that International Equity Portfolio stockholders will
benefit from the proposed Reorganization because the International Fund, while
guided by substantially similar investment objectives and policies, offers the
following benefits:
Increased Investment Opportunities: The International Fund is currently
approximately more than 100 times larger than the International Equity
Portfolio. Because of its much larger asset base, the International Fund can
acquire and dispose of securities on more favorable terms than the International
Equity Portfolio. Also, because of its larger size, the International Fund can
obtain a wider variety of investments. Moreover, it is
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<PAGE>
anticipated that combining the International Equity Portfolio and the
International Fund will further enhance trading efficiency and investment
flexibility.
Lower Fund Expenses Over Time: While total fund expenses of the
International Fund will be higher than those currently paid by stockholders of
the International Equity Portfolio on account of expense limitations currently
in place, if the proposed transaction is approved, such stockholders may benefit
from lower total fund expenses over the long-term. There can be no assurance
that the Investment Manager will continue its expense limitation arrangement
currently in effect for the International Equity Portfolio once such expense
limitation expires after December 31, 1997.
Due to the small size of the International Equity Portfolio, the Directors
and management of such Fund believe that the Fund cannot grow to a sufficient
size through the sale of additional stock to provide investors with significant
economies of scale. Accordingly, the Directors of Institutional Fund Inc.
recommend that the International Equity Portfolio's stockholders approve the
Reorganization with the International Fund.
The Board of Directors of the International Equity Portfolio, in
recommending the proposed transaction, considered a number of factors, including
the following:
(1) the capabilities and resources of the Investment Manager and its
affiliates in the areas of investment management and stockholder
servicing;
(2) expense ratios and information regarding fees and expenses of the
International Equity Portfolio and the International Fund;
(3) the terms and conditions of the Reorganization and whether it would
result in dilution of the interests of the International Equity
Portfolio's stockholders;
(4) the compatibility of the International Fund, its investment
objectives, policies and restrictions with those of the International
Equity Portfolio;
(5) the growth opportunities afforded by the proposed consolidation with
the International Fund; and
(6) the tax consequences to the International Equity Portfolio and its
stockholders.
Description of Securities To Be Issued. The authorized capital stock of
International Fund Inc. consists of 700,000,000 shares, $0.01 par value per
share. The Directors of International Fund Inc. are authorized to divide the
shares into separate series, of which the International Fund is one. Shares of
International Fund Inc. entitle their holders to one vote per share; however,
separate votes will be taken by each series on matters affecting an individual
series. Shares have noncumulative voting rights and no preemptive or
subscription rights. International Fund Inc. is not required to hold stockholder
meetings annually, although stockholder meetings may be called for purposes such
as electing or removing Directors, changing fundamental policies or approving an
investment management agreement.
The Directors of International Fund Inc., in their discretion, may
authorize the division of shares of International Fund Inc. (or shares of a
series) into different classes permitting shares of different classes to be
distributed by different methods. Although stockholders of different classes of
a series would have an interest in the same portfolio of assets, stockholders of
different classes may bear different expenses in connection with different
methods of distribution, which may affect performance. Consistent with the
Directors' authority, the Directors of International Fund Inc. have authorized
the creation of the Barrett Shares class of the International Fund. It is
anticipated that the Barrett Shares class of the International Fund will be
created prior to the Closing Date. If the Barret shares class of the
International FUnd is not so created, the Reorganization will not be
consummated.
International Fund Inc.'s By-Laws provide that meetings of stockholders may
be called at any time by the President, and shall be called by the President or
Secretary at the request, in writing or by resolution, of a majority of
Directors, or at the
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<PAGE>
written request of the holder or holders of twenty-five percent (25%) or more of
the total number of shares of International Fund Inc. then issued and
outstanding and entitled to vote at such meeting. Any such request shall state
the purpose of the proposed meeting. In the event that stockholders of
International Fund Inc. wish to communicate with other stockholders concerning
the removal of any Director of International Fund Inc., such stockholders shall
be assisted in communicating with other stockholders for the purpose of
obtaining signatures to request a meeting of stockholders, all in the manner
provided in Section 16(c) of the 1940 Act as if that section were applicable.
Tax Considerations. The Reorganization is conditioned upon the receipt by
Institutional Fund Inc. and International Fund Inc. of an opinion from Dechert
Price & Rhoads, substantially to the effect that, based upon the facts,
assumptions and representations of the parties, for federal income tax purposes:
(i) the transfer to International Fund of all of the assets of the International
Equity Portfolio in exchange solely for International Fund Barrett Shares and
the assumption by the International Fund of all of the identified and stated
liabilities of the International Equity Portfolio, followed by the distribution
of such Barrett Shares to the International Equity Portfolio stockholders in
exchange for their shares of the International Equity Portfolio in complete
liquidation of the International Equity Portfolio, will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Code, and the
International Fund and the International Equity Portfolio will each be "a party
to a reorganization" within the meaning of Section 368(b) of the Code; (ii) no
gain or loss will be recognized by the International Equity Portfolio upon the
transfer of all of its assets to the International Fund in exchange solely for
International Fund Barrett Shares and the assumption by the International Fund
of the identified and stated liabilities of the International Equity Portfolio;
(iii) the basis of the assets of the International Equity Portfolio in the hands
of the International Fund will be the same as the basis of such assets of the
International Equity Portfolio immediately prior to the transfer; (iv) the
holding period of the assets of the International Equity Portfolio in the hands
of the International Fund will include the period during which such assets were
held by the International Equity Portfolio; (v) no gain or loss will be
recognized by the International Fund upon the receipt of the assets of the
International Equity Portfolio in exchange for International Fund Barrett Shares
and the assumption by the International Fund of the identified and stated
liabilities of the International Equity Portfolio; (vi) no gain or loss will be
recognized by the stockholders of the International Equity Portfolio upon the
receipt of International Fund Barrett Shares solely in exchange for their shares
of the International Equity Portfolio as part of the transaction; (vii) the
basis of the International Fund Barrett Shares received by the stockholders of
the International Equity Portfolio will be the same as the basis of the shares
of the International Equity Portfolio exchanged therefor; and (viii) the holding
period of the International Fund Barrett Shares received by the stockholders of
the International Equity Portfolio will include the holding period during which
the shares of the International Equity Portfolio exchanged therefor were held,
provided that at the time of the exchange the shares of the International Equity
Portfolio were held as capital assets in the hands of the stockholders of the
International Equity Portfolio.
While Institutional Fund Inc. is not aware of any adverse state or local
tax consequences of the proposed Reorganization, it has not requested any ruling
or opinion with respect to such consequences and stockholders may wish to
consult their own tax advisers with respect to such matters.
Comparative Information on Stockholder Rights. Each of International Fund
Inc. and Institutional Fund Inc. is a Maryland corporation governed by its
Articles of Incorporation dated June 23, 1975 and January 2, 1986, respectively,
each as amended and restated, its By-Laws and applicable Maryland law. The
business and affairs of each of the Funds are managed under the direction of a
Board of Directors.
The number of shares of common stock of each of International Fund Inc. and
Institutional Fund Inc. authorized is 700,000,000 and 25,000,000,000,
respectively. Under the Articles of Incorporation of each of Institutional Fund
Inc. and International Fund Inc., the Board of Directors is authorized to create
new classes or series of shares without a vote of stockholders.
Interests in the International Fund and the International Equity Portfolio
are represented by transferable shares of common stock having $0.01 par value
and $0.001 par value, respectively. The Directors of each of International Fund
Inc. and Institutional Fund Inc. may from time to time divide or combine the
shares into a greater or lesser number without thereby
25
<PAGE>
changing the proportionate common stocks in that portfolio. The Directors of
International Fund Inc. and Institutional Fund Inc. each have the power to
create separate classes of shares for each portfolio and to create additional
classes in the future without a vote of stockholders.
Liquidation Expenses of The Fund. If the Reorganization is effected, the
International Equity Portfolio will liquidate, cease to operate as a business,
and dissolve its corporate existence. In this connection, the International
Equity Portfolio will incur certain expenditures, obligations, and liabilities
to be paid or discharged on and after the Closing Date ("Liquidation Expenses"),
for which it will retain a portion of its cash and cash equivalents as the
Expense Reserve.
Interest of Certain Persons. The Investment Manager has a financial
interest in the Reorganization, arising from the fact that its management fee
under its Investment Management Agreement with the International Fund will
increase as the amount of the International Fund's assets increases: the amount
of those assets will increase by virtue of the Reorganization. See "Synopsis -
Fees and Expenses." Similarly, Scudder Service Corporation, a subsidiary of the
Investment Manager, is the transfer, stockholder servicing and dividend-paying
agent for the International Fund, and its fees from the International Fund will
increase from the addition to the International Fund of new accounts.
Portfolio Turnover. The average annual portfolio turnover rate for the
International Fund, i.e. the ratio of the lesser of annual sales or purchases to
the monthly average value of the portfolio (excluding from both the numerator
and the denominator securities with maturities at the time of acquisition of one
year or less), for the fiscal year ended March 31, 1996 and March 31, 1997, was
45.2% and 35.8%, respectively. The average annual portfolio turnover rate for
the International Equity Portfolio for the period April 3, 1996 (commencement of
operations) to December 31, 1996 was 10.1% (annualized).
Capitalization and Performance. The following table shows on an unaudited
basis the capitalization of the International Equity Portfolio and the Barrett
Shares class of the International Fund as of March 31, 1997 and on a pro forma
basis as of March 31, 1997 giving effect to the Reorganization:
(In thousands, except per share values)
International International Pro Forma Pro Forma
Fund Equity Adjustments* for
Portfolio Reorganization*
Net Assets $2,583,031 $ 18,324 0 $2,601,355
Net Asset Value
per share $ 48.07 $ 12.68 0 $ 48.07
Shares outstanding 53,734 1,446 (1,064) 54,116
* The pro forma relates to the International Fund as a whole; the pro forma
for the Barrett Shares class of the International Fund (in thousands,
except per share value) is as follows: net assets of $18,324, net asset
value per share of $48.07 and shares outstanding of 382.
Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the same class of that
fund rather than paid to the investor in cash. The formula for total return used
by a fund is prescribed by the SEC and includes three steps: (1) adding to the
total number of shares of the particular class that would be purchased by a
hypothetical $1,000 investment in the fund all additional shares that would have
been purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested; (2) calculating the redeemable value
of the hypothetical initial investment as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share of the relevant class on the last trading day of the
period; and (3) dividing this account value for the hypothetical investor by the
amount of the initial investment, and annualizing the result for periods of less
than one year. Total return may be stated with or without giving effect to any
expense limitations in effect for a fund.
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Average Annual Total Return. The following table reflects average annual
total returns for the one, five and ten year periods ending July 31, 1997 for
shares of the International Equity Portfolio and the International Fund:
Average Annual Total Return:
Period International Fund* International Equity Portfolio
------ ------------------- ------------------------------
One Year 29.21% 26.93%
Five Years 14.84% n/a
Ten Years 9.30% n/a
Since Inception n/a 17.66%
___________________________________
* Barrett Shares of International Fund were not offered during the period
covered. Performance shown is for shares of the International Fund in
existence during the periods covered.
Investment Manager. Scudder, Stevens & Clark, Inc., 345 Park Avenue, New
York, New York 10154 is the investment manager to the International Fund
pursuant to an Investment Management Agreement with International Fund Inc., on
behalf of the International Fund, substantially similar in all material respects
to that currently in place for the International Equity Portfolio.
Stockholders of the International Fund are being asked to approve a new
investment management agreement with Scudder Kemper in connection with the
transactions pursuant to the Scudder- Zurich alliance described more fully in
Proposal 2 below. If approved, the new investment management agreement between
the International Fund and Scudder Kemper is not expected to have a material
effect on the operations of the International Fund or on its stockholders. No
material change in the International Fund's investment philosophy, objectives or
strategies is currently envisioned.
The Directors and Executive Officers of International Fund Inc., their
business addresses and principal occupations during the past five years are:
Present Office with International Fund
Inc. (Date Became Director), Principal Occupation or
Name (Age) Employment and Directorships
- ---------- ----------------------------
Paul Bancroft III Director, Scudder International Fund, Inc.
(67) (1982). Venture Capitalist and Consultant
(1988 to present); Retired President,
Chief Executive Officer and Director,
Bessemer Securities Corp. (private
investment company); Director, Western
Atlas, Inc. (diversified oil services and
industrial automation company). Former
Director: Albany International, Inc.
(paper machine belt manufacturer); and
Measurex Corp. (process control systems
company). Mr. Bancroft serves on the
Boards of an additional 5 Trusts or
Corporations whose Funds are advised by
Scudder.
Nicholas Bratt* President and Director, Scudder
(49) International Fund, Inc. (1982). Managing
Director of Scudder, Stevens & Clark, Inc.
Mr. Bratt serves on the Boards of an
additional 14 Trusts or Corporations whose
Funds are advised by Scudder.
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Present Office with International Fund
Inc. (Date Became Director), Principal Occupation or
Name (Age) Employment and Directorships
- ---------- ----------------------------
Thomas J. Devine Director, Scudder International Fund, Inc.
(70) (1978). Consultant. Mr. Devine serves on
the Boards of an additional 6 Trusts or
Corporations whose Funds are advised by
Scudder.
Keith R. Fox (43) Director, Scudder International Fund, Inc.
(1996). President, Exeter Capital
Management Corporation (private equity
investment firm). Mr. Fox serves on the
Boards of an additional 3 Trusts or
Corporations whose Funds are advised by
Scudder.
William H. Director, Scudder International Fund, Inc.
Gleysteen, Jr. (71) (1990). Consultant; Guest Scholar,
Brookings Institute; Former President, The
Japan Society, Inc. (until 1996). Mr.
Gleysteen serves on the Boards of an
additional 4 Trusts or Corporations whose
Funds are advised by Scudder.
David S. Lee* (63) Vice President, Assistant Treasurer and
Director, Scudder International Fund, Inc.
(1997). Managing Director, Scudder,
Stevens & Clark, Inc.; Trustee Emeritus,
New England Medical Center. Mr. Lee
serves on the Boards of an additional 38
Trusts or Corporations whose Funds are
advised by Scudder.
William H. Luers Director, Scudder International Fund, Inc.
(68) (1990). President, The Metropolitan
Museum of Art; Director: IDEX Corporation
(liquid handling equipment manufacturer)
and Wickes Lumber Company (building
materials for contractors); Former
Director: Transco Energy Company (natural
gas transmission company) (until 1995) and
The Discount Corporation of New York (bond
trading) (until 1993). Mr. Luers serves
on the Boards of an additional 3 Trusts or
Corporations whose Funds are advised by
Scudder.
Wilson Nolen (70) Director, Scudder International Fund, Inc.
(1975). Consultant; Trustee: Cultural
Institutions Retirement Fund, Inc., New
York Botanical Garden, Skowhegan School of
Painting and Sculpture; and Former
Director, Ecohealth, Inc. (biotechnology
company) (until 1996). Mr. Nolen serves
on the Boards of an additional 9 Trusts or
Corporations whose Funds are advised by
Scudder.
Daniel Pierce* (63) Chairman of the Board and Director,
Scudder International Fund, Inc. (1986).
Chairman of the Board and Managing
Director of Scudder, Stevens & Clark, Inc.
Director, Fiduciary Trust Company (bank
and trust company) and Fiduciary Company
Incorporated (bank and trust company).
Mr. Pierce serves on the Boards of an
additional 25 Trusts or Corporations whose
Funds are advised by Scudder.
Kathryn L. Quirk* Vice President, Assistant Secretary and
(44) Director, Scudder International Fund, Inc.
(1996). Managing Director of Scudder,
Stevens & Clark, Inc. Ms. Quirk serves on
the Boards of an additional 34 Trusts or
Corporations whose Funds are advised by
Scudder.
Dr. Gordon Director, Scudder International Fund, Inc.
Shillinglaw (72) (1982). Professor Emeritus of Accounting,
Columbia University Graduate School of
Business. Dr. Shillinglaw serves on the
Boards of an additional 8 Trusts or
Corporations whose Funds are advised by
Scudder.
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________________
* Directors considered by International Fund Inc. and its
counsel to be "interested persons" (as defined in the 1940
Act) of International Fund Inc. or of its investment
manager.
Stockholders of the International Fund are being asked to elect a new slate
of Directors in connection with the Scudder- Zurich alliance for reasons
substantially similar to those set forth in Proposal 3 below.
Expenses of the Reorganization. The expenses relating to the proposed
Reorganization will be borne by Scudder.
ADDITIONAL INFORMATION
As of June 30, 1997, 3,476,331 shares in the aggregate, 6.48% of the
outstanding shares of International Fund were held in the name of Charles Schwab
& Co., 101 Montgomery Street, San Francisco, CA 94104, who may be deemed to be
the beneficial owner of certain of these shares, but disclaims any beneficial
ownership therein. As of June 30, 1997 the Directors and Officers of
International Fund Inc. as a group beneficially owned less than 1% of each class
of shares of the International Fund outstanding. As of June 30, 1997, the
Directors and Officers of Institutional Fund Inc. as a group beneficially owned
less than 1% of the outstanding shares of the International Equity Portfolio. No
persons own beneficially, as of June 30, 1997, 5% or more of the outstanding
shares of the International Equity Portfolio.
Required Vote
Approval of the Reorganization Agreement requires the affirmative vote of a
majority of the International Equity Portfolio's shares outstanding and entitled
to vote thereon. Subject to such approval, the reorganization is currently
scheduled to become effective as of the close of business on December 15, 1997,
but may be postponed by mutual agreement of Institutional Fund Inc. and
International Fund Inc. The Directors unanimously recommend that the
stockholders of the Fund vote in favor of this Proposal 1.
PROPOSAL 2: APPROVAL OF NEW
INVESTMENT MANAGEMENT AGREEMENT
Introduction. Scudder acts as the investment manager to the International
Equity Portfolio (also referred to in Proposals 2, 3 and 4 as the "Fund")
pursuant to an investment management agreement entered into by the Fund and
Scudder (the "Current Investment Management Agreement"). On June 26, 1997,
Scudder entered into a Transaction Agreement (the "Transaction Agreement") with
Zurich Insurance Company ("Zurich") pursuant to which Scudder and Zurich have
agreed to form an alliance. Under the terms of the Transaction Agreement, Zurich
will acquire a majority interest in Scudder, and Zurich Kemper Investments, Inc.
("ZKI"), a Zurich subsidiary, will become part of Scudder. Scudder's name will
be changed to Scudder Kemper Investments, Inc. ("Scudder Kemper"). The foregoing
are referred to as the "Transactions." ZKI, a Chicago-based investment adviser
and the adviser to the Kemper funds, has approximately $80 billion under
management. The headquarters of Scudder Kemper will be in New York. Edmond D.
Villani, Scudder's Chief Executive Officer, will continue as Chief Executive
Officer of Scudder Kemper and will become a member of Zurich's Corporate
Executive Board.
Consummation of the Transactions would constitute an "assignment," as that
term is defined in the 1940 Act, of the Fund's Current Investment Management
Agreement with Scudder. As required by the 1940 Act, the Current Investment
Management Agreement provides for its automatic termination in the event of its
assignment. In anticipation of the Transactions, a new
29
<PAGE>
investment management agreement (the "New Investment Management Agreement,"
together with the Current Investment Management Agreement, the "Investment
Management Agreements") between the Fund and Scudder Kemper is being proposed
for approval by stockholders of the Fund. A copy of the form of the New
Investment Management Agreement is attached hereto as Exhibit A. THE NEW
INVESTMENT MANAGEMENT AGREEMENT IS IN ALL MATERIAL RESPECTS ON THE SAME TERMS AS
THE CURRENT INVESTMENT MANAGEMENT AGREEMENT. Conforming changes are being
recommended to the New Investment Management Agreement in order to promote
consistency among all of the funds currently advised by Scudder and to permit
ease of administration. The material terms of the Current Investment Management
Agreement are described under "Description of the Current Investment Management
Agreement" below.
Stockholders are being asked to approve this Proposal 2 in the event that
the Reorganization, as described in Proposal 1 above, is not consummated.
Board of Directors' Recommendation. On August 6, 1997, the Board of
Institutional Fund Inc. (also referred to in Proposals 2, 3 and 4 as the
"Corporation"), including Non-interested Directors, voted to approve the New
Investment Management Agreement and to recommend its approval to stockholders.
For information about the Board's deliberations and the reasons for its
recommendation, please see "Board of Directors' Evaluation" below.
The Board of the Corporation recommends that its stockholders vote in favor
of the approval of the New Investment Management Agreement for the Fund.
Board of Directors' Evaluation. On June 26, 1997, representatives of
Scudder advised the Non-interested Directors of the Corporation by means of a
telephone conference call that Scudder had entered into the Transaction
Agreement. At that time, Scudder representatives described the general terms of
the proposed Transactions and the perceived benefits for the Scudder
organization and for its investment advisory clients.
Scudder subsequently furnished the Non-interested Directors with additional
information regarding the proposed Transactions, including information regarding
the terms of the proposed Transactions, and information regarding the Zurich and
ZKI organizations. In a series of subsequent telephone conference calls and
in-person meetings, the Non-interested Directors discussed this information
among themselves and with representatives of Scudder and Zurich. They were
assisted in their review of this information by their independent legal counsel
and also consulted with a representative of the Fund's independent auditors and
with an independent consultant knowledgeable in mutual fund industry matters.
In the course of these discussions, Scudder advised the Non- interested
Directors that it did not expect that the proposed Transactions would have a
material effect on the operations of the Fund or its stockholders. Scudder has
advised the Non- interested Directors that the Transaction Agreement, by its
terms, does not contemplate any changes in the structure or operations of the
Fund. Scudder representatives have informed the Directors that Scudder currently
intends to maintain the separate existence of the funds that Scudder and ZKI
manage in their respective distribution channels. Scudder has also advised the
Non-interested Directors that although it currently expects that various
portions of the ZKI organization would be combined with Scudder's operations,
the senior executives of Scudder overseeing those operations will remain largely
unchanged. It is possible, however, that changes in certain personnel currently
involved in providing services to the Fund may result from future efforts to
combine the strengths and efficiencies of both firms. In their discussions with
the Directors, Scudder representatives also emphasized the strengths of the
Zurich organization and its commitment to provide the new Scudder Kemper
organization with the resources necessary to continue to provide high quality
services to the Fund and the other investment advisory clients of the new
Scudder Kemper organization.
The Board of the Corporation was advised that Scudder intends to rely on
Section 15(f) of the 1940 Act, which provides a non-exclusive safe harbor for an
investment adviser to an investment company or any of the investment adviser's
affiliated persons (as defined under the 1940 Act) to receive any amount or
benefit in connection with a change in control of the investment
30
<PAGE>
adviser so long as two conditions are met. First, for a period of three years
after the transaction, at least 75% of the board members of the investment
company must not be "interested persons" of the investment company's investment
adviser or its predecessor adviser. On or prior to the consummation of the
Transactions, the Board, assuming the election of the nominees that you are
being asked to elect in "Proposal 3: Election of Directors," would be in
compliance with this provision of Section 15(f). (See "Proposal 3: Election of
Directors"). Second, an "unfair burden" must not be imposed upon the investment
company as a result of such transaction or any express or implied terms,
conditions or understandings applicable thereto. The term "unfair burden" is
defined in Section 15(f) to include any arrangement during the two-year period
after the transaction whereby the investment adviser, or any interested person
of any such adviser, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its shareholders (other
than fees for bona fide investment advisory or other services) or from any
person in connection with the purchase or sale of securities or other property
to, from or on behalf of the investment company (other than bona fide ordinary
compensation as principal underwriter for such investment company). No such
compensation agreements are contemplated in connection with the Transactions.
Scudder has undertaken to pay the costs of preparing and distributing proxy
materials to, and of holding the meeting of, the Fund's stockholders as well as
other fees and expenses in connection with the Transactions, including the fees
and expenses of legal counsel and consultants to the Fund and the Non-interested
Directors.
During the course of their deliberations, the Non-interested Directors
considered a variety of factors, including the nature, quality and extent of the
services furnished by Scudder to the Fund; the necessity of Scudder's
maintaining and enhancing its ability to retain and attract capable personnel to
serve the Fund; the investment record of Scudder in managing the Fund; the
increased complexity of the domestic and international securities markets;
Scudder's profitability from advising the Fund; possible economies of scale;
comparative data as to investment performance, advisory fees and other fees,
including administrative fees, and expense ratios; the risks assumed by Scudder;
the advantages and possible disadvantages to the Fund of having an adviser of
the Fund which also serves other investment companies as well as other accounts;
possible benefits to Scudder from serving as manager to the Fund and from
affiliates of Scudder serving the Fund in various other capacities; current and
developing conditions in the financial services industry, including the entry
into the industry of large and well capitalized companies which are spending and
appear to be prepared to continue to spend substantial sums to engage personnel
and to provide services to competing investment companies; and the financial
resources of Scudder and the continuance of appropriate incentives to assure
that Scudder will continue to furnish high quality services to the Fund.
In addition to the foregoing factors, the Non-interested Directors gave
careful consideration to the likely impact of the Transactions on the Scudder
organization. In this regard, the Non-interested Directors considered, among
other things, the structure of the Transactions which affords Scudder executives
substantial autonomy over Scudder's operations and provides substantial equity
participation and incentives for many Scudder employees; Scudder's and Zurich's
commitment to Scudder's paying compensation adequate to attract and retain top
quality personnel; Zurich's strategy for the development of its asset management
business through Scudder; information regarding the financial resources and
business reputation of Zurich; and the complementary nature of various aspects
of the business of Scudder and the Zurich Kemper organization and the intention
to maintain separate Scudder and Kemper brands in the mutual fund business.
Based on the foregoing, the Non-interested Directors concluded that the
Transactions should cause no reduction in the quality of services provided to
the Fund and believe that the Transactions should enhance Scudder's ability to
provide such services. The Non-interested Directors considered the foregoing
factors with respect to the Fund.
On August 6, 1997, the Directors of the Corporation, including the
Non-interested Directors of the Corporation, approved the New Investment
Management Agreement.
Information Concerning the Transactions and Zurich. Under the Transaction
Agreement, Zurich will pay $866.7 million in cash to acquire two-thirds of
Scudder's outstanding shares and will contribute ZKI to Scudder for additional
shares, following which Zurich will have a 79.1% fully diluted equity interest
in the combined business. Zurich will then transfer a 9.6% fully diluted equity
interest in Scudder Kemper to a defined contribution plan for the benefit of
Scudder and ZKI employees, as well as cash and warrants on Zurich shares for
award to Scudder employees, in each
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<PAGE>
case subject to five-year vesting schedules. After giving effect to the
Transactions, current Scudder stockholders will have a 29.6% fully diluted
equity interest in Scudder Kemper and Zurich will have a 69.5% fully diluted
interest in Scudder Kemper. Scudder's name will be changed to Scudder Kemper
Investments, Inc.
The purchase price for Scudder or for ZKI in the Transactions is subject to
adjustment based on the impact to revenues of non-consenting clients, and will
be reduced if the annualized investment management fee revenues (excluding the
effect of market changes, but taking into account new assets under management)
from clients at the time of closing, as a percentage of such revenues as of June
30, 1997 (the "Revenue Run Rate Percentage"), is less than 90%.
At the closing, Zurich and the other stockholders of Scudder Kemper will
enter into a Second Amended and Restated Security Holders Agreement (the "New
SHA"). Under the New SHA, Scudder stockholders will be entitled to designate
three of the seven members of the Scudder Kemper board of directors and two of
the four members of an Executive Committee, which will be the primary
management-level committee of Scudder Kemper. Zurich will be entitled to
designate the other four members of the Scudder Kemper board and the other two
members of the Executive Committee.
The names, addresses and principal occupations of the initial
Scudder-designated directors of Scudder Kemper are as follows: Lynn S. Birdsong,
345 Park Avenue, New York, New York, Managing Director of Scudder; Cornelia M.
Small, 345 Park Avenue, New York, New York, Managing Director of Scudder; and
Edmond D. Villani, 345 Park Avenue, New York, New York, President, Chief
Executive Officer and Managing Director of Scudder.
The names, addresses and principal occupations of the initial
Zurich-designated directors of Scudder Kemper are as follows: Lawrence W. Cheng,
Mythenquai 2, Zurich, Switzerland, Chief Investment Officer for Investments and
Institutional Asset Management and the corporate functions of Securities and
Real Estate for Zurich; Steven M. Gluckstern, Mythenquai 2, Zurich, Switzerland,
responsible for Reinsurance, Structured Finance, Capital Market Products and
Strategic Investments, and a member of the Corporate Executive Board of Zurich;
Rolf Hueppi, Mythenquai 2, Zurich, Switzerland, Chairman of the Board and Chief
Executive Officer of Zurich; and Markus Rohrbasser, Mythenquai 2, Zurich,
Switzerland, Chief Financial Officer and member of the Corporate Executive Board
of Zurich.
The initial Scudder-designated Executive Committee members will be Messrs.
Birdsong and Villani (Chairman). The initial Zurich-designated Executive
Committee members will be Messrs. Cheng and Rohrbasser.
The New SHA requires the approval of a majority of the Scudder-designated
directors for certain decisions, including changing the name of Scudder Kemper,
effecting an initial public offering before April 15, 2005, causing Scudder
Kemper to engage substantially in non-investment management and related
business, making material acquisitions or divestitures, making material changes
in Scudder Kemper's capital structure, dissolving or liquidating Scudder Kemper,
or entering into certain affiliated transactions with Zurich. The New SHA also
provides for various put and call rights with respect to Scudder Kemper stock
held by current Scudder employees, limitations on Zurich's ability to purchase
other asset management companies outside of Scudder Kemper, rights of Zurich to
repurchase Scudder Kemper stock upon termination of employment of Scudder Kemper
personnel, and registration rights for stock held by continuing Scudder
stockholders.
The Transactions are subject to a number of conditions, including approval
by Scudder stockholders; the Revenue Run Rate Percentages of Scudder and ZKI
being at least 75%; Scudder and ZKI having obtained director and stockholder
approvals from U.S.- registered funds representing 90% of assets of such funds
under management as of June 26, 1997; the absence of any restraining order or
injunction preventing the Transactions, or any litigation challenging the
Transactions that is reasonably likely to result in an injunction or
invalidation of the Transactions, and the continued accuracy of the
representations and warranties contained in the Transaction Agreement. The
Transactions are expected to close during the fourth quarter of 1997.
32
<PAGE>
The information set forth above concerning the Transactions has been
provided to the Corporation by Scudder, and the information set forth below
concerning Zurich has been provided to the Corporation by Zurich.
Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services,
and have branch offices and subsidiaries in more than 40 countries throughout
the world. Zurich Insurance Group is particularly strong in the insurance of
international companies and organizations. Over the past few years, Zurich's
global presence, particularly in the United States, has been strengthened by
means of selective acquisitions.
Description of the Current Investment Management Agreement. Under the
Current Investment Management Agreement, Scudder provides the Fund with
continuing investment management services. The Investment Manager also
determines which securities shall be purchased, held, or sold, and what portion
of the Fund's assets shall be held uninvested, subject to the Corporation's
Articles of Incorporation, By-Laws, investment policies and restrictions, the
provisions of the 1940 Act, and such policies and instructions as the Directors
may determine.
The Current Investment Management Agreement provides that the Investment
Manager will provide portfolio management services and that the Investment
Manager will place portfolio transactions in accordance with policies expressed
in the Fund's registration statement, pay the Fund's office rent, render
significant administrative services on behalf of the Fund (not otherwise
provided by third parties) necessary for the Fund's operating as an open-end
investment company including, but not limited to, preparing reports to and
meeting materials for the Corporation's Board of Directors and reports and
notices to Fund stockholders; supervising, negotiating contractual arrangements
with, to the extent appropriate, and monitoring the performance of various
third-party service providers to the Fund (such as the Fund's transfer and
pricing agents, fund accounting agent, custodian, accountants and others) and
other persons in any capacity deemed necessary or desirable to Fund operations;
preparing and making filings with the Securities and Exchange Commission (the
"SEC" or the "Commission") and other regulatory and self-regulatory
organizations, including but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Fund's transfer agent; assisting in
the preparation and filing of the Fund's federal, state and local tax returns;
preparing and filing the Fund's federal excise tax returns pursuant to Section
4982 of the Internal Revenue Code of 1986, as amended; providing assistance with
investor and public relations matters; monitoring the valuation of portfolio
securities and the calculation of net asset value; monitoring the registration
of shares of the Fund under applicable federal and state securities laws;
maintaining or causing to be maintained for the Fund all books, records and
reports and any other information required under the 1940 Act, to the extent
such books, records and reports and other information are not maintained by the
Fund's custodian or other agents of the Fund; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting with
the Fund's independent accountants, legal counsel and the Fund's other agents as
necessary in connection therewith; establishing and monitoring the Fund's
operating expense budgets; reviewing the Fund's bills; processing the payment of
bills that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its stockholders, preparing and arranging for the printing of
dividend notices to stockholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Corporation's Board of Directors.
Under the Current Investment Management Agreement, the Fund is responsible
for other expenses, including organizational expenses (including out-of-pocket
expenses, but not including the Investment Manager's overhead or employee
costs); brokers' commissions or other costs of acquiring or disposing of any
portfolio securities of the Fund; legal, auditing and accounting expenses;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; taxes and governmental fees;
the fees and expenses of the
33
<PAGE>
Fund's transfer agent; expenses of preparing share certificates and any other
expenses, including clerical expenses, of issuance, offering, distribution,
sale, redemption or repurchase of shares; the expenses of and fees for
registering or qualifying securities for sale; the fees and expenses of
Non-interested Directors; the cost of printing and distributing reports, notices
and dividends to current stockholders; and the fees and expenses of the Fund's
custodians, subcustodians, accounting agent, dividend disbursing agents and
registrars. The Fund may arrange to have third parties assume all or part of the
expenses of sale, underwriting and distribution of shares of the Fund. The Fund
is also responsible for expenses of stockholders' and other meetings, the cost
of responding to stockholders' inquiries, and its expenses incurred in
connection with litigation, proceedings and claims and the legal obligation it
may have to indemnify officers and Directors of the Corporation with respect
thereto. The Fund is also responsible for the maintenance of books and records
which are required to be maintained by the Fund's custodian or other agents of
the Corporation; telephone, telex, facsimile, postage and other communications
expenses; any fees, dues and expenses incurred by the Fund in connection with
membership in investment company trade organizations; expenses of printing and
mailing prospectuses and statements of additional information of the Fund and
supplements thereto to current stockholders; costs of stationery; fees payable
to the Investment Manager and to any other Fund advisors or consultants;
expenses relating to investor and public relations; interest charges, bond
premiums and other insurance expense; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; and other
expenses.
The Investment Manager is responsible for the payment of the compensation
and expenses of all Directors, officers and executive employees of the Fund
(including the Fund's share of payroll taxes) affiliated with the Investment
Manager and making available, without expense to the Fund, the services of such
Directors, officers and employees as may duly be elected officers of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law. The Fund is responsible for the fees and expenses (specifically
including travel expenses relating to Fund business) of Directors not affiliated
with the Investment Manager. Under each Current Investment Management Agreement,
the Investment Manager also pays the Fund's share of payroll taxes, as well as
expenses, such as travel expenses (or an appropriate portion thereof), of
Directors and officers of the Corporation who are Directors, officers or
employees of the Investment Manager, to the extent that such expenses relate to
attendance at meetings of the Board of Directors of the Corporation, or any
committees thereof or advisers thereto, held outside Boston, Massachusetts or
New York, New York. During the Fund's most recent fiscal year, no compensation,
direct or otherwise (other than through fees paid to the Investment Manager),
was paid or became payable by the Corporation to any of its officers or
Directors who were affiliated with the Investment Manager.
In return for the services provided by the Investment Manager as investment
manager, and the expenses it assumes under the Current Investment Management
Agreement, the Fund pays the Investment Manager a management fee at a rate of
0.90% of average daily net assets which is accrued daily and payable monthly. As
of December 31, 1996, the end of the Fund's last fiscal year, the Fund had net
assets of $17,897,508 and paid an aggregate management fee to the Investment
Manager of $0 during such period.
The Current Investment Management Agreement further provides that the
Investment Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with matters to which
such agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager in the
performance of its duties or from reckless disregard by the Investment Manager
of its obligations and duties under such agreement.
The Current Investment Management Agreement may be terminated without
penalty upon sixty (60) days' written notice by either party. The Fund may agree
to terminate its Current Investment Management Agreement either by the vote of a
majority of the outstanding voting securities of the Fund, or by the Board of
Directors. As stated above, the Current Investment Management Agreement
automatically terminates in the event of its assignment.
Scudder has acted as the Investment Manager for the Fund since the Fund
commenced operations on April 3, 1996. The Current Investment Management
Agreement is dated April 3, 1996, and was last approved by the Directors on July
27, 1997 and by the stockholders of the Fund on April 2, 1996 and continues in
34
<PAGE>
effect until July 31, 1998. The Current Investment Management Agreement was last
submitted to stockholders prior to its becoming effective, as required by the
1940 Act.
The New Investment Management Agreement. The New Investment Management
Agreement for the Fund will be dated as of the date of the consummation of the
Transactions, which is expected to occur in the fourth quarter of 1997, but in
no event later than February 28, 1998. The New Investment Management Agreement
will be in effect for an initial term ending on the same date as would the
Current Investment Management Agreement but for the Transactions, and may
continue thereafter from year to year only if specifically approved at least
annually by the vote of "a majority of the outstanding voting securities" of the
Fund, or by the Board and, in either event, the vote of a majority of the Non-
interested Directors, cast in person at a meeting called for such purpose. In
the event that stockholders of the Fund do not approve the New Investment
Management Agreement, the Current Investment Management Agreement will remain in
effect until the closing of the Transactions at which time it would terminate.
In such event, the Board of the Corporation will take such action as it deems to
be in the best interests of the Fund and its stockholders. In the event the
Transactions are not consummated, Scudder will continue to provide services to
the Fund in accordance with the terms of the Current Investment Management
Agreement for such periods as may be approved at least annually by the Board,
including a majority of the Non-interested Directors.
Differences Between the Current and New Investment Management Agreements.
The New Investment Management Agreement is substantially the same as the Current
Investment Management Agreement in all material respects. The principal changes
that have been made are summarized below. The New Investment Management
Agreement reflects conforming changes that have been made in order to promote
consistency among all funds currently advised by Scudder and to permit ease of
administration. For example, in the New Investment Management Agreement, the
term "accounting agents" would be added to the list of service providers to
which the Investment Manager must provide information in connection with the
payment of dividends and distributions.
In addition, the New Investment Management Agreement would clarify that
purchase and sale opportunities which are suitable for more than one client of
the Investment Manager will be allocated by the Investment Manager in an
equitable manner.
Further, the New Investment Management Agreement would clarify the scope of
the licensing provisions governing the use of the Scudder name. Specifically,
the New Investment Management Agreement identifies Scudder Kemper as the
exclusive licensee of the rights to use and sublicense the names "Scudder,"
"Scudder Kemper Investments, Inc.," and "Scudder, Stevens & Clark, Inc."
(together the "Scudder Marks"). Under this license, the Corporation, with
respect to the Fund, has the nonexclusive right to use and sublicense the
Scudder name and marks as part of its name, and to use the Scudder Marks in the
Corporation's investment products and services. This license continues only as
long as the New Investment Management Agreement is in place, and only as long as
Scudder Kemper continues to be a licensee of the Scudder Marks from Scudder
Trust Company, which is the owner and licensor of the Scudder Marks. As a
condition of the license, the Corporation, on behalf of the Fund, undertakes
certain responsibilities and agrees to certain restrictions, such as agreeing
not to challenge the validity of the Scudder Marks or ownership by Scudder Trust
Company and the obligation to use the name within commercially reasonable
standards of quality. In the event the agreement is terminated, the Corporation,
on behalf of the Fund, must not use a name likely to be confused with those
associated with the Scudder Marks.
The New Investment Management Agreement adds conforming language that
describes in greater detail the portfolio management services provided by the
Investment Manager and adds a new section that describes the administrative
responsibilities and duties of the Investment Manager. For example, the section
entitled Portfolio Management Services specifies that the Fund will have the
benefit of the Investment Manager's analysis and research, and that the
Investment Manager will undertake responsibilities such as making records
available to regulators and providing periodic reports to the Board. The section
entitled Administrative Services is new and describes the types of
administrative services that the Investment Manager has been customarily
providing to the Fund. For a fuller explanation of the types of administrative
services, please refer to the second paragraph under "Description of the Current
Investment Management Agreement" in these proxy materials.
35
<PAGE>
Other conforming changes include: deletion of the Investment Manager's
potential responsibility for monitoring the calculation and payment of
distributions to stockholders; addition of a provision clarifying that the New
Investment Management Agreement supersedes all prior agreements; and addition of
a provision replacing New York with Massachusetts as the jurisdiction whose laws
will govern the New Investment Management Agreement.
Investment Manager. Scudder is one of the most experienced investment
counsel firms in the United States. It was established in 1919 as a partnership
and was restructured as a Delaware corporation in 1985. The principal source of
Scudder's income is professional fees received from providing continuing
investment advice. Scudder provides investment counsel for many individuals and
institutions, including insurance companies, endowments, industrial corporations
and financial and banking organizations.
As stated above, Scudder is a Delaware corporation. Daniel Pierce* is the
Chairman of the Board of Scudder, Edmond D. Villani# is President and Chief
Executive Officer of Scudder, Stephen R. Beckwith#, Lynn S. Birdsong#, Nicholas
Bratt#, E. Michael Brown*, Mark S. Casady*, Linda C. Coughlin*, Margaret D.
Hadzima*, Jerard K. Hartman#, Richard A. Holt@, John T. Packard+, Kathryn L.
Quirk#, Cornelia M. Small# and Stephen A. Wohler* are the other members of the
Board of Directors of Scudder (see footnote for symbol key).. The principal
occupation of each of the above named individuals is serving as a Managing
Director of Scudder.
All of the outstanding voting and nonvoting securities of Scudder are held
of record by Stephen R. Beckwith, Juris Padegs#, Daniel Pierce and Edmond D.
Villani in their capacity as the representatives of the beneficial owners of
such securities (the "Representatives"), pursuant to a Security Holders'
Agreement among Scudder, the beneficial owners of securities of Scudder and such
Representatives. Pursuant to the Security Holders' Agreement, the
Representatives have the right to reallocate shares among the beneficial owners
from time to time. Such reallocations will be at net book value in cash
transactions. All Managing Directors of Scudder own voting and nonvoting stock
and all Principals of Scudder own nonvoting stock.
Directors, officers and employees of Scudder from time to time may enter
into transactions with various banks, including the Fund's custodian bank. It is
Scudder's opinion that the terms and conditions of those transactions will not
be influenced by existing or potential custodial or other Fund relationships.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder,
computes net asset value and provides fund accounting services for the Fund.
Scudder Service Corporation ("SSC"), also a subsidiary of Scudder, is the
transfer, shareholder servicing and dividend-paying agent for the Fund. Scudder
Trust Company ("STC"), an affiliate of Scudder, provides subaccounting and
recordkeeping services for stockholder accounts in certain retirement and
employee benefit plans. For the fiscal year ended December 31, 1997, the fees
paid to SFAC, SSC and STC by the Fund were $0, $15,431 and $0, respectively.
SFAC, SSC and STC will continue to provide fund accounting, transfer
agency, subaccounting and recordkeeping services to the Fund under the current
arrangements if the New Investment Management Agreement is approved, unless the
proposed reorganization is approved.
Exhibit B sets forth the fees and other information regarding other
investment companies advised by Scudder.
Brokerage Commissions on Portfolio Transactions. To the maximum extent
feasible, Scudder places orders for portfolio transactions through Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts 02110
(the "Distributor") (a corporation registered as a broker/dealer and a
subsidiary of Scudder), which in turn places orders on behalf of
_______________________________
* Two International Place, Boston, Massachusetts
# 345 Park Avenue, New York, New York
+ 101 California Street, San Francisco, California
@ Two Prudential Plaza, 180 North Stetson, Suite 5400,
Chicago, Illinois
36
<PAGE>
the Fund with issuers, underwriters or other brokers and dealers. In selecting
brokers and dealers with which to place portfolio transactions for the Fund,
Scudder will not consider sales of shares of funds currently advised by ZKI,
although it may place such transactions with brokers and dealers that sell
shares of funds currently advised by ZKI. The Distributor receives no
commissions, fees or other remuneration from the Fund for this service.
Allocation of portfolio transactions is supervised by Scudder.
Required Vote. Approval of this Proposal by the Fund requires the
affirmative vote of a "majority of the outstanding voting securities", as
defined above, of the Fund. The Directors of the Corporation recommend that the
stockholders vote in favor of this Proposal 2.
To the Board of Directors and Shareholders of
Scudder Institutional Fund, Inc.
In planning and performing our audit of the financial statements of Scudder
Institutional Fund, Inc., (hereafter referred to as the "Fund") for the year
ended December 31, 1997, we considered its internal control, including control
activities for safeguarding securities, in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial statements
and to comply with the requirements of Form N-SAR, and not to provide assurance
on internal control.
The management of the Fund is responsible for establishing and maintaining
internal control. In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
control activities. Generally, control activities that are relevant to an audit
pertain to the entity's objective of preparing financial statements for external
purposes that are fairly presented in conformity with generally accepted
accounting principles. Those control activi ties include the safeguarding of
assets against unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or irregularities
may occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of any
specific internal control components does not reduce to a relatively low level
the risk that errors or irregularities in amounts that would be material in
relation to the financial statements being audited may occ ur and not be
detected within a timely period by employees in the normal course of performing
their assigned functions. However, we noted no matters involving internal
control, including control activities for safeguarding securities, that we
consider to be material weaknesses as defined above as of December 31, 1997.
This report is intended solely for the information and use of management and the
Board of Directors of Scudder Institutional Fund, Inc. and the Securities and
Exchange Commission.
/s/Price Waterhouse LLP
Price Waterhouse LLP
February 20, 1998
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND>
This schedule contains summary financial information extracted from the
Institutional International Equity Annual Report for the fiscal year ended
12/31/97 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> Scudder Institutional International Equity
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17,370,525
<INVESTMENTS-AT-VALUE> 19,212,772
<RECEIVABLES> 183,673
<ASSETS-OTHER> 22,298
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,418,743
<PAYABLE-FOR-SECURITIES> 98,606
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98,447
<TOTAL-LIABILITIES> 197,053
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,226,026
<SHARES-COMMON-STOCK> 1,441,090
<SHARES-COMMON-PRIOR> 1,433,768
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 154,523
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,841,141
<NET-ASSETS> 19,221,690
<DIVIDEND-INCOME> 306,935
<INTEREST-INCOME> 63,383
<OTHER-INCOME> 0
<EXPENSES-NET> 202,205
<NET-INVESTMENT-INCOME> 168,113
<REALIZED-GAINS-CURRENT> 471,943
<APPREC-INCREASE-CURRENT> 969,671
<NET-CHANGE-FROM-OPS> 1,609,727
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (198,898)
<DISTRIBUTIONS-OF-GAINS> (170,484)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,954
<NUMBER-OF-SHARES-REDEEMED> (42,024)
<SHARES-REINVESTED> 20,392
<NET-CHANGE-IN-ASSETS> 1,324,182
<ACCUMULATED-NII-PRIOR> (853)
<ACCUMULATED-GAINS-PRIOR> (162,805)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 173,388
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 481,669
<AVERAGE-NET-ASSETS> 19,490,054
<PER-SHARE-NAV-BEGIN> 12.48
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.12)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.34
<EXPENSE-RATIO> 1.04
<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 Annual Report for the fiscal year ended 12/31/97 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Scudder Institutional Tax Free Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> AUG-04-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,081,952
<OTHER-INCOME> 0
<EXPENSES-NET> (171,940)
<NET-INVESTMENT-INCOME> 1,910,012
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,910,012)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> (3,496,100,868)
<NUMBER-OF-SHARES-REDEEMED> 3,399,305,731
<SHARES-REINVESTED> (2,251,087)
<NET-CHANGE-IN-ASSETS> (99,046,224)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,277
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 171,940
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.003
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.003
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<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 Cash Annual Report for the fiscal year ended 12/31/97 and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Scudder Institutional Cash Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> AUG-04-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,498,981
<OTHER-INCOME> 0
<EXPENSES-NET> 408,150
<NET-INVESTMENT-INCOME> 10,090,831
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,090,831
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> (13,867,706,842)
<NUMBER-OF-SHARES-REDEEMED> 13,575,768,458
<SHARES-REINVESTED> (14,969,287)
<NET-CHANGE-IN-ASSETS> (306,907,671)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 283,410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 408,150
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.005
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.005
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<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 Annual Report for the fiscal year ended 12/31/97 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME>Scudder Institutional Government Portfolio
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> AUG-04-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,478,313
<OTHER-INCOME> 0
<EXPENSES-NET> (106,391)
<NET-INVESTMENT-INCOME> 1,371,922
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,371,922)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> (5,644,006,318)
<NUMBER-OF-SHARES-REDEEMED> 5,601,134,449
<SHARES-REINVESTED> (2,709,437)
<NET-CHANGE-IN-ASSETS> (45,581,306)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (41,079)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (106,391)
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.004
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (0.004)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
