SCUDDER GLOBAL SMALL COMPANY FUND
A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund Series
Which Seeks Above-Average Capital Appreciation over the Long Term by
Investing Primarily in the Equity Securities of Small
Companies Located Throughout the World
and
SCUDDER GLOBAL BOND FUND
A Pure No-Load(TM) (No Sales Charges) Non-Diversified Mutual Fund Series
Which Seeks Total Return with an Emphasis on Current Income
by Investing Principally in High-Grade Bonds
Denominated in Foreign Currencies and the U.S. Dollar
and, Secondarily, Capital Appreciation
and
SCUDDER EMERGING MARKETS INCOME FUND
A Pure No-Load(TM) (No Sales Charges) Non-Diversified Mutual Fund
Series Which Seeks High Current Income and, Secondarily,
Long-Term Capital Appreciation Through Investment
Primarily in High-Yielding Debt Securities
Issued in Emerging Markets
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STATEMENT OF ADDITIONAL INFORMATION
March 1, 1995
As Revised December 27, 1995
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This combined Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Global Small Company Fund
dated March 1, 1995, the prospectus of Scudder Global Bond Fund dated March 1,
1995 as revised December 27, 1995, and the prospectus of Scudder Emerging
Markets Income Fund dated March 1, 1995, each as amended from time to time,
copies of which may be obtained without charge by writing to Scudder Investor
Services, Inc., Two International Place, Boston, Massachusetts 02110-4103.
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TABLE OF CONTENTS
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THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
General Investment Objective and Policies of Scudder Global Small Company Fund...............................1
General Investment Objectives and Policies of Scudder Global Bond Fund.......................................2
General Investment Objectives and Policies of Scudder Emerging Markets Income Fund...........................3
Risk Factors.................................................................................................4
Special Investment Considerations of Scudder Emerging Markets Income Fund...................................12
Specialized Investment Techniques of the Funds..............................................................13
Investment Restrictions.....................................................................................28
PURCHASES............................................................................................................31
Additional Information About Opening an Account.............................................................31
Additional Information About Making Subsequent Investments by Telephone Order...............................32
Checks......................................................................................................32
Wire Transfer of Federal Funds..............................................................................32
Share Price.................................................................................................33
Share Certificates..........................................................................................33
Other Information...........................................................................................33
EXCHANGES AND REDEMPTIONS............................................................................................33
Exchanges...................................................................................................33
Redemption by Telephone.....................................................................................34
Redemption by Mail or Fax...................................................................................35
Redemption-in-Kind..........................................................................................35
Other Information...........................................................................................35
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................36
The Pure No-Load(TM) Concept................................................................................36
Distribution Plans..........................................................................................37
Diversification.............................................................................................38
Scudder Funds Centers.......................................................................................38
Reports to Shareholders.....................................................................................38
Transaction Summaries.......................................................................................38
THE SCUDDER FAMILY OF FUNDS..........................................................................................38
SPECIAL PLAN ACCOUNTS................................................................................................41
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................42
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........42
Scudder IRA: Individual Retirement Account.................................................................42
Scudder 403(b) Plan.........................................................................................43
Automatic Withdrawal Plan...................................................................................43
Group or Salary Deduction Plan..............................................................................44
Automatic Investment Plan...................................................................................44
Uniform Transfers/Gifts to Minors Act.......................................................................44
Scudder Trust Company.......................................................................................44
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................44
PERFORMANCE INFORMATION..............................................................................................45
Average Annual Total Return.................................................................................45
Cumulative Total Return.....................................................................................46
Total Return................................................................................................47
Capital Change..............................................................................................47
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TABLE OF CONTENTS (continued)
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Yield of Global Bond Fund and Emerging Markets Income Fund..................................................47
Comparison of Portfolio Performance.........................................................................47
ORGANIZATION OF THE FUNDS............................................................................................52
INVESTMENT ADVISER...................................................................................................53
Personal Investments by Employees of the Adviser............................................................56
DIRECTORS AND OFFICERS...............................................................................................56
REMUNERATION.........................................................................................................59
DISTRIBUTOR..........................................................................................................60
TAXES................................................................................................................61
PORTFOLIO TRANSACTIONS...............................................................................................66
Brokerage...................................................................................................66
Portfolio Turnover..........................................................................................67
NET ASSET VALUE......................................................................................................67
ADDITIONAL INFORMATION...............................................................................................68
Experts.....................................................................................................68
Other Information...........................................................................................68
FINANCIAL STATEMENTS.................................................................................................69
APPENDIX
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THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objective and policies," "Special risk
considerations" and "Additional information about
policies and investments"
in each Fund's prospectus.)
Scudder Global Fund, Inc., a Maryland corporation of which Scudder
Global Small Company Fund ("Global Small Company Fund"), Scudder Global Bond
Fund ("Global Bond Fund") and Scudder Emerging Markets Income Fund ("Emerging
Markets Income Fund") are series, is referred to herein as the "Corporation."
Each Fund is a pure no-load(TM), open-end management investment company which
continuously offers and redeems its shares. Each Fund is a company of the type
commonly known as a mutual fund. Global Small Company Fund is a diversified
series of the Corporation. Global Bond Fund and Emerging Markets Income Fund are
non-diversified series of the Corporation. These series sometimes are jointly
referred to herein as the "Funds."
Changes in portfolio securities are made on the basis of investment
considerations, and it is against the policy of management to make changes for
trading purposes. No Fund can guarantee a gain or eliminate the risk of loss and
the net asset value of each Fund's shares will increase or decrease with changes
in the market price of that Fund's investments.
Foreign securities such as those that may be purchased by a Fund may be
subject to foreign government taxes which could reduce the yield, if any, on
such securities, although a shareholder of that Fund may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her proportionate share of such foreign taxes paid by
the Fund. (See "TAXES.")
Because of each Fund's investment considerations discussed herein and
their investment policies, investment in shares of a Fund is not intended to
provide a complete investment program for an investor. The value of each Fund's
shares when sold may be higher or lower than when purchased.
The following objectives and policies, except as otherwise stated, are
not fundamental and may be changed without a shareholder vote. There can be no
assurance that each Fund will achieve its investment objective.
General Investment Objective and Policies of Scudder Global Small Company Fund
Global Small Company Fund seeks above-average capital appreciation over
the long term by investing primarily in the equity securities of small
companies, as defined in the Fund's prospectus. The equity securities in which
the Fund will invest may be listed on U.S. or foreign securities exchanges or
traded over-the-counter, and include common stocks, preferred stocks (either
convertible or non-convertible), rights and warrants. The Fund may also, on
occasion, invest for capital appreciation in debt securities of U.S. and foreign
issuers, although it generally expects to provide little or no current income to
stockholders.
While the Fund's investment adviser, Scudder, Stevens & Clark, Inc.
(the "Adviser"), believes that investments in small companies can offer greater
growth potential than those in larger, more established firms, the former also
involve greater risk and price volatility. To the extent consistent with the
Fund's objective as described above, it is the policy of the Fund, under usual
market conditions, to diversify its portfolio widely by company, industry and
country. The Fund intends to allocate investments among at least three countries
at all times, including the U.S.A.
Global Small Company Fund invests in companies that the Adviser
believes offer above-average earnings, cash flow or asset growth potential. It
also invests in companies which may receive greater market recognition over
time. The Adviser believes that these factors offer significant opportunity for
long-term capital appreciation. The Adviser evaluates investments for the Fund
from both a macroeconomic and microeconomic perspective, using fundamental
analysis, including field research. The Adviser analyzes the growth potential
and relative value of possible investments. When evaluating an individual
company, the Adviser takes into consideration numerous factors, including the
depth and quality of management; a company's product line, business strategy and
competitive position; research and development efforts; financial strength,
including degree of leverage; cost structure; revenue and earnings growth
potential; and price-earnings ratios and other stock valuation measures.
Secondarily, the Adviser weighs the attractiveness of the country and region in
which a company is located.
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In addition to purchasing corporate securities of non-U.S. issuers in
overseas securities markets, Global Small Company Fund may invest in sponsored
and unsponsored American Depositary Receipts ("ADR"s). ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership in the
underlying securities. Transactions in these securities may not necessarily be
settled in the same currency as transactions in the securities which they
represent. Generally ADRs, in registered form, are designed for use in U.S.
securities markets.
The Fund may enter into repurchase agreements fully secured by U.S.
Government obligations (or in the case of a repurchase agreement with a foreign
bank, secured by government securities of the particular foreign jurisdiction).
The Fund may also utilize various other strategic transactions for hedging
purposes and to seek to increase gain. More information about these investment
techniques is provided under "Specialized Investment Techniques -- Strategic
Transactions."
Small Company Risk. The Adviser believes that small companies often have sales
and earnings growth rates which exceed those of larger companies, and that such
growth rates may in turn be reflected in more rapid share price appreciation
over time. However, investing in smaller company stocks involves greater risk
than is customarily associated with investing in larger, more established
companies. For example, smaller companies can have limited product lines,
markets, or financial and managerial resources. Smaller companies may also be
dependent on one or a few key persons, and may be more susceptible to losses and
risks of bankruptcy. Also, the securities of smaller companies may be thinly
traded (and therefore have to be sold at a discount from current market prices
or sold in small lots over an extended period of time). Transaction costs in
smaller company stocks may be higher than those of larger companies.
General Investment Objectives and Policies of Scudder Global Bond Fund
Global Bond Fund provides investors with a convenient way to invest in
a managed portfolio of debt securities denominated in foreign currencies and the
U.S. dollar. The Fund's objective is to provide total return with an emphasis on
current income by investing primarily in high-grade bonds denominated in foreign
currencies and the U.S. dollar. As a secondary objective, the Fund will seek
capital appreciation.
To achieve its objectives, the Fund will invest principally in a
managed portfolio of high-grade intermediate- and long-term bonds denominated in
the U.S. dollar and foreign currencies, including bonds denominated in the
European Currency Unit (ECU). (Intermediate-term bonds generally have maturities
between three and eight years, and long-term bonds generally have maturities of
greater than eight years.) Portfolio investments will be selected on the basis
of, among other things, yields, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk.
At least 65% of the Fund's investments will consist of high-grade debt
securities, which are those rated in one of the three highest rating categories
of one of the major U.S. rating services or, if unrated, considered to be of
equivalent quality in local currency terms as determined by the Adviser. These
securities are rated AAA, AA or A by Standard & Poor's ("S&P") or Aaa, Aa, or A
by Moody's Investors Service, Inc. ("Moody's").
The Fund may also purchase up to 15% of its net assets in debt
securities rated BBB or BB by S&P or Baa or Ba by Moody's and unrated securities
considered to be of equivalent quality by the Adviser. The Fund will not invest
in any securities rated B or lower. (See "Specialized Investment Techniques.")
The Fund's investments may include:
* Debt securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities
* Debt securities issued or guaranteed by a foreign national
government, its agencies, instrumentalities or political
subdivisions
* Debt securities issued or guaranteed by supranational
organizations (e.g., European Investment Bank, Inter-American
Development Bank or the World Bank)
* Corporate debt securities
* Bank or bank holding company debt securities
* Other debt securities, including those convertible into common
stock
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The Fund may invest in zero coupon securities, mortgage and
asset-backed securities and may engage in strategic transactions. The Fund may
purchase securities which are not publicly offered. If such securities are
purchased, they may be subject to restrictions which may make them illiquid.
Please see "Investment Restrictions."
The Fund intends to select its investments from a number of country and
market sectors. It may invest substantially in the issuers of one or more
countries and will have investments in debt securities of issuers from a minimum
of three different countries.
Under normal conditions, the Fund will invest at least 15% of its total
assets in the U.S. dollar-denominated securities, issued domestically or abroad.
For temporary defensive or emergency purposes, however, the Fund may invest
without limit in U.S. debt securities, including short-term money market
securities. It is impossible to predict for how long such alternative strategies
will be utilized.
General Investment Objectives and Policies of Scudder Emerging Markets Income
Fund
Emerging Markets Income Fund's primary investment objective is to
provide investors with high current income. As a secondary objective, the Fund
seeks long-term capital appreciation. In pursuing these goals, the Fund invests
primarily in high-yielding debt securities issued by governments and
corporations in emerging markets. Many nations in Latin America and other
developing regions of the world have undertaken sweeping political and economic
changes that favor increased business activity and demand for capital. In the
opinion of the Adviser, these changes present attractive investment
opportunities, both in terms of income and appreciation potential, for long-term
investors.
The Fund involves above-average bond fund risk and can invest entirely
in high yield/high risk bonds. It is designed as a long-term investment and not
for short-term trading purposes, and should not be considered a complete
investment program. While designed to provide a high level of current income, it
may not be appropriate for all income investors. The Fund should not be viewed
as a substitute for a money market or short-term bond fund. The Fund invests in
lower quality securities of emerging market issuers, some of which have in the
past defaulted on certain of their financial obligations. Investments in
emerging markets can be volatile. The Fund's share price and yield can fluctuate
daily in response to political events, changes in the perceived creditworthiness
of emerging nations, fluctuations in interest rates and, to a certain extent,
movements in foreign currencies. The securities in which the Fund may invest are
further described below, and under "Investment objectives and policies" and
"Additional information about policies and investments" in Emerging Markets
Income Fund's prospectus.
In seeking high current income and, secondarily, long-term capital
appreciation, the Fund invests, under normal market conditions, at least 65% of
its total assets in debt securities issued by governments, government-related
entities and corporations in emerging markets, or the return on which is derived
primarily from emerging markets. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the following: the International Bank for Reconstruction and Development
(i.e., the World Bank), the International Finance Corporation or the United
Nations or its authorities.
While the Fund takes a global approach to portfolio management, the
Adviser expects to weight its investments toward countries in Latin America,
specifically Argentina, Brazil, Mexico and Venezuela. Latin America, and these
four countries in particular, offers the largest and most liquid debt markets of
the emerging nations around the globe. In addition to Latin America, the Adviser
may pursue investment opportunities in Asia, Africa, the Middle East and the
developing countries of Europe, primarily in Eastern Europe. The Fund deems an
issuer to be located in an emerging market if (i) the issuer is organized under
the laws of an emerging market country; (ii) the issuer's principal securities
trading market is in an emerging market; or (iii) at least 50% of the issuer's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years is derived from (directly or indirectly from
subsidiaries) assets or activities located in emerging markets.
Although the Fund may invest in a wide variety of high-yielding debt
obligations, under normal conditions it must invest at least 50% of its assets
in sovereign debt securities issued or guaranteed by governments,
government-related entities and central banks based in emerging markets
(including participations in and assignments of portions of loans between
governments and financial institutions); government owned, controlled or
sponsored entities located in emerging markets; entities organized and operated
for the purpose of restructuring investment characteristics of instruments
3
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issued by government or government-related entities in emerging markets; and
debt obligations issued by supranational organizations such as the Asian
Development Bank and the Inter-American Development Bank, among others.
The Fund may also consider for purchase any debt securities issued by
commercial banks and companies in emerging markets. The Fund may invest in both
fixed and floating-rate issues. Debt instruments held by the Fund take the form
of bonds, notes, bills, debentures, convertible securities, warrants, bank
obligations, short-term paper, loan participations, loan assignments and trust
interests. The Fund may invest regularly in "Brady Bonds," which are debt
securities issued under the framework of the Brady Plan as a mechanism for
debtor countries to restructure their outstanding bank loans. Most "Brady Bonds"
have their principal collateralized by zero coupon U.S. Treasury bonds.
To reduce currency risk, the Fund invests at least 65% of its assets in
U.S. dollar-denominated debt securities. Therefore, no more than 35% of the
Fund's assets may be invested in debt securities denominated in foreign
currencies.
The Fund is not restricted by limits on weighted average portfolio
maturity or the maturity of an individual issue. Debt securities in which the
Fund may invest may have stated maturities from overnight to 30 years. The
weighted average maturity of the Fund's portfolio is actively managed and may
vary from period-to-period based upon the Adviser's assessment of economic and
market conditions, taking into account the Fund's investment objectives.
In addition to maturity, the Fund's investments are actively managed in
terms of geographic, industry and currency allocation. In managing the Fund's
portfolio, the Adviser takes into account such factors as the credit quality of
issuers, changes in and levels of interest rates, projected economic growth
rates, capital flows, debt levels, trends in inflation, anticipated movements in
foreign currencies, and government initiatives. While the Fund is not
"diversified" for purposes of the Investment Company Act of 1940, as amended
(the "1940 Act"), it invests in a minimum of three countries at any one time and
will not commit more than 40% of its assets to issuers in a single country.
By focusing on fixed-income instruments issued in emerging markets, the
Fund invests predominantly in debt securities that are rated below
investment-grade, or unrated but equivalent to those rated below investment
grade by internationally recognized rating agencies such as Standard and Poor's
("S&P") or Moody's Investors Service, Inc. ("Moody's"). Debt securities rated
below BBB by S&P or below Baa by Moody's are considered to be below
investment-grade. These types of high yield/high risk debt obligations (commonly
referred to as "junk bonds") are predominantly speculative with respect to the
capacity to pay interest and repay principal in accordance with their terms and
generally involve a greater risk of default and more volatility in price than
securities in higher rating categories, such as investment-grade U.S. bonds. On
occasion, the Fund may invest up to 5% of its net assets in non-performing
securities whose quality is comparable to securities rated as low as "D" by S&P
or "C" by Moody's. A large portion of the Fund's bond holdings may trade at
substantial discounts from face value.
The Fund may invest up to 35% of its total assets in securities other
than debt obligations issued in emerging markets. These holdings include debt
securities and money market instruments issued by corporations and governments
based in developed markets including up to 20% of total assets in U.S.
fixed-income instruments. However, for temporary, defensive or emergency
purposes, the Fund may invest without limit in U.S. debt securities, including
short-term money market securities. It is impossible to predict for how long
such alternative strategies will be utilized. The Fund may engage in strategic
transactions for hedging purposes and to seek to increase gain. The Fund may
invest up to 15% of its net assets in securities which are not readily
marketable, repurchase agreements maturing in more than seven days and
restricted securities; and in no event may the Fund invest more than 10% of its
total assets in restricted securities. The Fund may also acquire shares of
closed-end investment companies that invest primarily in emerging market debt
securities. To the extent the Fund invests in such closed-end investment
companies, shareholders will incur certain duplicative fees and expenses,
including investment advisory fees.
Risk Factors
Foreign Securities. Global Small Company Fund is intended to provide individual
and institutional investors with an opportunity to invest a portion of their
assets in a diversified portfolio of securities of U.S. and foreign companies
located worldwide and is designed for long-term investors who can accept
international investment risk. Global Bond Fund and Emerging Markets Income Fund
are intended to provide individuals and institutional investors with an
opportunity to invest a portion of their assets in a managed group of debt
instruments denominated in a range of currencies and issued by various entities
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such as governments, their agencies, instrumentalities and political
subdivisions, supranational organizations, corporations and banks. Each Fund is
designed for investors who can accept currency and other forms of international
investment risk. The Adviser believes that allocation of each Fund's assets on a
global basis decreases the degree to which events in any one country, including
the U.S., will affect an investor's entire investment holdings. In the period
since World War II, many leading foreign economies have grown more rapidly than
the U.S. economy and from time to time have had interest rate levels that had a
higher real return than the U.S. bond market. Consequently, the securities of
foreign issuers have provided attractive returns relative to the returns
provided by the securities of U.S. issuers, although there can be no assurance
that this will be true in the future.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
affect a Fund's performance favorably or unfavorably. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than that of the
New York Stock Exchange, and securities of some foreign issuers are less liquid
and more volatile than securities of domestic issuers. Similarly, volume and
liquidity in most foreign bond markets is less than that in the U.S. market and
at times, volatility of price can be greater than in the U.S. Further, foreign
markets have different clearance and settlement procedures and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of a Fund are uninvested and no return is earned thereon. The inability of a
Fund to make intended security purchases due to settlement problems could cause
the Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems either could result in losses to
a Fund due to subsequent declines in value of the portfolio security or, if a
Fund has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Adviser will endeavor to achieve the most favorable net results on
each Fund's portfolio transactions. Further, a Fund may encounter difficulties
or be unable to pursue legal remedies and obtain judgment in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, securities exchanges, brokers and listed companies than in
the U.S. It may be more difficult for a Fund's agents to keep currently informed
about corporate actions such as stock dividends or other matters which may
affect the prices of portfolio securities. Communications between the U.S. and
foreign countries may be less reliable than within the U.S., thus increasing the
risk of delayed settlements of portfolio transactions or loss of certificates
for portfolio securities. In addition, with respect to certain foreign
countries, there is the possibility of nationalization, expropriation, the
imposition of confiscatory or withholding taxation, political, social or
economic instability, or diplomatic developments which could affect U.S.
investments in those countries. Investments in foreign securities may also
entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The Adviser seeks to mitigate the risks to each Fund
associated with the foregoing considerations through investment variation and
continuous professional management.
For Emerging Markets Income Fund, these considerations generally are
more of a concern in developing countries. For example, the possibility of
revolution and the dependence on foreign economic assistance may be greater in
these countries than in developed countries. The management of the Fund seeks to
mitigate the risks associated with these considerations through active
professional management.
Eastern Europe. Investments in companies domiciled in Eastern European countries
may be subject to potentially greater risks than those of other foreign issuers.
These risks include (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries, or in
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the countries of the former Soviet Union. Global Small Company Fund may invest
up to 5% of its total assets in the securities of issuers domiciled in Eastern
European countries.
Investments in such countries involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of East European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there may be no assurance
that such expropriation will not occur in the future. In the event of such
expropriation, the Fund could lose a substantial portion of any investments it
has made in the affected countries. Further, no accounting standards exist in
East European countries. Finally, even though certain East European currencies
may be convertible into U.S. dollars, the conversion rates may be artificial to
the actual market values and may be adverse to the Fund's shareholders.
Foreign Currencies. Investments in foreign securities usually will involve
currencies of foreign countries. Moreover, a Fund temporarily may hold funds in
bank deposits in foreign currencies during the completion of investment programs
and may purchase forward foreign currency contracts, foreign currency futures
contracts and options on such contracts. Because of these factors, the value of
the assets of a Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and a Fund may incur costs in connection with conversions between
various currencies. Although the Funds' custodian values each Fund's assets
daily in terms of U.S. dollars, none of the Funds intends to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. A Fund will
do so from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. A Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward or
futures contracts to purchase or sell foreign currencies.
Because a Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in the U.S. markets. A Fund's share price will reflect the
movements of both the different stock and bond markets in which it is invested
and of the currencies in which the investments are denominated; the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
the Fund's investment performance. U.S. and foreign securities markets do not
always move in step with each other, and the total returns from different
markets may vary significantly. The Funds invest in many securities markets
around the world in an attempt to take advantage of opportunities wherever they
may arise.
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less government supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the United States.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions. Delays in
settlement could result in temporary periods when a portion of the assets of the
Fund is uninvested and no cash is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Foreign investment in certain emerging market debt obligations is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging markets debt
obligations and increase the costs and expenses of the Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
limit the amount of investment by foreign persons in a particular company, limit
the investment by foreign persons only to a specific class of securities of a
company that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on
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foreign investors. Certain emerging markets may also restrict investment
opportunities in issuers in industries deemed important to national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
In the course of investment in emerging market debt obligations, the
Fund will be exposed to the direct or indirect consequences of political, social
and economic changes in one or more emerging markets. Political changes in
emerging market countries may affect the willingness of an emerging market
country governmental issuer to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among other things, in
its inflation rate, the amount of its external debt and its gross domestic
product, also affects its ability to honor its obligations. While the Fund
manages its assets in a manner that will seek to minimize the exposure to such
risks, and will further reduce risk by owning the bonds of many issuers, there
can be no assurance that adverse political, social or economic changes will not
cause the Fund to suffer a loss of value in respect of the securities in the
Fund's portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly if the Fund believes
that appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from
the Fund's identification of such condition until the date of the SEC action,
the Fund's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Board of Directors.
Volume and liquidity in most foreign bond markets are less than in the
United States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although the Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of business and industry practices, securities
exchanges, brokers, dealers and listed companies than in the United States. Mail
service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain emerging markets, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Fund's
investments in those countries. Moreover, individual emerging market economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. The chart below sets
forth the risk ratings of selected emerging market countries' sovereign debt
securities.
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Sovereign Risk Ratings for Selected Emerging Market Countries as of 12/16/94
(Source: Paribas Capital Markets, The Emerging Markets Strategist)
Country Moody's Standard & Poor's
------- ------- -----------------
Chile Baa2 BBB+
Turkey Ba3 B+
Mexico Ba2 BB+
Czech Republic Baa2 BBB+
Hungary Ba1 BB+
Colombia Ba1 BBB-
Venezuela Ba2 B+
Morocco NR NR
Argentina B1 BB-
Brazil B2 B
Poland NR NR
Ivory Coast NR NR
The Fund may have limited legal recourse in the event of a default with
respect to certain debt obligations it holds. If the issuer of a fixed-income
security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. Debt obligations issued by emerging market country governments
differ from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements. With four exceptions, (Panama, Cuba, Costa Rica and Yugoslavia), no
sovereign emerging markets borrower has defaulted on an external bond issue
since World War II.
Income from securities held by the Fund could be reduced by a
withholding tax on the source or other taxes imposed by the emerging market
countries in which the Fund makes its investments. The Fund's net asset value
may also be affected by changes in the rates or methods of taxation applicable
to the Fund or to entities in which the Fund has invested. The Adviser will
consider the cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the taxes will not be subject to
change.
Many emerging markets have experienced substantial, and in some periods
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
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political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
Investing in Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The Fund may invest a portion of its assets in securities denominated
in currencies of Latin American countries. Accordingly, changes in the value of
these currencies against the U.S. dollar may result in corresponding changes in
the U.S. dollar value of the Fund's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
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debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to the Fund
at a higher rate than those imposed by other foreign countries. This may reduce
the Fund's investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt.
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960s and 1970s, but slowed
dramatically (and in some instances was negative) in the 1980s as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in gross domestic product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly restructured. Political turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.
Governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four countries in the southernmost point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.
Investing in the Pacific Basin. Economies of individual Pacific Basin countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.
With respect to the Peoples Republic of China and other markets in
which the Fund may participate, there is the possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments that could adversely
impact a Pacific Basin country or the Fund's investment in the debt of that
country.
Foreign companies, including Pacific Basin companies, are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.
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Investing in Europe. Most Eastern European nations, including Hungary, Poland,
Czechoslovakia, and Romania have had centrally planned, socialist economies
since shortly after World War II. A number of their governments, including those
of Hungary, the Czech Republic, and Poland are currently implementing or
considering reforms directed at political and economic liberalization, including
efforts to foster multi-party political systems, decentralize economic planning,
and move toward free market economies. At present, no Eastern European country
has a developed stock market, but Poland, Hungary, and the Czech Republic have
small securities markets in operation. Ethnic and civil conflict currently rage
through the former Yugoslavia. The outcome is uncertain.
Both the European Community (the "EC") and Japan, among others, have
made overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.
The conditions that have given rise to these developments are
changeable, and there is no assurance that reforms will continue or that their
goals will be achieved.
Portugal is a genuinely emerging market which has experienced rapid
growth since the mid-1980s, except for a brief period of stagnation over
1990-91. Portugal's government remains committed to privatization of the
financial system away from one dependent upon the banking system to a more
balanced structure appropriate for the requirements of a modern economy.
Inflation continues to be about three times the EC average.
Economic reforms launched in the 1980s continue to benefit Turkey in
the 1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita Gross Domestic Product (the "GDP") increasing more than 6%
annually. Agriculture remains the most important economic sector, employing
approximately 55% of the labor force, and accounting for nearly 20% of GDP and
20% of exports. Inflation and interest rates remain high, and a large budget
deficit will continue to cause difficulties in Turkey's substantial
transformation to a dynamic free market economy.
Like many other Western economies, Greece suffered severely from the
global oil price hikes of the 1970s, with annual GDP growth plunging from 8% to
2% in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of the
conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance. Once
Greece has sorted out its political situation, it will have to face the
challenges posed by the steadily increasing integration of the EC, including the
progressive lowering of trade and investment barriers. Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.
Securities traded in certain emerging European securities markets may
be subject to risks due to the inexperience of financial intermediaries, the
lack of modern technology and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large amount of property, the
claims of which have not been entirely settled. There can be no assurance that
the Fund's investments in Eastern Europe would not also be expropriated,
nationalized or otherwise confiscated. Finally, any change in leadership or
policies of Eastern European countries, or countries that exercise a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities.
Investing in Africa. Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the percentage
of people who are over 15 years of age and who can read and write) are
relatively low, ranging from 20% to 60%. The primary industries include crude
oil, natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism, and cattle.
Many of the countries are fraught with political instability. However,
there has been a trend over the past five years toward democratization. Many
countries are moving from a military style, Marxist, or single party government
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to a multi-party system. Still, there remain many countries that do not have a
stable political process. Other countries have been enmeshed in civil wars and
border clashes.
Economically, the Northern Rim countries (including Morocco, Egypt, and
Algeria) and Nigeria, Zimbabwe and South Africa are the wealthier countries on
the continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.
On the other end of the economic spectrum are countries, such as
Burkinafaso, Madagascar, and Malawi, that are considered to be among the poorest
or least developed in the world. These countries are generally landlocked or
have poor natural resources. The economies of many African countries are heavily
dependent on international oil prices. Of all the African industries, oil has
been the most lucrative, accounting for 40% to 60% of many countries' GDP.
However, general decline in oil prices has had an adverse impact on many
economies.
Special Investment Considerations of Scudder Emerging Markets Income Fund
Brady Bonds. The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Bulgaria, Brazil,
Costa Rica, Jordan, Mexico, Nigeria, the Philippines, Poland, Uruguay and
Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
bonds or floating-rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Brady Bonds are often viewed as having three or four
valuation components: the collateralized repayment of principal at final
maturity; the collateralized interest payments; the uncollateralized interest
payments; and any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and the history of defaults of countries issuing
Brady Bonds, with respect to commercial bank loans by public and private
entities, investments in Brady Bonds may be viewed as speculative. Approximately
$152 billion in Brady Bonds have been issued in Africa, Asia, Eastern Europe,
Latin America and the Middle East, with over 90% of these Brady Bonds being
denominated in U.S. dollars.
Sovereign Debt. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
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entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
Loan Participations and Assignments. The Fund may invest in fixed and floating
rate loans ("Loans") arranged through private negotiations between an issuer of
emerging market debt instruments and one or more financial institutions
("Lenders"). The Fund's investments in Loans in Latin America are expected in
most instances to be in the form of participations in Loans ("Participations")
and assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and
Participations. Because no liquid market for these obligations typically exists,
the Fund anticipates that these obligations could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market will
have an adverse effect on the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations may also make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value.
Borrowing. The Fund is authorized to borrow money for purposes of liquidity and
to provide for redemptions and distributions. The Fund will borrow only when the
Adviser believes that borrowing will benefit the Fund after taking into account
considerations such as the costs of the borrowing. The Fund does not expect to
borrow for investment purposes, to increase return or leverage the portfolio.
Borrowing by the Fund will involve special risk considerations. Although the
principal of the Fund's borrowings will be fixed, the Fund's assets may change
in value during the time a borrowing is outstanding, thus increasing exposure to
capital risk.
Specialized Investment Techniques of the Funds
Debt Securities. If the Adviser determines that the capital appreciation on debt
securities is likely to exceed that of common stocks, Global Small Company Fund
may invest in debt securities of foreign and U.S. issuers. Portfolio debt
investments will be selected on the basis of capital appreciation potential, by
evaluating, among other things, potential yield, if any, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the world, taking into account the ability to hedge a degree of currency or
local bond price risk. Global Small Company Fund may purchase "investment-grade"
bonds, which are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB
by S&P or, if unrated, judged to be of equivalent quality as determined by the
Adviser. Bonds rated Baa or BBB may have speculative elements as well as
investment-grade characteristics. Global Small Company Fund may also invest up
to 5% of its net assets in debt securities which are rated below
investment-grade, that is, rated below Baa by Moody's or below BBB by S&P and in
unrated securities of equivalent quality.
Global Bond Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if unrated,
judged to be of equivalent quality as determined by the Adviser. Bonds rated Baa
or BBB may have speculative elements as well as investment-grade
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<PAGE>
characteristics. Global Bond Fund may invest up to 15% of its net assets in
securities rated below BBB or below Baa, but may not invest in debt securities
rated B or lower by Moody's and S&P or in equivalent unrated securities.
Emerging Markets Income Fund may purchase "investment-grade" bonds,
which are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P
or, if unrated, judged to be of equivalent quality as determined by the Adviser.
Bonds rated Baa or BBB may have speculative elements as well as investment-grade
characteristics. Emerging Markets Income Fund may also invest in securities
rated Baa/BBB or lower and in unrated securities of equivalent quality in the
Adviser's judgment. Emerging Markets Income Fund may invest in debt securities
which are rated as low as C by Moody's or D by S&P. Such securities may be in
default with respect to payment of principal or interest.
The Adviser expects that a significant portion of Emerging Markets
Income Fund's investments will be purchased at a discount to par value. To the
extent developments in emerging markets result in improving credit fundamentals
and rating upgrades for countries in emerging markets, the Adviser believes that
there is the potential for capital appreciation as the improving fundamentals
become reflected in the price of the debt instruments. The Adviser also believes
that a country's sovereign credit rating (with respect to foreign currency
denominated issues) acts as a "ceiling" on the rating of all debt issuers from
that country. Thus, the ratings of private sector companies cannot be higher
than that of their home countries. The Adviser believes, however, that many
companies in emerging market countries, if rated on a stand alone basis without
regard to the rating of the home country, possess fundamentals that could
justify a higher credit rating, particularly if they are major exporters and
receive the bulk of their revenues in U.S. dollars or other hard currencies. The
Adviser seeks to identify such opportunities and benefit from this type of
market inefficiency.
High Yield, High Risk Securities. Below investment-grade securities (rated Ba
and lower by Moody's and BB and lower by S&P) or unrated securities of
equivalent quality, in which Global Small Company Fund may invest up to 5% of
its net assets, Global Bond Fund may invest up to 15% of its net assets and
Emerging Markets Income Fund may invest up to 100% of its net assets, carry a
high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories and are considered speculative. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. See the Appendix to this Statement of Additional Information for a
more complete description of the ratings assigned by ratings organizations and
their respective characteristics.
Economic downturns may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have a greater adverse impact on the value of such
obligations than on comparable higher quality debt securities. During an
economic downturn or period of rising interest rates, highly leveraged issues
may experience financial stress which could adversely affect their ability to
service their principal and interest payment obligations. Prices and yields of
high yield securities will fluctuate over time and, during periods of economic
uncertainty, volatility of high yield securities may adversely affect a Fund's
net asset value. In addition, investments in high yield zero coupon or
pay-in-kind bonds, rather than income-bearing high yield securities, may be more
speculative and may be subject to greater fluctuations in value due to changes
in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of a
Fund to accurately value high yield securities in the Fund's portfolio and to
dispose of those securities. Adverse publicity and investor perceptions may
decrease the values and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.
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Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type. For
more information regarding tax issues related to high yield securities, see
"TAXES."
Convertible Securities. Each Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features. Emerging
Markets Income Fund and Global Bond Fund each limits its purchases of
convertible securities to debt securities convertible into common stock.
The convertible securities in which a Fund may invest are either fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).
Illiquid Securities. Each Fund may occasionally purchase securities other than
in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities" or "not readily
marketable," i.e., securities which cannot be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") or the
availability of an exemption from registration (such as Rules 144 or 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. A Fund may be deemed to be an "underwriter" for
purposes of the 1933 Act when selling restricted securities to the public, and
in such event the Fund may be liable to purchasers of such securities if the
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registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
Dollar Roll Transactions. Global Bond Fund may enter into "dollar roll"
transactions, which consist of the sale by the Fund to a bank or broker/dealer
(the "counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while the counterparty is the holder. The Fund receives a fee from the
counterparty as consideration for entering into the commitment to purchase.
Dollar rolls may be renewed over a period of several months with a different
repurchase price and a cash settlement made at each renewal without physical
delivery of securities. Moreover, the transaction may be preceded by a firm
commitment agreement pursuant to which the Fund agrees to buy a security on a
future date.
Global Bond Fund will not use such transactions for leveraging purposes
and, accordingly, will segregate cash, U.S. Government securities or other high
grade debt obligations in an amount sufficient to meet its purchase obligations
under the transactions. The Fund will also maintain asset coverage of at least
300% for all outstanding firm commitments, dollar rolls and other borrowings.
Notwithstanding such safeguards, the Fund's overall investment exposure may be
increased by such transactions to the extent that the Fund bears a risk of loss
on the securities it is committed to purchase, as well as on the segregated
assets.
Dollar rolls are treated for purposes of the 1940 Act as borrowings of
the Fund because they involve the sale of a security coupled with an agreement
to repurchase. Like all borrowings, a dollar roll involves costs to the Fund.
For example, while the Fund receives a fee as consideration for agreeing to
repurchase the security, the Fund forgoes the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the fee received by the Fund, thereby effectively
charging the Fund interest on its borrowing. Further, although the Fund can
estimate the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment could increase or decrease
the cost of the Fund's borrowing.
The entry into dollar rolls involves potential risks of loss which are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security which the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
The Directors of the Fund have adopted guidelines to ensure that the
securities received are substantially identical to those sold. To reduce the
risk of default, the Fund will engage in such transactions only with banks and
broker/dealers selected pursuant to such guidelines.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, with any domestic or foreign
broker/dealer which is recognized as a reporting government securities dealer,
or for Global Small Company Fund, any foreign bank, if the repurchase agreement
is fully secured by government securities of the particular foreign
jurisdiction, if the creditworthiness of the bank or broker/dealer has been
determined by the Adviser to be at least as high as that of other obligations
the Fund may purchase, or to be at least equal to that of issuers of commercial
paper rated within the two highest grades assigned by Moody's or S&P. In
addition, Global Bond Fund may enter into repurchase agreements with any foreign
bank or with any domestic or foreign broker/dealer which is recognized as a
reporting government securities dealer, if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations a Fund may purchase.
A repurchase agreement provides a means for a Fund to earn income on
assets for periods as short as overnight. It is an arrangement under which a
Fund acquires a security ("Obligation") and the seller agrees, at the time of
sale, to repurchase the Obligation at a specified time and price. Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such securities kept at least equal to the repurchase price on a daily basis.
The repurchase price may be higher than the purchase price, the difference being
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income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to the Fund together with the repurchase price
upon repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the Obligation itself. Obligations will be held by the
custodian or in the Federal Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by a Fund subject to a repurchase agreement as being owned
by the Fund or as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the Obligation before repurchase of the Obligation under a
repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the Obligation. If the court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the Obligation, the Fund
may be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, the Fund would
be at risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case a Fund may incur a loss if the proceeds to the Fund of the sale to a third
party are less than the repurchase price. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that a Fund will be unsuccessful in seeking to impose on the seller a
contractual obligation to deliver additional securities. A repurchase agreement
with foreign banks may be available with respect to government securities of the
particular foreign jurisdiction, and such repurchase agreements involve risks
similar to repurchase agreements with U.S. entities.
Repurchase Commitments. Global Bond Fund and Emerging Markets Income Fund may
enter into repurchase commitments with any party deemed creditworthy by the
Adviser, including foreign banks and broker/dealers, if the transaction is
entered into for investment purposes and the counterparty's creditworthiness is
at least equal to that of issuers of securities which a Fund may purchase. Such
transactions may not provide a Fund with collateral marked-to-market during the
term of the commitment.
Indexed Securities. Global Bond Fund and Emerging Markets Income Fund may invest
in indexed securities, the value of which is linked to currencies, interest
rates, commodities, indices or other financial indicators ("reference
instruments"). Most indexed securities have maturities of three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
When-Issued Securities. Each Fund may from time to time purchase securities on a
"when-issued" or "forward delivery" basis. The price of such securities, which
may be expressed in yield terms, is fixed at the time the commitment to purchase
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is made, but delivery and payment for the when-issued or forward delivery
securities takes place at a later date. During the period between purchase and
settlement, no payment is made by a Fund to the issuer and no interest accrues
to the Fund. To the extent that assets of a Fund are held in cash pending the
settlement of a purchase of securities, the Fund would earn no income; however,
it is the Fund's intention to be fully invested to the extent practicable and
subject to the policies stated above. While when-issued or forward delivery
securities may be sold prior to the settlement date, a Fund intends to purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. At the time a Fund makes the
commitment to purchase a security on a when-issued or forward delivery basis, it
will record the transaction and reflect the value of the security in determining
its net asset value. The market value of the when-issued or forward delivery
securities may be more or less than the purchase price. A Fund does not believe
that its net asset value or income will be adversely affected by its purchase of
securities on a when-issued or forward delivery basis.
Lending of Portfolio Securities. Each Fund may seek to increase its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC, such loans
may be made to member firms of the New York Stock Exchange (the "Exchange"), and
would be required to be secured continuously by collateral in cash, U.S.
Government securities or other high grade debt obligations maintained on a
current basis at an amount at least equal to the market value and accrued
interest of the securities loaned. A Fund would have the right to call a loan
and obtain the securities loaned on no more than five days' notice. During the
existence of a loan, a Fund would continue to receive the equivalent of the
interest paid by the issuer on the securities loaned and would also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Adviser to be of good standing,
and when, in the judgment of the Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk. If a
Fund determines to make securities loans, the value of the securities loaned
will not exceed 30% of the value of the Fund's total assets at the time any loan
is made.
Zero Coupon Securities. Global Bond Fund may invest in zero coupon securities
which pay no cash income and are sold at substantial discounts from their value
at maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
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of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Mortgage-Backed Securities and Mortgage Pass-Through Securities. Global Bond
Fund may also invest in mortgage-backed securities, which are interests in pools
of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
Fund may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations"), and in other types of mortgage-related securities.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages. These guarantees, however, do not apply to the market
value or yield of mortgage-backed securities or to the value of Fund shares.
Also, GNMA securities often are purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
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Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. Global Bond Fund may buy mortgage-related securities without
insurance or guarantees, if through an examination of the loan experience and
practices of the originators/servicers and poolers, the Adviser determines that
the securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.
Collateralized Mortgage Obligations ("CMO"s). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal are paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party director as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations of
FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semiannually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
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If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Backed Securities. The Adviser expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. Global Bond Fund will not purchase mortgage-backed securities or
any other assets which, in the opinion of the Adviser, are illiquid, in
accordance with the nonfundamental investment restriction on securities which
are not readily marketable discussed below. As new types of mortgage-related
securities are developed and offered to investors, the Adviser will, consistent
with Global Bond Fund's investment objectives, policies and quality standards,
consider making investments in such new types of mortgage-related securities.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure. Consistent with the Fund's investment objectives and policies, Global
Bond Fund may invest in these and other types of asset-backed securities that
may be developed in the future. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations.
Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile ReceivablesSM ("CARSSM"). CARSSM
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARSSM are passed through monthly to certificate holders, and are guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the directors or originator of the
Corporation. An investor's return on CARSSM may be affected by early prepayment
of principal on the underlying vehicle sales contracts. If the letter of credit
is exhausted, the Corporation may be prevented from realizing the full amount
due on a sales contract because of state law requirements and restrictions
relating to foreclosure sales of vehicles and the obtaining of deficiency
judgments following such sales or because of depreciation, damage or loss of a
vehicle, the application of federal and state bankruptcy and insolvency laws, or
other factors. As a result, certificate holders may experience delays in
payments or losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least a
portion of the assets in the pool. This protection may be provided through
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. Global Bond Fund will not pay any additional or
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separate fees for credit support. The degree of credit support provided for each
issue is generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquency or loss in excess
of that anticipated or failure of the credit support could adversely affect the
return on an investment in such a security.
Global Bond Fund may also invest in residual interests in asset-backed
securities. In the case of asset-backed securities issued in a pass-through
structure, the cash flow generated by the underlying assets is applied to make
required payments on the securities and to pay related administrative expenses.
The residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the Securities Act of 1933 may be subject to certain
restrictions on transferability. In addition, there may be no liquid market for
such securities.
The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
may require Global Bond Fund to dispose of any then existing holdings of such
securities.
Strategic Transactions and Derivatives. Each Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in each Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, each Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect a Fund's unrealized gains in the value of its
portfolio securities in each Fund's portfolio, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of fixed-income securities in a Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of a Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of a Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. Each Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to 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 a Fund to hold a security it might otherwise sell. The use
of currency transactions can result in a Fund incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
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settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the 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 and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
the Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. Each Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
A Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
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instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. Each
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. Each
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. Each Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any other nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to the Fund's limitation on investing no
more than 10% of its assets in illiquid securities.
If a Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
Each Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by a Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
Each Fund may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments (whether or not it holds the
above securities in its portfolio), and on securities indices, currencies and
futures contracts other than futures on individual corporate debt and individual
equity securities. Each Fund will not sell put options if, as a result, more
than 50% of the Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
General Characteristics of Futures. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by a Fund, as seller, to deliver to the buyer
the specific type of financial instrument called for in the contract at a
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specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
Each Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
No Fund will enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of a Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. Each Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. Each Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. A Fund may enter into currency transactions with Counterparties
which have received (or the guarantors of the obligations of which have
received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or that
have an equivalent rating from a NRSRO or are determined to be of equivalent
credit quality by the Adviser.
Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
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receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
No Fund will enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
Each Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, each Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Adviser believes that
the value of schillings will decline against the U.S. dollar, the Adviser may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that a Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, a Fund will comply with the asset
segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
each Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. Each Fund expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. Each Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
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does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. Neither Fund will enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from an NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, a Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. Each Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Fund might use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid high
grade assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a Fund to pay
or deliver securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by a Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid high-grade
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Fund on an index will require the Fund to own
portfolio securities which correlate with the index or to segregate liquid high
grade assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by a Fund requires the Fund to segregate
liquid, high grade assets equal to the exercise price.
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Except when a Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by a Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, a Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. Each Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if a Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Each Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. (See "TAXES.")
Investment Restrictions
Unless specified to the contrary, the following restrictions are
fundamental policies and may not be changed with respect to each of the Funds
without the approval of a majority of the outstanding voting securities of such
Fund which, under the 1940 Act and the rules thereunder and as used in this
Statement of Additional Information, means the lesser of (1) 67% of the shares
of such Fund present at a meeting if the holders of more than 50% of the
outstanding shares of such Fund are present in person or by proxy, or (2) more
than 50% of the outstanding shares of such Fund. Any nonfundamental policy of a
Fund may be modified by the Fund's Board of Directors without a vote of the
Fund's shareholders.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Funds.
As a matter of fundamental policy, each Fund may not:
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1. 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;
2. purchase or sell real estate (except that the 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 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); or purchase or sell
physical commodities or contracts relating to physical
commodities;
3. act as an underwriter of securities issued by others, except
to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of the
Fund;
4. issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for
shares of the separate classes or series of the Corporation;
provided that collateral arrangements with respect to
currency-related contracts, futures contracts, options or
other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of
senior securities for purposes of this restriction;
5. purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase
to be invested in the securities of one or more issuers having
their principal business activities in the same industry,
provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (for the
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, wholly-owned finance companies are
considered to be in the same industry of their parents if
their activities are primarily related to financing the
activities of their parents and each foreign government, its
agencies or instrumentalities as well as supranational
organizations as a group, are each considered to be a separate
industry);
6. (Global Small Company Fund only) 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 closed end investment companies;
7. (Global Small Company Fund only) make loans to other persons,
except (a) loans of portfolio securities, provided collateral
is maintained at not less than 100% by marking to market
daily, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objective and investment policies may be
deemed to be loans;
8. (Global Bond Fund only) make loans to other persons, except
(a) loans of portfolio securities, and (b) to the extent the
entry into repurchase agreements and the purchase of debt
securities in accordance with its investment objectives and
investment policies may be deemed to be loans; or
9. (Emerging Markets Income Fund only) make loans to other
persons, except (a) loans of portfolio securities, and (b) to
the extent the entry into repurchase agreements, loan
assignments and loan participations and the purchase of debt
securities in accordance with its investment objective and
investment policies may be deemed to be loans.
As a matter of nonfundamental policy, each Fund may not:
(a) purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
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<PAGE>
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its total
assets in another investment company, and may not invest more
than 10% of its total assets in other investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer, director or trustee of the Fund or a member, officer,
director or trustee of the investment adviser of the Fund if
one or more of such individuals owns beneficially more than
one-half of one percent (1/2%) of the outstanding shares or
securities or both (taken at market value) of such issuer and
such individuals owning more than one-half of one percent
(1/2%) of such shares or securities together own beneficially
more than 5% of such shares or securities or both;
(d) (Global Small Company Fund and Global Bond Fund only) invest
more than 10% of its net assets in securities which are not
readily marketable, the disposition of which is restricted
under Federal securities laws, or in repurchase agreements not
terminable within 7 days, and the Fund will not invest more
than 10% of its total assets in restricted securities;
(e) (Emerging Markets Income Fund only) invest more than 15% of
its net assets in securities which are not readily marketable,
the disposition of which is restricted under Federal
securities laws, or in repurchase agreements not terminable
within 7 days, and the Fund will not invest more than 10% of
its total assets in restricted securities;
(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors, and
in equity securities which are not readily marketable except
U.S. Government securities, securities of such issuers which
are rated by at least one nationally recognized statistical
rating organization, municipal obligations and obligations
issued or guaranteed by any foreign government or its agencies
or instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of
the total assets of the Fund taken at market value;
(g) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of its net assets; or sell put
options on securities if, as a result, the aggregate value of
the obligations underlying such put options would exceed 50%
of the Fund's net assets;
(h) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the Fund's
total assets provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing the 5% limit.
(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);
(j) purchase or sell real estate limited partnership interests;
(k) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time any loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily. Each Fund
has no current intention of making loans of portfolio
securities that would amount to greater than 5% of its total
assets;
(l) (Global Small Company Fund only) borrow money (including
reverse repurchase agreements) in excess of 5% of its total
assets (taken at market value) except for temporary or
emergency purposes or borrow other than from banks;
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(m) (Global Bond Fund and Emerging Markets Income Fund only)
borrow money in excess of 5% of its total assets (taken at
market value), except for temporary or emergency purposes, or
borrow other than from banks; however, in the case of reverse
repurchase agreements, each Fund may invest in such agreements
with other than banks subject to total asset coverage of 300%
for such agreements and all borrowing;
(n) (Global Bond Fund only) purchase securities on margin or make
short sales, unless by virtue of its ownership of other
securities, it has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, except
in connection with arbitrage transactions, and except that the
Fund may obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities;
(o) (Global Small Company Fund only) purchase securities on margin
or make short sales unless, by virtue of its ownership of
other securities, it has the right to obtain securities
equivalent in kind and amount to the securities sold at no
added cost and, if the right is conditional, the sale is made
upon the same conditions, except in connection with arbitrage
transactions and except that the Fund may obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of securities;
(p) (Global Small Company Fund only) purchase warrants if as a
result warrants taken at the lower of cost or market value
would represent more than 10% of the value of the Portfolio's
net assets or more than 2% of its net assets in warrants that
are not listed on the New York or American Stock Exchanges or
on an exchange with comparable listing requirements (for this
purpose, warrants attached to securities will be deemed to
have no value); or
(q) (Global Bond Fund only) purchase warrants if as a result
warrants taken at the lower of cost or market value would
represent more than 5% of the value of the Fund's net assets
or more than 2% of its net assets in warrants that are not
listed on the New York or American Stock Exchanges or on an
exchange with comparable listing requirements (for this
purpose, warrants attached to securities will be deemed to
have no value).
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of a Fund's assets will
not be considered a violation of the restriction.
PURCHASES
(See "Purchases" and "Transaction Information" in the Funds' prospectuses.)
Additional Information About Opening an Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $1,000 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a taxpayer identification number, clients having
a regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($1,000 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or social security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to State Street Bank, Attention: Mutual Funds, 225 Franklin Street,
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<PAGE>
Boston, MA 02110. The investor must give the Scudder fund name, account name and
the new account number. Finally, the investor must send the completed and signed
application to the Fund promptly.
The minimum initial purchase amount is less than $1,000 under certain
special plan accounts.
Additional Information About Making Subsequent Investments by Telephone Order
With respect to Global Small Company Fund and Emerging Markets Income
Fund, subsequent purchase orders for $10,000 or more, and for an amount not
greater than four times the value of the shareholder's account, may be placed by
telephone, fax, etc., by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the Funds' prospectuses. A confirmation of
the purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancelation. In the event of such cancelation or cancelation at the purchaser's
request, the purchaser will be responsible for any loss incurred by a Fund or
the principal underwriter by reason of such cancelation. If the purchaser is a
shareholder, the Corporation shall have the authority, as agent of the
shareholder, to redeem shares in the account to reimburse the relevant Fund or
the principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to
the relevant Fund.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares are purchased by a check which proves to be uncollectible,
the Corporation reserves the right to cancel the purchase immediately and the
purchaser will be responsible for any loss incurred by a Fund or the principal
underwriter by reason of such cancellation. If the purchaser is a shareholder,
the Corporation shall have the authority, as agent of the shareholder, to redeem
shares in the account to reimburse a Fund or the principal underwriter for the
loss incurred. Investors whose orders have been canceled may be prohibited from
or restricted in placing future orders in any of the Scudder funds.
Wire Transfer of Federal Funds
To purchase shares of Global Bond Fund and obtain the same day dividend
you must have your bank forward federal funds by wire transfer and provide the
required account information so as to be available to the Fund prior to twelve
o'clock noon eastern time on that day. If you wish to make a purchase of
$500,000 or more you should notify the Fund's transfer agent, Scudder Service
Corporation (the "Transfer Agent") of such a purchase by calling 1-800-225-5163.
If either the federal funds or the account information is received after twelve
o'clock noon eastern time, but both the funds and the information are made
available before the close of regular trading on the New York Stock Exchange
(the "Exchange") (normally 4 p.m. eastern time) on any business day, shares will
be purchased at net asset value determined on that day but will not receive the
dividend; in such cases, dividends commence on the next business day.
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, each Fund pays a fee for receipt by State Street
Bank and Trust Company of "wired funds," and the right to charge investors for
this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays are Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
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11). Investors are not able to purchase shares by wiring federal funds on such
holidays because State Street Bank is not open to receive such federal funds on
behalf of a Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on the Exchange on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will be executed at the net asset
value per share on the next business day. If the order has been placed by a
member of the NASD, other than the Distributor, it is the responsibility of that
member broker, rather than a Fund, to forward the purchase order to the Transfer
Agent in Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Corporation to afford ease of redemption,
certificates will not be issued to indicate ownership in a Fund.
Other Information
If purchases or redemptions of a Fund's shares are arranged and
settlement is made, at an investor's election, through a member of the NASD,
other than the Distributor, that member may, at its discretion, charge a fee for
that service. The Board of Directors, on behalf of a Fund, and the Distributor,
the Funds' principal underwriter, each has the right to limit the amount of
purchases by, and to refuse to sell to any person. The Directors and the
Distributor each may suspend or terminate the offering of shares of the Fund at
any time.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., certification of exempt status from exempt organizations) will be
returned to the investor.
The Corporation may issue shares of each Fund at net asset value in
connection with any merger or consolidation with, or acquisition of the assets
of, any investment company (or series thereof) or personal holding company,
subject to the requirements of the 1940 Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and Redemptions" and "Transaction information" in
the Funds' prospectuses.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $1,000. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain a signature guarantee as described under
"Transaction Information--Redeeming shares--Signature guarantees" in the Fund's
prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
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<PAGE>
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund through Scudder's Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
feature over the phone or in writing. Automatic Exchanges will continue until
the shareholder requests by phone or in writing to have the feature removed, or
until the originating account is depleted. The Corporation and the Transfer
Agent each reserves the right to suspend or terminate the privilege of the
Automatic Exchange Program at any time.
No commission is charged to the shareholder for any exchange described
above. An exchange into another Scudder fund is a redemption of shares, and
therefore may result in tax consequences (gain or loss) to the shareholder, and
the proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Corporation employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Corporation does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Corporation will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Corporation and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder fund into which the exchange is being contemplated.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right automatically, without having
to elect it, to redeem up to $50,000 to their address of record. Shareholders
may also request by telephone to have the proceeds mailed or wired to their
predesignated bank account. In order to request redemptions by telephone,
shareholders must have completed and returned to the Transfer Agent the
application, including the designation of a bank account to which the redemption
proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption payments
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. A signature and a signature guarantee
are required for each person in whose name the account is
registered.
Telephone redemption is not available with respect to shares
represented by share certificates or shares held in certain retirement accounts.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
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Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
The Corporation employs procedures, including recording telephone
calls, testing a caller's identity, and sending written confirmation of
telephone transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Corporation does not follow such procedures, it may be liable for
losses due to unauthorized or fraudulent telephone instructions. The Corporation
will not be liable for acting upon instructions communicated by telephone that
it reasonably believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between a Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax required in
some states when settling estates.
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to redemptions to ensure
that all necessary documents accompany the request. When shares are held in the
name of a corporation, trust, fiduciary agent, attorney or partnership, the
Transfer Agent requires, in addition to the stock power, certified evidence of
authority to sign. These procedures are for the protection of shareholders and
should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven days of payment for shares tendered for repurchase or redemption may
result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those regular
accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Corporation reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Corporation and valued as they are for purposes of computing a Fund's net
asset value (a redemption-in-kind). If payment is made in securities, a
shareholder may incur transaction expenses in converting these securities into
cash. The Corporation has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Corporation is obligated to redeem shares,
with respect to any one shareholder during any 90-day period, solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the relevant Fund at
the beginning of the period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Corporation through Scudder Investor Services, Inc. at Two International Place,
Boston, Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the redemption
request. A written request in good order as described above and any certificates
with proper signature guarantee, as described in each Fund's prospectus under
"Transaction information--Redeeming shares--Signature guarantees," should be
sent with a copy of the invoice to Scudder Service Corporation, Confirmed
Processing Department, Two International Place, Boston, Massachusetts 02110.
Failure to deliver shares or required documents (see above) by the settlement
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<PAGE>
date may result in cancellation of the trade and the shareholder will be
responsible for any loss incurred by a Fund or the principal underwriter by
reason of such cancellation. The Corporation shall have the authority, as agent
of the shareholder, to redeem shares in the account to reimburse a Fund or the
principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the shareholder will be absorbed by the principal
underwriter. Any net gains so resulting will accrue to a Fund. For this group,
repurchases will be carried out at the net asset value next computed after such
repurchase requests have been received. The arrangements described in this
paragraph for repurchasing shares are discretionary and may be discontinued at
any time.
If a shareholder redeems all shares in the account, the shareholder
will receive, in addition to the net asset value thereof, all declared but
unpaid dividends thereon. The value of shares redeemed or repurchased may be
more or less than the shareholder's cost depending on the net asset value at the
time of redemption or repurchase. The Corporation does not impose a redemption
or repurchase charge although wire charges may be applicable for redemption
proceeds wired to an investor's bank account. Redemption of shares, including an
exchange into another series of the Corporation or into another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and the
proceeds of such redemptions may be subject to backup withholding. (See
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, directors or custodian of the Plan for the
requirements.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and receive payment therefore may be
suspended at times (a) during which the Exchange is closed, other than customary
weekend and holiday closings, (b) during which trading on the Exchange is
restricted, (c) during which an emergency exists as a result of which disposal
by the Corporation of securities owned by it is not reasonably practicable or it
is not reasonably practicable for the Corporation fairly to determine the value
of its net assets, or (d) during which a governmental body having jurisdiction
over the Corporation may by order permit such a suspension for the protection of
the Corporation's shareholders; provided that applicable rules and regulations
of the SEC (or any succeeding governmental authority) shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist.
If transactions at any time reduce a shareholder's account balance to
below $1,000 in value, the Corporation may notify the shareholder that, unless
the account balance is brought up to at least $1,000, the Corporation will
redeem all shares in the Fund and close the account by sending redemption
proceeds to the shareholder. The shareholder has sixty days to bring the account
balance up to $1,000 before any action will be taken by the Corporation. (This
policy applies to accounts of new shareholders, but does not apply to certain
Special Plan Accounts.) The Directors have the authority to change the minimum
account size.
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in the Funds' prospectuses.)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
36
<PAGE>
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
Scudder Load Fund with 0.75% No-Load Fund with
YEARS Pure No-Load(TM)Fund 8.50% Load Fund 12b-1 Fee 0.25% 12b-1 Fee
----- -------------------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Distribution Plans
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the same Fund. A change of instructions for the
method of payment must be received by the Transfer Agent at least five days
prior to a dividend record date. However, shareholders authorizing telephone
transactions may change their dividend option by calling 1-800-225-5163.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the relevant Fund.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gains distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
37
<PAGE>
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Diversification
Your investment in Global Small Company Fund represents an interest in
a large, diversified portfolio of carefully selected securities. Diversification
may protect you against the possible risks of concentrating in fewer securities
or in a specific market section.
Scudder Funds Centers
Investors may visit any of the Fund Centers maintained by Scudder
Investor Services, Inc. listed in each Fund's prospectus. The Centers are
designed to provide individuals with services during any business day. Investors
may pick up literature or find assistance with opening an account, adding monies
or special options to existing accounts, making exchanges within the Scudder
Family of Funds, redeeming shares or opening retirement plans. Checks should not
be mailed to the Centers but should be mailed to "The Scudder Funds" at the
address listed under "How to contact Scudder" in each Fund's prospectus.
Reports to Shareholders
The Corporation issues to each Fund's shareholders unaudited semiannual
and audited financial statements, including a list of investments held and
statements of assets and liabilities, statements of operations, statements of
changes in net assets and supplementary information.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Fund's prospectus.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $1,000 or $500 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.
MONEY MARKET
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.
38
<PAGE>
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income from a portfolio of high-grade intermediate and
long-term bonds denominated in foreign currencies and the U.S. dollar.
Capital appreciation is a secondary objective.
Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.
Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement
of principal value by actively managing currency, bond market and
maturity exposure and by security selection.
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate-and long-term
bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in investment-grade
municipal securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
- --------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
39
<PAGE>
Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high quality.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.
GROWTH
Scudder Capital Growth Fund seeks to maximize long-term growth of
capital through a broad and flexible investment program emphasizing
common stocks.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.
Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S.
and foreign issuers. Income is an incidental consideration.
- --------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
40
<PAGE>
Scudder Global Small Company Fund seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Quality Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. Companies.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
Scudder Service Representative; easy telephone exchanges into Scudder money
market, tax free, income, and growth funds; shares redeemable at net asset value
at any time.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans", "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
41
<PAGE>
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of each Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of each Fund may be purchased as the underlying investment for
an Individual Retirement Account which meets the requirements of Section 408(a)
of the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,250 for married couples if one spouse has earned income of no
more than $250). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
42
<PAGE>
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
<TABLE>
<CAPTION>
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder 403(b) Plan
Shares of each Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders who currently own or purchase $10,000
or more of shares of a Fund may establish an Automatic Withdrawal Plan. The
investor can then receive monthly, quarterly or periodic redemptions from his or
her account for any designated amount of $50 or more. Payments are mailed at the
end of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus. Any such requests must
be received by the Fund's transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Corporation or its agent on written notice, and
will be terminated when all shares of the Fund under the Plan have been
liquidated or upon receipt by the Corporation of notice of death of the
shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
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<PAGE>
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for directors or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Corporation and its agents reserve the right to establish a
maintenance charge in the future depending on the services required by the
investor.
The Corporation reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
Scudder Trust Company
Annual service fees are paid by each Fund to Scudder Trust Company, an
affiliate of the Adviser, for certain retirement plan accounts and are included
in the fees paid to the Transfer Agent.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information--Dividends
and capital gains distributions" in the Funds' prospectuses.)
Each Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
Each Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, a Fund may retain all or part of such gain for reinvestment, after
44
<PAGE>
paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. (See "TAXES.")
If a Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Internal Revenue Code, the Fund may be subject to that excise tax. (See
"TAXES.") In certain circumstances, a Fund may determine that it is in the
interest of shareholders to distribute less than the required amount.
Global Small Company Fund intends to distribute investment company
taxable income and any net realized capital gains in December each year. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. Additional distributions
may be made if necessary.
Global Bond Fund intends to declare daily and distribute monthly
substantially all of its net investment income resulting from Fund investment
activity. Distributions, if any, of net realized capital gains will normally be
made in December. Distributions of certain realized gains or losses on the sale
or retirement of securities denominated in foreign currencies held by the Fund,
to the extent attributable to fluctuations in currency exchange rates, as well
as certain other gains or losses attributable to exchange rate fluctuations, are
treated as ordinary income or loss and will also normally be made in December.
Emerging Markets Income Fund intends to distribute investment company
taxable income (exclusive of net short-term capital gains in excess of net
long-term capital losses) quarterly in April, July, October and December each
year. Distributions of capital net income gains realized during each fiscal year
will be made annually in December. Additional distributions may be made if
necessary.
All distributions will be made in shares of each Fund and confirmations
will be mailed to each shareholder unless a shareholder has elected to receive
cash, in which case a check will be sent. Distributions are taxable, whether
made in shares or cash. (See "TAXES.")
PERFORMANCE INFORMATION
(See "Distribution and performance information--
Performance information" in the Funds' prospectuses.)
From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for, where applicable, the periods of one year, five years, ten years (or
such shorter periods as may be applicable dating from the commencement of a
Fund's operations), all ended on the last day of a recent calendar quarter.
Average annual total return quotations reflect changes in the price of a Fund's
shares and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Fund shares. Average annual total return
is calculated by finding the average annual compound rates of return of a
hypothetical investment, over such periods, according to the following formula
(average annual total return is then expressed as a percentage):
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T = (ERV/P)^(1/n) - 1
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Return for periods ended October 31, 1994
One Year Life of the Fund
-------- ----------------
Global Small Company Fund 2.80% 11.49%(1)
Global Bond Fund* (0.25)% 5.79%(2)
Emerging Markets Income Fund -- -3.54%(3)
(1) For the period beginning September 10, 1991.
(2) For the period beginning March 1, 1991.
(3) For the period beginning December 31, 1993.
* On December 27, 1995, the Fund adopted its present name and
objectives. Prior to that date, the Fund was known as Scudder Short
Term Global Income Fund and its objective was high current income.
Financial information for the periods ended October 31, 1994 should
not be considered representative of the present Fund under its
current objectives.
Cumulative Total Return
Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of a return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P)-1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return for periods ended October 31, 1994
One Year Life of the Fund
-------- ----------------
Global Small Company Fund 2.80% 40.67%(1)
Global Bond Fund* (0.25)% 22.90%(2)
Emerging Markets Income Fund -- -3.54%(3)
(1) For the period beginning September 10, 1991.
(2) For the period beginning March 1, 1991.
(3) For the period beginning December 31, 1993.
* On December 27, 1995, the Fund adopted its present name and
objectives. Prior to that date, the Fund was known as Scudder Short
Term Global Income Fund and its objective was high current income.
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Financial information for the periods ended October 31, 1994 should
not be considered representative of the present Fund under its
current objectives.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the manner of cumulative total return.
Capital Change
Capital change measures the return from invested capital including
reinvested capital gains distributions. Capital change does not include the
reinvestment of income dividends.
Yield of Global Bond Fund and Emerging Markets Income Fund
A Fund's yield is the net annualized yield based on a specified 30-day
(or one month) period assuming semiannual compounding of income. Yield is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[((a-b)/cd + 1)^6 - 1]
Where:
a = dividends and interest earned during the
period, including amortization of market
premium or accretion of market discount
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
Calculation of the Fund's yield does not take into account
"Section 988 Transactions." (See "TAXES.")
The yield for the 30-day period ended October 31, 1994 was 8.13% for
Global Bond Fund. On December 27, 1995, the Fund adopted its present name and
objectives. Prior to that date, the Fund was known as Scudder Short Term Global
Income Fund and its objective was high current income. Financial information for
the periods ended October 31, 1994 should not be considered representative of
the present Fund under its current objectives.
The yield for the 30-day period ended October 31, 1994 was 9.13% for
Emerging Markets Income Fund.
Quotations of each Fund's performance are based on historical earnings
and are not intended to indicate future performance. An investor's shares when
redeemed may be worth more or less than their original cost. Performance of a
Fund will vary based on changes in market conditions and the level of the Fund's
expenses.
Comparison of Portfolio Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
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<PAGE>
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.
Because some or all each Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part that Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Funds. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which either Fund invests, including, but not limited to,
the following: population growth, gross domestic product, inflation rate,
average stock market price-earnings ratios and the total value of stock markets.
Sources for such statistics may include official publications of various foreign
governments and exchanges.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations. In addition, a Fund's performance may also be
compared to the performance of broad groups of comparable mutual funds. Indices
with which a Fund's performance may be compared include, but are not limited to,
the following:
The Europe/Australia/Far East (EAFE) Index
Morgan Stanley Capital International World Index
J.P. Morgan Global Traded Bond Index
Salomon Brothers World Government Bond Index
NASDAQ Composite Index
Wilshire 5000 Stock Index
The following graph illustrates the historical risks and returns of
selected indices which track the performance of various combinations of United
States and international securities for the ten year period ended December 31,
1994; results for other periods may vary. The graph uses ten year annualized
international returns represented by the Morgan Stanley Capital International
Europe, Australia and Far East (EAFE) Index and ten year annualized United
States returns represented by the S&P 500 Index. Risk is measured by the
standard deviation in overall portfolio performance within each index.
Performance of an index is historical, and does not represent the performance of
a Fund, and is not a guarantee of future results.
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X-Y CHART - EFFICIENT FRONTIER
MSCI EAFE vs. S&P 500 (12/31/84-12/31/94)
CHART DATA:
Standard Total
Deviation Return
--------- ------
19.35 17.55 100% Int'l MSCI EAFE
18.13 17.23 10 US/90 Int'l
17.03 16.91 20/80
16.07 16.59 30 U.S./70 Int'l
15.29 16.27 40/60
14.7 15.96 50 U.S./50Int'l
14.34 15.64 60/40
14.21 15.32 70 U.S./30 Int'l
14.33 15.00 80/20
14.69 14.68 90 U.S./10 Int'l
15.27 14.36 100% U.S. S&P 500
Source: Lipper Analytical Services, Inc. (Data as of 12/31/94)
From time to time, in marketing and other Fund literature, Directors
and officers of the Funds, the Funds' portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Funds. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The Funds may be advertised as an investment choice in Scudder's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
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<PAGE>
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds may include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
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<PAGE>
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Daily, a daily newspaper that features financial, economic, and
business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
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Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
ORGANIZATION OF THE FUNDS
(See "Fund organization" in the Funds' prospectuses.)
Each Fund is a separate series of Scudder Global Fund, Inc., a Maryland
corporation organized on May 15, 1986. Scudder Global Fund and Scudder
International Bond Fund are the other series of the Corporation. On December 6,
1995, shareholders of Scudder Short Term Global Income Fund approved the change
in name and investment objective and policies.
The authorized capital stock of the Corporation consists of 800 million
shares with $.01 par value, 100 million shares of which are allocated to Global
Small Company Fund, 300 million shares of which are allocated to Global Bond
Fund and 100 million shares of which are allocated to Emerging Markets Income
Fund. Each share of each series of the Corporation has equal voting rights as to
each other share of that series as to voting for Directors, redemption,
dividends and liquidation. Shareholders have one vote for each share held. All
shares issued and outstanding are fully paid and non-assessable, transferable,
and redeemable at net asset value at the option of the shareholder. Shares have
no pre-emptive or conversion rights.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The shares of the Corporation have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors.
The Directors, in their discretion, may authorize the division of
shares of a series into different classes permitting shares of different classes
to be distributed by different methods. Although shareholders of different
classes of a series would have an interest in the same portfolio of assets,
shareholders of any subsequently created classes may bear different expenses in
connection with different methods of distribution of their classes. The
Directors have no present intention of taking the action necessary to effect the
division of shares into separate classes (which under present regulations would
require the Corporation to obtain an exemptive order of the SEC), nor of
changing the method of distribution of shares of a series.
Maryland corporate law provides that a Director of the Corporation
shall not be liable for actions taken in good faith, in a manner he or she
reasonably believes to be in the best interests of the Corporation and with the
care that an ordinarily prudent person in a like position would use under
similar circumstances. In so acting, a Director shall be fully protected in
relying in good faith upon the records of the Corporation and upon reports made
to the Corporation by persons selected in good faith by the Directors as
qualified to make such reports.
The Articles of Amendment and Restatement provide that the Directors of
the Corporation, to the fullest extent permitted by Maryland General Corporation
Law and the 1940 Act shall not be liable to the Corporation or its shareholders
for damages. As a result, Directors of the Corporation may be immune from
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<PAGE>
liability in certain instances in which they could otherwise be held liable. The
Articles and the By-Laws provide that the Corporation will indemnify its
Directors, officers, employees or agents against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Corporation to the fullest extent permitted by applicable
law. Nothing in the Articles or the By-Laws protects or indemnifies a Director,
officer, employee or agent against any liability to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
No series of the Corporation shall be liable for the obligations of any
other series.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Funds' prospectuses.)
Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Funds. This organization is one of the most
experienced investment management firms in the U.S. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953, Scudder, Stevens & Clark introduced Scudder
International Fund, the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Securities Trust, Scudder State Tax Free
Trust, Scudder Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S.
Treasury Money Fund, Scudder Variable Life Investment Fund, Scudder World Income
Opportunities Fund, Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The
First Iberian Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The
Latin America Dollar Income Fund, Inc. Some of the foregoing companies or trusts
have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $11 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash
Investment Funds.
The Adviser maintains a large research department, which conducts
continual studies of the factors that affect the position of various industries,
companies and individual securities. In this work, the Adviser utilizes certain
reports and statistics from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for each Fund and for clients of
the Adviser, but conclusions are based primarily on investigations and critical
analyses by its own research specialists. The Adviser's international investment
management team travels the world, researching hundreds of companies.
Certain investments may be appropriate for a Fund and also for other
clients advised by the Adviser. Investment decisions for the Funds and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a Fund.
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Purchase and sale orders for a Fund may be combined with those of other
clients of the Adviser in the interest of achieving the most favorable net
results for that Fund.
The Investment Management Agreements with the Adviser (the
"Agreements") for Global Small Company Fund, Global Bond Fund and Emerging
Markets Income Fund dated September 3, 1991, September 7, 1993 and October 13,
1993, respectively, were approved by the Directors on September 7, 1994 for
Global Small Company Fund and Global Bond Fund, and for Emerging Markets Income
Fund, by the initial shareholder on December 29, 1993. Each Agreement will
continue in effect until September 30, 1995 and from year to year thereafter
only if its continuance is approved annually by the vote of a majority of those
Directors who are not parties to the Agreement or interested persons of the
Adviser or the Corporation, cast in person at a meeting called for the purpose
of voting on such approval, and by vote either of the Directors or of the
outstanding voting securities of the respective Fund. Each Agreement may be
terminated at any time without payment of penalty by either party on sixty days
written notice, and automatically terminates in the event of its assignment.
Under each Agreement, the Adviser regularly provides a Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased for the portfolio of the Fund, what portfolio
securities shall be held or sold by the Fund, and what portion of the Fund's
assets shall be held uninvested, subject always to the provisions of the
Corporation's Articles of Incorporation and By-Laws, of the 1940 Act and the
Internal Revenue Code of 1986 and to the Fund's investment objectives, policies
and restrictions, as each may be amended, and subject, further, to such policies
and instructions as the Directors may from time to time establish.
Under each Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Directors and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Directors.
For these services, Global Small Company Fund pays the Adviser an
annual fee equal to 1.10% of the average daily net assets of such Fund. Global
Bond Fund pays the Adviser an annual fee equal to 0.75 of 1.00% of the first $1
billion of average daily net assets of such Fund and 0.70 of 1.00% of such net
assets in excess of $1 billion. Prior to September 7, 1993, Global Bond Fund
paid a fee equal to 0.75 of 1.00% of average daily net assets under an Agreement
dated March 17, 1992. Emerging Markets Income Fund pays the Adviser a fee equal
to 1.00% of the Fund's average daily net assets. The fee is payable monthly,
provided each Fund will make such interim payments as may be requested by the
Adviser not to exceed 75% of the amount of the fee then accrued on the books of
the Fund and unpaid. The Adviser has agreed, with respect to Global Bond Fund
and Emerging Markets Income Fund, not to impose all or a portion of its
management fee and to maintain the annualized expenses of the Fund at not more
than 1.00% and 1.50%, respectively, of average daily net assets of each Fund
until February 29, 1996. The Adviser retains the ability to be repaid by the
Fund if expenses fall below the specified limit prior to the end of the fiscal
year. These expense limitation arrangements can decrease the Fund's expenses and
improve its performance.
For the fiscal year ended October 31, 1992, with respect to Global
Small Company Fund, the Adviser did not impose a portion of its management fee
amounting to $419,993 and the portion imposed amounted to $24,173. For the
fiscal year ended October 31, 1993, the Adviser did not impose a portion of its
management fee amounting to $494,930 and the portion imposed amounted to
$573,589. For the fiscal year ended October 31, 1994, the Adviser did not impose
a portion of its management fee amounting to $160,728 and the amount imposed
amounted to $2,497,457. For the fiscal year ended October 31, 1992, with respect
to Global Bond Fund, the Adviser did not impose a portion of its management fee
amounting to $1,693,384 and the portion imposed amounted to $3,787,344. For the
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fiscal year ended October 31, 1993, the Adviser did not impose a portion of its
management fee amounting to $1,221,474 and the portion imposed amounted to
$6,856,777. For the fiscal year ended October 31, 1994, the Adviser did not
impose a portion of its management fee amounting to $1,176,118 and the portion
imposed amounted to $4,625,076. For the fiscal period ended October 31, 1994,
with respect to Emerging Markets Income Fund, the Adviser did not impose a
portion of its management fee amounting to $364,316 and the portion imposed
amounted to $130,294.
The Adviser pays the compensation and expenses except those of
attending Board and committee meetings outside New York, New York and Boston,
Massachusetts of all Directors, officers and executive employees of the
Corporation affiliated with the Adviser and makes available, without expense to
either Fund, the services of such directors, officers and employees as may duly
be elected officers, subject to their individual consent to serve and to any
limitations imposed by law, and provides the Funds' office space and facilities.
Under each Agreement, a Fund is responsible for all of its other
expenses including: organization expenses; fees and expenses incurred in
connection with membership in investment company organizations; broker's
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing share
certificates and any other expenses, including clerical expenses of issue,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of the Directors,
officers and employees who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to shareholders; and the fees and
disbursements of custodians. A Fund may arrange to have third parties assume all
or part of the expenses of sale, underwriting and distribution of shares of the
Fund. Each Fund is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Directors with respect thereto. The custodian
agreement provides that the Custodian shall compute each Fund's net asset value.
Each Agreement expressly provides that the Adviser shall not be required to pay
a pricing agent of a Fund for portfolio pricing services, if any.
The Adviser has agreed in each Agreement to reimburse a Fund for annual
expenses to the extent required by the lowest expense limitations imposed by any
states in which the Corporation is at the time offering a Fund's shares for
sale, although no payments are required to be made by the Adviser pursuant to
this reimbursement provision in excess of the annual fee paid by the Fund to the
Adviser. Management has been advised that the lowest of such limitations is
presently 2 1/2% of such net assets up to $30 million, 2% of the next $70
million of such net assets and 1 1/2% of such net assets in excess of that
amount. Certain expenses such as brokerage commissions, taxes, extraordinary
expenses and interest are excluded from such limitations, and other expenses may
be excluded from time to time. If reimbursement is required, it will be made as
promptly as practicable after the end of the Fund's fiscal year. However, no fee
will be imposed by the Adviser during any fiscal year which will cause
year-to-date expenses to exceed the cumulative pro-rata expense limitation at
the time of such payment.
Each Agreement also provides that the Corporation and a Fund may use
any name derived from the name "Scudder, Stevens & Clark" only as long as the
Agreement or any extension, renewal or amendment thereof remains in effect.
In reviewing the terms of each Agreement and in discussions with the
Adviser concerning such Agreement, the Directors who are not "interested
persons" of the Corporation have been represented by independent counsel at the
relevant Fund's expense.
Each Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Directors may have dealings with the Funds as
principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Funds.
55
<PAGE>
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
Position with
Underwriter,
Scudder Investor
Name and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Edmond D. Villani++*# Chairman of the Board President and Managing --
and Director Director of Scudder, Stevens
& Clark, Inc.
Nicholas Bratt++*#@ President-Scudder Global Managing Director of --
Bond Fund, Scudder Scudder, Stevens & Clark,
International Bond Fund, Inc.
Scudder Global Small
Company Fund and Scudder
Emerging Markets Income
Fund; and Director
Daniel Pierce+* Vice President and Chairman of the Board & Vice President,
Director Managing Director of Assistant Treasurer and
Scudder, Stevens & Clark, Director
Inc.
Paul Bancroft III Director Venture Capitalist and --
1120 Cheston Lane Consultant; Retired,
Queenstown, MD 21658 President, Chief Executive
Officer and Director,
Bessemer Securities
Corporation
Sheryle J. Bolton Director Consultant --
560 White Plains Road
Tarrytown, NY 10591
Thomas J. Devine Director Consultant --
641 Lexington Avenue
New York, NY 10022
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
William H. Gleysteen, Jr. Director President, The Japan --
333 East 47th Street Society, Inc. (1989 until
New York, NY 10017 present)
William H. Luers Director President, The Metropolitan --
993 Fifth Avenue Museum of Art (1986 until
New York, NY 10028 present)
Robert G. Stone, Jr. Honorary Director Chairman of the Board & --
405 Lexington Avenue, 39th Fl. Director, Kirby Corporation
New York, NY 10174
Robert W. Lear Honorary Director Executive-in-Residence --
429 Silvermine Road Columbia University Graduate
New Canaan, CT 06840 School of Business
Carol L. Franklin++ Vice President-Scudder Managing Director of --
Global Small Company Fund Scudder, Stevens & Clark,
Inc.
Adam M. Greshin Vice President Principal of Scudder, --
Stevens & Clark, Inc.
Jerard K. Hartman++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
William E. Holzer++@ President-Scudder Global Managing Director of --
Fund Scudder, Stevens & Clark,
Inc.
Thomas W. Joseph+ Vice President Principal of Scudder, Vice President,
Stevens & Clark, Inc. Treasurer, Assistant
Clerk and Director
David S. Lee+ Vice President and Managing Director of President, Assistant
Assistant Treasurer Scudder, Stevens & Clark, Treasurer and Director
Inc.
Douglas M. Loudon++ Vice President Managing Director of Senior Vice President
Scudder, Stevens & Clark,
Inc.
Thomas F. McDonough+ Vice President and Principal of Scudder, Clerk
Secretary Stevens & Clark, Inc.
Pamela A. McGrath+ Vice President and Managing Director of --
Treasurer Scudder, Stevens &
Clark, Inc.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Gerald J. Moran++ Vice President Principal of Scudder, --
Stevens & Clark, Inc.
Edward J. O'Connell++ Vice President and Principal of Scudder, Assistant Treasurer
Assistant Treasurer Stevens & Clark, Inc.
Juris Padegs++ Vice President and Managing Director of Vice President and
Assistant Secretary Scudder, Stevens & Clark, Director
Inc.
Kathryn L. Quirk++ Vice President and Managing Director of Vice President
Assistant Secretary Scudder, Stevens & Clark,
Inc.
M. Isabel Saltzman Vice President Principal of Scudder, --
Stevens & Clark, Inc.
Cornelia M. Small++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.
Coleen Downs Dinneen+ Assistant Secretary Vice President of Scudder, Assistant Clerk
Stevens & Clark, Inc.
<FN>
* Messrs. Villani, Bratt and Pierce are considered by the
Corporation and its counsel to be persons who are
"interested persons" of the Adviser or of the Corporation
(within the meaning of the 1940 Act).
** Unless otherwise stated, all the Directors and officers have
been associated with their respective companies for more
than five years, but not necessarily in the same capacity.
# Messrs. Villani and Bratt are members of the Executive Committee, which may exercise powers of the
Directors when they are not in session.
@ The President of a series shall have the status of Vice President of the Corporation.
+ Address: Two International Place, Boston, Massachusetts 02110
++ Address: 345 Park Avenue, New York, New York 10154
</FN>
</TABLE>
Certain accounts for which the Adviser acts as investment adviser owned
1,789,144 shares in the aggregate of Global Small Company Fund, or 11.83% of the
outstanding shares on January 31, 1995. The Adviser may be deemed to be the
beneficial owner of such shares of Global Small Company Fund, but disclaims any
beneficial ownership therein.
Certain accounts for which the Adviser acts as investment adviser owned
886,553 shares in the aggregate of Emerging Markets Income Fund, or 9.69% of the
outstanding shares on January 31, 1995. The Adviser may be deemed to be the
beneficial owner of such shares of Emerging Markets Income Fund, but disclaims
any beneficial ownership of them.
As of January 31, 1995, 2,858,156 in the aggregate, 6.51% of the
outstanding shares of Global Bond Fund, were held in the name of Charles Schwab
& Co., Inc., who may be deemed to be the beneficial owner of certain of these
shares, but disclaims any beneficial ownership therein.
58
<PAGE>
As of January 31, 1995, 943,578 shares in the aggregate, 10.31% of the
outstanding shares of Emerging Markets Income Fund, were held in the name of
Charles Schwab & Co., Inc., who may be deemed to be the beneficial owner of
certain of these shares, but disclaims any beneficial ownership therein.
As of January 31, 1995 all Directors and officers as a group owned
beneficially (as the term is defined in Section 13(d) under the Securities
Exchange Act of 1934) 397,904 shares, or 2.63% of the shares of Global Small
Company Fund outstanding on such date.
As of January 31, 1995 all Directors and Officers as a group owned
beneficially (as the term is defined in Section 13(d) under the Securities
Exchange Act of 1934) less than 1% of the shares of Global Bond Fund outstanding
on such date.
As of January 31, 1995, all the Directors and officers as a group owned
beneficially (as the term is defined in Section 13(d) under the Securities
Exchange Act of 1934) 2% of the shares of Emerging Markets Income Fund
outstanding on such date.
Except as stated above, to the best of the Corporation's knowledge, as
of January 31, 1995, no person owned beneficially more than 5% of each Fund's
outstanding shares.
The Directors and officers of the Corporation also serve in similar
capacities with other Scudder Funds.
REMUNERATION
Several of the officers and Directors of the Corporation may be
officers or employees of the Adviser, Scudder Investor Services, Inc., Scudder
Service Corporation or Scudder Trust Company, from whom they receive
compensation, as a result of which they may be deemed to participate in the fees
paid by each Fund. The Funds pay no direct remuneration to any officer of the
Corporation. However, each of the Directors who is not affiliated with the
Adviser receives from the Corporation an annual Director's fee of $4,000 plus
$400 for attending each Directors' meeting, audit committee meeting or meeting
held for the purpose of considering arrangements between the Corporation on
behalf of a Fund and the Adviser or any of its affiliates. Each unaffiliated
Director also receives $150 per committee meeting attended other than those set
forth above. For the fiscal year ended October 31, 1994, Directors' fees
amounted to $42,934 for Global Small Company Fund, $42,932 for Global Bond Fund.
For the fiscal period ended October 31, 1994, such fees amounted to $40,174 for
Emerging Markets Income Fund. The following Compensation Table provides in
tabular form the following data:
Column (1) All Directors who receive compensation from the Corporation.
Column (2) Aggregate compensation received by a Director from all series of the
Corporation - Scudder Global Fund, Inc., which is comprised of Scudder Global
Fund, Scudder International Bond Fund, Scudder Global Bond Fund, Scudder Global
Small Company Fund and Scudder Emerging Markets Income Fund.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Corporation. Scudder Global Fund, Inc. does not pay its Directors
such benefits.
Column (5) Total compensation received by a Director from Scudder Global Fund,
Scudder International Bond Fund, Scudder Global Bond Fund, Scudder Global Small
Company Fund and Scudder Emerging Markets Income Fund, plus compensation
received from all funds managed by Scudder for which a Director serves. The
total number of funds from which a Director receives such compensation is also
provided in column (5).
59
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
for the year ended December 31, 1994
=========================================================================================================================
(1) (2) (3) (4) (5)
Pension or Total Compensation
Retirement From Scudder Global
Benefits Accrued Estimated Annual Fund, Inc. and Fund
Name of Person, Aggregate Compensation from As Part of Fund Benefits Upon Complex Paid to
Position Scudder Global Fund, Inc.* Expenses Retirement Director
=========================================================================================================================
<S> <C> <C> <C> <C>
Paul Bancroft III, $45,663 N/A N/A $ 120,238
Director (14 funds)
Thomas J. Devine, $45,663 N/A N/A $ 115,656
Director (16 funds)
William H. Gleysteen, Jr., $45,313 $3,804 $3,000 $ 110,213
Director (12 funds)
William H. Luers, $45,313 N/A N/A $ 83,713
Director (10 funds)
Robert G. Stone, Jr., $45,663 $6,289 $6,000 $ 134,438
Director (15 funds)
<FN>
* Scudder Global Fund, Inc. consists of five Funds: Scudder Global Fund, Scudder International Bond Fund,
Scudder Global Bond Fund, Scudder Global Small Company Fund and Scudder Emerging Markets Income Fund.
</FN>
</TABLE>
DISTRIBUTOR
The Corporation has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
wholly-owned subsidiary of Scudder, Stevens & Clark, Inc., a Delaware
corporation. The Corporation's underwriting agreement dated July 24, 1986 will
remain in effect until September 30, 1994 and from year to year thereafter only
if its continuance is approved annually by a majority of the members of the
Directors who are not parties to such agreement or interested persons of any
such party and by vote either of a majority of the Directors or a majority of
the outstanding voting securities of the Corporation. The underwriting agreement
was most recently approved by the Directors on September 8, 1994.
Under the principal underwriting agreement, the Corporation is
responsible for: the payment of all fees and expenses in connection with the
preparation and filing with the SEC of the Corporation's registration statement
and prospectus and any amendments and supplements thereto, the registration and
qualification of shares for sale in the various states, including registering
the Corporation as a broker/dealer in various states as required; the fees and
expenses of preparing, printing and mailing prospectuses (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications (including newsletters) to shareholders of each
Fund; the cost of printing and mailing confirmations of purchases of shares and
the prospectuses accompanying such confirmations; any issue taxes or any initial
transfer taxes; any of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
any of the cost of computer terminals used by both the Corporation and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of Fund shares to
the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of each Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, any of the cost of toll-free telephone service and expenses of service
representatives, any of the cost of computer terminals, and of any activity
which is primarily intended to result in the sale of shares issued by the
Corporation.
60
<PAGE>
NOTE: Although no Fund currently has a 12b-1 Plan and shareholder approval
would be required in order to adopt one, the underwriting agreement
provides that each Fund will also pay those fees and expenses permitted
to be paid or assumed by a Fund pursuant to a 12b-1 Plan, if any,
adopted by the Fund, notwithstanding any other provision to the
contrary in the underwriting agreement, and the Fund or a third party
will pay those fees and expenses not specifically allocated to the
Distributor in the underwriting agreement.
As agent, the Distributor currently offers each Fund's shares on a
continuous basis to investors in all states. The underwriting agreement provides
that the Distributor accepts orders for shares at net asset value as no sales
commission or load is charged to the investor. The Distributor has made no firm
commitment to acquire shares of the Corporation.
TAXES
(See "Distribution and performance information--Dividends and capital gains
distributions" and "Transaction information--Tax information,
Tax identification number" in the Funds' prospectuses.)
Each of the Funds has elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and has qualified as such since its inception. Each Fund intends to
continue to qualify for such treatment. Such qualification does not involve
governmental supervision or management of investment practices or policy.
As a regulated investment company qualifying under Subchapter M of the
Code, each Fund is required to distribute to its shareholders at least 90% of
its investment company taxable income (including net short-term capital gain
over net long-term capital losses) and generally is not subject to federal
income tax to the extent that it distributes annually its investment company
taxable income and net realized capital gains in the manner required under the
Code. Global Small Company Fund, Global Bond Fund and Emerging Markets Income
Fund normally intend to distribute at least annually all of their respective
investment company taxable income and net realized capital gains and therefore
do not expect to pay federal income tax, although in certain circumstances the
Funds may determine that it is in the interest of shareholders to distribute
less than that amount.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires each Fund to distribute to shareholders during a calendar year an
amount equal to at least 98% of the Fund's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gains
for prior years that were not previously distributed.
Investment company taxable income generally includes dividends,
interest, net short-term capital gains in excess of net long-term capital
losses, and certain foreign currency gains, if any, less expenses and certain
foreign currency losses, if any. Net realized capital gains for a fiscal year
are computed by taking into account any capital loss carryforward of the Fund.
As of October 31, 1994, Global Bond Fund had a net tax basis capital loss
carryforward of approximately $747,000 which may be applied against any realized
net taxable capital gains of each succeeding year until fully utilized or until
October 31, 2002, the expiration date, whichever occurs first.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis of Fund
shares by the difference between a pro rata share of such gains owned and the
individual tax credit. If a Fund makes this election, it may not be treated as
having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise some
portion of Global Small Company Fund's gross income. To the extent that such
dividends constitute any of the Fund's gross income, any of the income
61
<PAGE>
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent that either the Fund shares, or the underlying shares of stock held by
the Fund, with respect to which dividends are received, are treated as
debt-financed under federal income tax law and is eliminated if the shares are
deemed to have been held by the shareholders or the Fund, as the case may be,
for less than 46 days.
Since no portion of Emerging Markets Income Fund's or Global Bond
Fund's income is expected to be comprised of dividends from domestic
corporations, none of the Fund's income distributions is expected to be eligible
for the deduction for dividends received by corporations.
Distributions of the excess of net long-term capital gains over net
short-term capital losses which a Fund designates as "capital gains dividends"
are taxable to shareholders as long-term capital gains, regardless of the length
of time the shares of a Fund have been held by such shareholders. Such
distributions are not eligible for the dividends-received deduction. Any loss
realized upon the redemption of shares held at the time of redemption for six
months or less from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by a Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Dividend and interest income received by a Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains in respect of investments by foreign
investors.
62
<PAGE>
Global Small Company Fund intends to qualify for and may make the
election permitted under Section 853 of the Code so that shareholders may
(subject to limitations) be able to claim a credit or deduction on their federal
income tax returns for, and will be required to treat as part of the amounts
distributed to them, their pro rata portion of qualified taxes paid by the Fund
to foreign countries (which taxes relate primarily to investment income). The
Fund may make an election under Section 853 of the Code, provided that more than
50% of the value of the total assets of the Fund at the close of the taxable
year consists of securities in foreign corporations. The foreign tax credit
available to shareholders is subject to certain limitations imposed by the Code.
If Global Small Company Fund invests in stock of certain foreign
investment companies, the Fund may be subject to U.S. federal income taxation on
any "excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Proposed regulations have been issued which will allow Global Small
Company Fund to make an election to mark to market its shares of these foreign
investment companies in lieu of being taxed in the manner described above. At
the end of each taxable year to which the election applies, the Fund will
include in its income the amount by which the fair market value of the foreign
company's stock exceeds the Fund's adjusted basis in these shares. No mark to
market losses may be recognized. Distributions and gain on dispositions of such
stock will not be subject to a fund level tax to the extent distributed by the
Fund as a dividend to its shareholders. The Fund intends to make this election
if it is determined to be appropriate and in the best interest of the
shareholders.
Equity options (including options on stock and options on narrow-based
stock indices) written or purchased by Global Small Company Fund and
over-the-counter options on debt securities written or purchased by either Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by a Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend in the case of a lapse or sale of
the option on a Fund's holding period for the option and in the case of an
exercise of the option on a Fund's holding period for the underlying stock. The
purchase of a put option may constitute a short sale for federal income tax
purposes, causing an adjustment in the holding period of the underlying security
or substantially identical security in a Fund's portfolio. If a Fund writes a
put or call option, no gain is recognized upon its receipt of a premium. If the
option lapses or is closed out, any gain or loss is treated as a short-term
capital gain or loss. If a call option written by the Fund is exercised any
resulting gain or loss is a short-term or long-term capital gain or loss
depending on the holding period of the underlying security. The exercise of a
put option written by a Fund is not a taxable transaction for the Fund.
Many futures contracts (including foreign currency futures contracts)
entered into by a Fund, certain forward foreign currency contracts, and all
listed nonequity options written or purchased by a Fund (including options on
debt securities, options on futures contracts, options on securities indices and
options on broad-based stock indices) will be governed by Section 1256 of the
Code. Absent a tax election to the contrary, gain or loss attributable to the
lapse, exercise or closing out of any such position generally will be treated as
60% long-term and 40% short-term capital gain or loss, and on the last trading
day of a Fund's fiscal year, all outstanding Section 1256 positions will be
marked-to-market (i.e. treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term capital gain or loss. Under certain circumstances,
entry into a futures contract to sell a security may constitute a short sale for
federal income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in a Fund's portfolio.
Under Section 988 of the Code, discussed below, foreign currency gains or loss
from foreign currency related forward contracts, certain futures and similar
financial instruments entered into or acquired by a Fund will be treated as
ordinary income or loss.
Subchapter M requires that a Fund realize less than 30% of its annual
gross income from the sale or other disposition of stock, securities and certain
options, futures and forward contracts held for less than three months. A Fund's
63
<PAGE>
options, futures and forward transactions may increase the amount of gains
realized by the Fund that are subject to this 30% limitation. Accordingly, the
amount of such transactions that a Fund may undertake may be limited.
Positions of Global Small Company Fund which consist of at least one
stock and at least one stock option or other position with respect to a related
security which substantially diminishes the Fund's risk of loss with respect to
such stock could be treated as a "straddle" which is governed by Section 1092 of
the Code, the operation of which may cause deferral of losses, adjustments in
the holding periods of stock or securities and conversion of short-term capital
losses into long-term capital losses. An exception to these straddle rules
exists for any "qualified covered call options" on stock written by the Fund.
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures contract or forward contract or
nonequity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. Each Fund will monitor its transactions
in options and futures and may make certain tax elections in connection with
these investments.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time a Fund actually
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
If Global Small Company Fund invests in certain high yield original
issue discount obligations issued by corporations, any of the original issue
discount accruing on the obligation may be eligible for the deduction for
dividends received by corporations. In such event, dividends of investment
company taxable income received from the Fund by its corporate shareholders, to
the extent attributable to such portion of accrued original issue discount, may
be eligible for this deduction for dividends received by corporations if so
designated by the Fund in a written notice to shareholders.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to a Fund each year, even though a Fund will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the investment company taxable income of a Fund which
must be distributed to shareholders in order to maintain the qualification of a
Fund as a regulated investment company and to avoid federal income tax at the
level of a Fund. Shareholders will be subject to income tax on such original
issue discount, whether or not they elect to receive their distributions in
cash.
Subchapter M requires that a Fund realize less than 30% of its annual
gross income from the sale or other disposition of stock, securities and certain
options, futures and forward contracts held for less than three months. Options,
futures and forward activities of a Fund may increase the amount of gains
realized by the Fund that are subject to the 30% limitation. Accordingly, the
amount of such activities that a Fund may engage in may be limited.
Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by the Fund.
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
governed by Section 1256 which substantially diminishes the Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
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operation of these rules. Each Fund will monitor its transactions in options and
futures and may make certain tax elections in connection with these investments.
If a Fund invests in stock of certain passive foreign investment
companies, that Fund may be subject to U.S. federal income taxation on a portion
of any "excess distribution" with respect to, or gain from the disposition of,
such stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of a Fund, other than the taxable year
of the excess distribution or disposition, would be taxed to the Fund at the
highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in a Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Proposed regulations have been issued which may allow a Fund to make an
election to mark to market its shares of these foreign investment companies in
lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, a Fund would report as ordinary
income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares. No mark to market losses may
be recognized. The effect of the election would be to treat excess distributions
and gain on dispositions as ordinary income which is not subject to a fund level
tax when distributed to shareholders as a dividend. Alternatively, a Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Each Fund will be required to report to the IRS all distributions of
investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of investment company taxable income and capital gains
and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of each Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Corporation issues to
each shareholder a statement of the federal income tax status of all
distributions.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Dividend and interest income received by a Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
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PORTFOLIO TRANSACTIONS
(See "Fund organization--Investment adviser" in the Funds' prospectuses)
Brokerage
To the maximum extent feasible the Adviser places orders for portfolio
transactions through the Distributor which in turn places orders on behalf of a
Fund with other brokers and dealers. The Distributor receives no commission,
fees or other remuneration from the Funds for this service. Allocation of
brokerage is supervised by the Adviser.
Purchases and sales of fixed-income securities are generally placed by
the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by a Fund. These transactions do,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made which will include an underwriting fee paid to
the underwriter. Portfolio transactions in debt securities may also be placed on
an agency basis, with a commission being charged.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for each Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission (which is
negotiable in the case of U.S. national securities exchange transactions but
which is generally fixed in the case of foreign exchange transactions), size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others,
if available. The Adviser reviews on a routine basis commission rates, execution
and settlement services performed, making internal and external comparisons.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to the Funds' custodian for
appraisal purposes, or who supply research, market and statistical information
to the Funds or the Adviser. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for a Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for executing the same transaction solely on account of the
receipt of research, market or statistical information. The Adviser does not
place orders with brokers or dealers on the basis that the broker or dealer has
or has not sold a Fund's shares. Subject also to obtaining the most favorable
net results, the Adviser may place brokerage transactions through the Custodian
and a credit against the custodian fee due, equal to one-half of the commission
on any such transaction will be given on any such transaction. Except for
implementing the policy stated above, there is no intention to place portfolio
transactions with particular brokers or dealers or groups thereof. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market makers for the security being traded unless, after exercising
care, it appears that more favorable results are available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Funds and to the Adviser, it is the
opinion of the Adviser that such information will only supplement its own
research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Funds, and not all such
information is used by the Adviser in connection with the Funds. Conversely,
such information provided to the Adviser by brokers and dealers through whom
other clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Funds.
In the fiscal years ended October 31, 1994, 1993 and 1992, Global Small
Company Fund paid brokerage commissions of $730,119, $507,871 and $214,903,
respectively. In the fiscal year ended October 31, 1994, the Fund paid brokerage
commissions of $489,523 (67.04% of the total brokerage commissions), resulting
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from orders placed, consistent with the policy of seeking to obtain the most
favorable net results, for transactions placed with brokers and dealers who
provided supplementary research, market and statistical information to the
Corporation or Adviser. The amount of such transactions aggregated $149,363,282
(59.81% of all brokerage transactions). The balance of such brokerage was not
allocated to any particular broker or dealer or with regard to the
above-mentioned or any other special factors.
Under its prior investment objective, in the fiscal year ended October
31, 1994, Global Bond Fund paid brokerage commissions of $357,605, which was not
allocated to any particular broker or dealer or with regard to the above
mentioned or any other special factors. In the fiscal years ended October 31,
1993 and 1992, Global Bond Fund paid no brokerage commissions. For the fiscal
period ended October 31, 1994, Emerging Markets Income Fund paid no brokerage
commissions.
The Directors intend to review from time to time whether the recapture
for the benefit of a Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.
Portfolio Turnover
Each Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less.
Purchases and sales are made for a Fund's portfolio whenever necessary, in
management's opinion, to meet the Fund's objective. Under its prior investment
objective, Global Bond Fund's portfolio turnover rates for the fiscal years
ended October 31, 1994 and 1993 were 272.4% and 259.8%, respectively. Global
Small Company Fund's portfolio turnover rates for the fiscal years ended October
31, 1994 and 1993 were 45.8% and 54.6%, respectively. Emerging Markets Income
Fund's portfolio turnover rate for the fiscal period ended October 31, 1994 was
181%.
Economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for Global Bond Fund and Emerging
Markets Income Fund. A higher rate involves greater transaction costs to a Fund
and may result in the realization of net capital gains, which would be taxable
to shareholders when distributed.
NET ASSET VALUE
The net asset value of shares of each Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of a Fund, less all liabilities, by the total
number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by each Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
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An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of each Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of each Fund included in each Fund's
Prospectus and the Financial Statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance on the report of Coopers & Lybrand L.L.P., One Post Office
Square, Boston, MA 02109, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
Other Information
Many of the investment changes in a Fund will be made at prices
different from those prevailing at the time such changes may be reflected in a
regular report to shareholders of the Fund. These transactions will reflect
investment decisions made by the Adviser in light of the investment objectives
and policies of each Fund, and such factors as its other portfolio holdings and
tax considerations should not be construed as recommendations for similar action
by other investors.
The CUSIP number of Global Small Company Fund is 811150-40-8.
The CUSIP number for Global Bond Fund is 811150-30-9.
The CUSIP number for Emerging Markets Income Fund is 811150-50-7.
Each Fund's fiscal year end is October 31.
The law firm of Dechert Price & Rhoads is counsel for the Funds.
Costs of $51,807 incurred by Global Small Company Fund in conjunction
with its organization are amortized over the five year period beginning
September 10, 1991.
Costs of $58,530 incurred by Global Bond Fund in conjunction with its
organization are amortized over the five year period beginning March 1, 1991.
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Costs of $76,595.28 incurred by Emerging Markets Income Fund in
conjunction with its organization are amortized over the five year period
beginning December 31, 1993.
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, is employed as custodian for the Funds. Brown Brothers Harriman & Co. has
entered into agreements with foreign subcustodians approved by the Directors of
the Corporation pursuant to Rule 17f-5 of the Investment Company Act.
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts
02107-2291, a wholly-owned subsidiary of the Adviser, is the transfer and
dividend paying agent for the Funds. Scudder Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans.
Global Small Company Fund pays Scudder Service Corporation an annual fee of
$17.55 for each account maintained for a participant. Global Bond Fund pays
Scudder Service Corporation an annual fee of $25 for each account maintained for
a participant. Emerging Markets Income Fund pays Scudder Service Corporation an
annual fee of $20.40 for each account maintained for a participant. Scudder
Service Corporation charged Global Small Company Fund aggregate fees of $596,637
during the Fund's last fiscal year. Scudder Service Corporation charged Global
Bond Fund aggregate fees of $1,083,858 during the Fund's last fiscal year.
Scudder Service Corporation charged Emerging Markets Income Fund an aggregate
fee of $188,557 during the Fund's last fiscal period.
The Directors of the Corporation have considered the appropriateness of
using this combined Statement of Additional Information for the Funds. There is
a possibility that a Fund might become liable for any misstatement, inaccuracy,
or incomplete disclosure in this Statement of Additional Information concerning
the other Fund.
The Funds' prospectuses and this combined Statement of Additional
Information omit certain information contained in the Registration Statement
which the Corporation has filed with the SEC under the Securities Act of 1933
and reference is hereby made to the Registration Statement for further
information with respect to each Fund and the securities offered hereby. This
Registration Statement is available for inspection by the public at the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
Global Small Company Fund
The financial statements, including the Investment Portfolio of Global
Small Company Fund, together with the Report of Independent Accountants, and
Financial Highlights, are incorporated by reference and attached hereto on pages
11 through 29, inclusive, in the Annual Report to Shareholders of the Fund dated
October 31, 1994, and are deemed to be a part of this Statement of Additional
Information.
Global Bond Fund
The financial statements, including the Investment Portfolio of Scudder
Short Term Global Income Fund, together with the Report of Independent
Accountants, and Financial Highlights, are incorporated by reference and
attached hereto on pages 9 through 26, inclusive, in the Annual Report to
Shareholders of the Fund dated October 31, 1994, and are deemed to be a part of
this Statement of Additional Information.
Emerging Markets Income Fund
The financial statements, including the Investment Portfolio of
Emerging Markets Income Fund, together with the Report of Independent
Accountants, and Financial Highlights, are incorporated by reference and
attached hereto on pages 11 through 24, inclusive, in the Annual Report to
Shareholders of the Fund dated October 31, 1994, and are deemed to be a part of
this Statement of Additional Information.
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APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds.
Ratings of Municipal and Corporate Bonds
S&P:
Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
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favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during other good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Global Small
Company Fund
Annual Report
October 31, 1994
* For investors seeking above-average capital appreciation over the long
term by investing primarily in the equity securities of small
companies located throughout the world.
* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
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CONTENTS
2 Highlights
3 Letter from the Fund's Chairman
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
11 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
29 Report of Independent Accountants
30 Tax Information
33 Officers and Directors
34 Investment Products and Services
35 How to Contact Scudder
HIGHLIGHTS
* Scudder Global Small Company Fund produced a positive total return of
2.80% for the fiscal year ended October 31, 1994, in spite of
challenging investment conditions.
* The Fund's 12-month total return was enhanced by a weak U.S. dollar
relative to a number of foreign currencies, namely the Japanese yen
and the German mark.
* SAP AG, the Fund's top holding, appreciated a remarkable 232% during
the year.
* Morningstar, an independent analyst of mutual funds, recently awarded
your Fund a **** rating (out of a possible five stars) for the
three-year period ended September 30, 1994. Morningstar proprietary
ratings reflect historical risk-adjusted performance. The ratings are
subject to change every month. Morningstar ratings are calculated from
the Fund's three-year average annual return with appropriate fee
adjustments and a risk factor that reflects fund performance relative
to three-month Treasury bill monthly returns. No more than 22.5% of
the funds in an investment category receive four stars (only ten
percent receive five stars). Past performance is no guarantee of
future results.
2
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LETTER FROM THE FUND'S CHAIRMAN
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Dear Shareholders,
The combination of modest global economic growth and low inflation
caused stock prices to move higher in the summer months, and many of the
smaller European markets were up sharply after performing poorly in the
first half of the year. Yet the financial community continues to cast a
wary eye on the prospects for inflation and is taking its cues to a large
extent from central bank activity and the direction of interest rates.
We expect higher interest rates to limit economic growth in the United
States to a more sustainable pace. The U.S. economy may receive some help
from increased exports in 1995, aided by recoveries in Europe and Japan,
and corporate earnings in related industries should improve as a result.
Global economic expansion is also expected to continue at a moderate
overall pace. But the upward pressure on interest rates should continue due
in part to the relative scarcity of capital available to invest in
economies and financial markets. As a result, the world's stock markets are
likely to remain volatile in the near term.
If you have questions about your Fund or your investments, contact a
Scudder Investor Information representative at 1-800-225-2470. Page 35
provides more information on how to contact Scudder. Thank you for choosing
Scudder Global Small Company Fund to help meet your investment needs.
We would also like to take this opportunity to announce that on
October 10, 1994, in keeping with our pioneering tradition in international
investing, we introduced Scudder Greater Europe Growth Fund, a pure no-load
mutual fund, designed to invest both in Western and Eastern Europe. For
more information about Scudder Greater Europe Growth Fund and other
investment products and services, see page 34.
Sincerely,
/s/Edmond D. Villani
Edmond D. Villani
Chairman,
Scudder Global Small Company Fund
3
<PAGE>
Scudder Global Small Company Fund
Performance Update as of October 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- ------------------------------------------------------------------
Scudder Global Small Company Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,280 2.80% 2.80%
Life of
Fund* $14,067 40.67% 11.49%
MSCI World Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,765 7.65% 7.65%
Life of
Fund* $13,163 31.63% 9.33%
* The Fund commenced operations on
September 10, 1991. Index comparisons
begin September 30, 1991.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Global Small Company Fund
Year Amount
- --------------------
9/91* 10000
10/91 9770
4/92 10107
10/92 9894
4/93 11558
10/93 13459
4/94 13496
10/94 13837
MSCI World Index
Year Amount
- --------------------
9/91* 10000
10/91 10159
4/92 9696
10/92 9628
4/93 11213
10/93 12228
4/94 12542
10/94 13163
The Morgan Stanley Capital International (MSCI) World
Index is an unmanaged capitalization-weighted measure
of global stock markets including the U.S., Canada,
Europe, Australia, and the Far East. Index returns assume
dividends reinvested net of withholding tax and, unlike
Fund returns, do not reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly Periods ended October 31
- ----------------------------------
<TABLE>
<S> <C> <C> <C> <C>
1991* 1992 1993 1994
-------------------------------------------------------------------------------
Net Asset Value.... $11.92 $12.05 $16.14 $16.27
Income Dividends... $ -- $ .02 $ .07 $ .18
Capital Gains
Distributions...... $ -- $ -- $ .12 $ .15
Fund Total
Return (%)......... -.67 1.26 36.04 2.80
Index Total
Return (%)......... 1.59 -5.23 27.01 7.65
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the average annual total return for the one
year and life of Fund would have been approximately 2.74% and 10.86%,
respectively.
4
<PAGE>
Scudder Global Small Company Fund
Portfolio Summary as of October 31, 1994
- ---------------------------------------------------------------------------
Geographical (Excludes 10% Cash Equivalents)
- ---------------------------------------------------------------------------
U.S. & Canada 28% The Fund continues to blend small
Europe 26% company stock investments from the
Japan 21% world's established markets with
Pacific Basin 17% those from developing markets.
Latin America 8%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Sectors (Excludes 10% Cash Equivalents)
- --------------------------------------------------------------------------
Technology 14% During the year, price appreciation
Consumer Discretionary 11% of technology stocks boosted the
Consumer Staples 11% Fund's exposure to the technology
Financial 11% sector.
Manufacturing 11%
Durables 10%
Services Industries 7%
Transportation 5%
Health 5%
Other 15%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------
1. SAP AG
German computer software manufacturer
2. Atmel Corp.
U.S. developer and manufacturer of integrated circuits
3. Tibbett and Britten Group PLC
British transportation services for manufacturing and retail industries
4. Allegheny Ludlum Corp.
Major U.S. stainless steel manufacturer
5. Thomas Nelson, Inc.
U.S. publisher
6. Shohkoh Fund & Co., Ltd.
Japanese finance company for small and medium size firms
7. Nichiei Co., Ltd.
Japanese finance company for small and medium size firms
8. Companhia Cervejaria Brahma
Leading Brazilian beer producer and distributor
9. Bank of Ireland PLC
Bank
10. Takuma Co., Ltd.
Leading Japanese maker of boilers, garbage incinerators and
water treatment plants
SAP AG, which has established itself as a leader in software
applications, was the Fund's largest holding for much of the fiscal year.
For more complete details about the Fund's Investment Portfolio,
see page 11.
A monthly Investment Portfolio Summary is available upon request.
5
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
For the fiscal year ended October 31, 1994, Scudder Global Small
Company Fund posted a total return of 2.80%, reflecting an increase in
share price from $16.14 a year ago to $16.27 at the end of the period.
Included in your Fund's 12-month return are distributions totaling $0.33
per share ($0.18 in income dividends and $0.15 in capital gains). For the
same period, the unmanaged Morgan Stanley Capital International (MSCI)
World Index produced a total return of 7.65%. The MSCI World Index is
composed of stocks of the world's largest companies, whereas your Fund
concentrates on small-company stocks. Stocks of larger companies tend to
fare better than their small-company counterparts during times of economic
and financial uncertainty, as was the case in early 1994. But several Fund
holdings that were bruised earlier this year have since recovered
significantly. The Fund's total return for the period's final quarter
(4.23% versus 3.09% for the index) reflects not only better absolute
performance, but better relative performance as well.
Interest Rates Rise in the Face of Global Growth
Over the past fiscal year, rising interest rates, a weakening dollar,
and a shrinking supply of global capital for investment roiled financial
markets. Japan's economy remained in recession, but Europe pulled out of
its longest slump since World War II. Here in the United States, the pace
of economic growth increased. Meanwhile, emerging economies, particularly
those in Southeast Asia, continued to grow at a rapid pace. With global
economic activity on the rise, investors are wary of accelerating
inflation, which has dampened enthusiasm for financial investments. In
reality, however, inflation has remained relatively quiescent despite
global growth. While we expect to see prices of certain commodities rise,
corporate efforts to improve productivity, the development of new
technologies, and increased competition stemming from globalization may
limit the extent to which these increases filter through to the broader
economy.
Unlike the European recovery, Japan's recovery has been slow in
coming. We believe improvement is likely to arrive via domestic consumption
(in contrast to Europe's primarily export-driven recovery), as the
constrained Japanese consumer gets a boost from lower taxes and market
deregulation. Hampering growth, however, is the strength of the yen, which
has undermined the global competitiveness of Japan's manufacturing sector.
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Japanese manufacturers continue to move their production overseas to more
affordable locations, especially neighboring Asian nations such as China,
Malaysia, and Indonesia. But the flip side of a strong yen is much cheaper
imports. Coupled with recent tax cuts and pent-up consumer demand for
value, imported goods continue to penetrate the Japanese market.
Throughout the fiscal year, Japan maintained a prominent presence in
the portfolio, its weighting rising to a high of 26% in July. By the fiscal
year's end, however, we had reduced the Fund's Japanese position to 21% of
the equity portfolio, due in part to Japan's continued reluctance to
recycle its vast pool of savings sooner to capital-hungry global markets.
In addition, consumer purchases have yet to escalate dramatically despite
lower-cost imports, consequently preventing economic recovery from taking a
firm hold. Against this backdrop, we varied the Fund's array of Japanese
small-stock holdings to include specialty industrial companies such as
Takuma Co. (1.5% of the equity portfolio). Takuma is a leading manufacturer
of boilers, garbage incinerators, and water treatment plants, and we
believe is in an excellent position to benefit from any improvement in
global economic growth. Such additions join several rewarding Japanese
investments in the finance sector, including Nichiei Co., a Japanese
finance company for small- and medium-size firms.
Individual Stock Selection Drives Performance
The performance of the Fund's U.S. holdings was mixed. Outstanding
returns generated by semiconductor stocks--Atmel (+168%), Microchip
Technology (+120%), and Maxim Integrated Products (+66%)--were partially
offset by the relatively poor performance of financial stocks, notably
First Colony (-24%) and W.R. Berkley (-6%). First Colony, the second
largest position in the portfolio at the beginning of the fiscal year, is
an insurance holding company specializing in annuity products. W.R. Berkley
is a well-run insurance company that has, like its peers, endured a long,
difficult period for the industry. As a group, small U.S. stocks with high
growth rates underperformed during the past 12 months, although they
bounced back in the final months of the fiscal year.
7
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------
Technology was the most dynamic sector during the year, constituting
14% of the equity portfolio at the end of the period versus 6% a year
earlier. Price appreciation--not new investments--was the primary driver
behind the Fund's growing exposure to technology. Gains were driven by
dramatic earnings increases in the semiconductor stocks noted above
together with a whopping 232% increase in your Fund's largest holding, SAP,
the German software producer. This company has established itself as the
dominant supplier of software applications packages for major corporations
employing client-server technology. As companies allocate more of their
capital spending to technology, the integration and reliability of SAP's
programs should have increasing appeal, evidenced by SAP's revenue growth
rate of 66% in the first nine months of their fiscal year.
Investments in the smaller emerging markets, particularly those in
Latin America and the Pacific Basin, continue to play a major role in the
portfolio. Our approach here has been to consolidate holdings and realign
positions by replacing some consumer-oriented companies with companies
whose earnings stand to benefit as strong global economic expansion
continues, such as steel producers Usaminas in Brazil and Hylsamex in
Mexico. While we have pared back our exposure to some areas, particularly
Hong Kong and Mexico, we think numerous opportunities still exist in these
regions.
Despite the gyrations of equity and currency markets during the year,
the core of your portfolio has remained stable. However, several companies
were added to the top 10 list. Two of these stocks earned their way to the
top tier through strong performance, thanks to strong profit growth:
Brahma, the largest brewery in Brazil; and Shohkoh Fund, a small- and
medium-size business finance fund in Japan. These stocks rose 88% and 58%,
respectively, for the period under review. A third, Allegheny Ludlum, is a
special situation. A survivor in American stainless steel production, the
company has strong earnings prospects.
Currencies Work to the Fund's Advantage
While currency fluctuation should have little impact on the long-term
performance of stock investments, it can have a significant effect on
8
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
short-term performance. As with any global portfolio invested in securities
outside the United States this year, changes in currency rates have had a
direct impact on the dollar value of your Fund. As illustrated in the
following table, recent dollar weakness benefited U.S. investors in foreign
stocks during the 12 months ended October 31, 1994.
Market Change in Market Change in
Markets Local Currency U.S. Dollars
-------- --------------- -------------
United Kingdom -1.9% 6.9%
Japan -2.4% 9.2%
Germany -1.6% 9.6%
Malaysia -5.1% -5.0%
Because the currencies of several Far Eastern markets (excluding
Japan) are in essence linked to the U.S. dollar, global currency
fluctuations have a more limited impact on the dollar-adjusted returns in
those markets than in European markets, for example.
It is also worth noting that during the year we put defensive hedging
strategies to work, effectively converting much of the Fund's exposure to
Japanese yen into U.S. dollars. We are convinced the yen is overvalued
relative to the U.S. dollar and due for a decline, and these strategies are
intended to limit currency-related price fluctuations in the Fund's
Japanese holdings. If the yen strengthens further in the near term, we plan
to increase the hedge.
Outlook
Looking ahead to 1995, we believe the pace of global growth will
continue to rise modestly, and that further interest-rate increases are
likely. Higher interest rates, of course, will test stock valuations.
Income investments with increasingly higher yields may compete for
investors' affections. In this environment, we will maintain a strategic
focus on growth opportunities in the developing world and look for ways to
9
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------
take advantage of the economic recovery underway in Europe. We are also
increasing investments in the energy arena, scouring the globe for small
energy companies with exciting prospects. As always, our selective
stock-by-stock approach is the mainstay of our investment process, and we
remain committed to putting more money behind individual stocks of those
companies in which our analysts have the greatest confidence, regardless of
location.
Sincerely,
Your Portfolio Management Team
/s/Gerald J. Moran /s/Elizabeth J. Allan
Gerald J. Moran Elizabeth J. Allan
/s/Carol L. Franklin /s/Joan R. Gregory
Carol L. Franklin Joan R. Gregory
Scudder Global Small Company Fund:
A Team Approach to Investing
Scudder Global Small Company Fund is run by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund. They are supported by
Scudder's large staff of economists, research analysts, traders, and other
investment specialists who work in Scudder offices across the United States
and abroad. We believe our team approach benefits Fund investors by
bringing together many disciplines and leveraging Scudder's extensive
resources.
Lead Portfolio Manager Gerald J. Moran has set Scudder Global Small
Company Fund's investment strategy and overseen its daily operation since
the Fund was introduced in 1991. Gerry joined Scudder's equity research and
management area in 1968 as an analyst and has focused on small company
stocks since 1982. Gerry has been a portfolio manager since 1985. Elizabeth
Allan, Portfolio Manager, who joined the team in 1994, concentrates on the
Fund's Pacific Basin investments. Elizabeth, who has been a portfolio
manager at Scudder since 1991, joined the firm in 1987 as a member of the
portfolio management team of a Scudder closed-end mutual fund concentrating
its investments in Asia. Carol L. Franklin, Portfolio Manager, contributes
expertise on the Fund's European investments, a role she has filled since
the Fund commenced operations. Carol has worked on international equity
investing as a portfolio manager at Scudder since 1981. Joan Gregory,
Portfolio Manager, joined the team in 1994 and focuses on stock selection,
a role she has played since she joined Scudder in 1992. Ms. Gregory has
been involved with investment in global and international stocks as an
assistant portfolio manager since 1989.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of October 31, 1994
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4.3% REPURCHASE AGREEMENT
----------------------------------------------------------------------------------
11,211,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette dated 10/31/94 at 4.77%,
to be repurchased at $11,212,485 on 11/1/94,
collateralized by a $10,914,000, U.S. Treasury
Note, 8.5%, 4/15/97 (Cost $11,211,000) . . . . . . 11,211,000
----------
5.7% COMMERCIAL PAPER
----------------------------------------------------------------------------------
5,001,000 American Express Credit Corp., 4.82%, 11/18/94 . . . 5,001,000
10,000,000 American Express Credit Corp., 4.9%, 11/28/94 . . . 10,000,000
----------
TOTAL COMMERCIAL PAPER (Cost $15,001,000) . . . . . 15,001,000
----------
0.6% CONVERTIBLE BONDS
----------------------------------------------------------------------------------
HONG KONG 1,500,000 Henderson Land Development Co., Ltd.,
4%, 10/27/96 (Property developer)
(Cost $1,511,250) . . . . . . . . . . . . . . . . 1,468,200
----------
6.7% PREFERRED STOCKS
----------------------------------------------------------------------------------
Shares
----------------------------------------------------------------------------------
GERMANY 3,360 Hornbach AG (Do-it-yourself home improvement
retailer) . . . . . . . . . . . . . . . . . . . . 3,574,349
3,080 Marschollek Lautenschlaeger und Partner AG
(Leading independent life insurance company) . . . 1,736,538
21,540 SAP AG (Computer software manufacturer) . . . . . . 12,445,238
----------
TOTAL PREFERRED STOCKS (Cost $6,577,900) . . . . . . 17,756,125
----------
82.7% COMMON STOCKS
----------------------------------------------------------------------------------
ARGENTINA 1.5% 35,000 Buenos Aires Embotelladora S.A. "B" (ADR)
(Soft drink bottler and distributor) . . . . . . . 1,343,125
104,000 Quilmes Industrial S.A. (Leading beer distributor) . 2,730,000
----------
4,073,125
----------
AUSTRALIA 2.1% 668,400 Ampol Exploration Ltd. (Oil and gas exploration
company) . . . . . . . . . . . . . . . . . . . . . 2,025,124
571,291 BRL Hardy Ltd. (Wine and spirits manufacturer) . . . 848,481
91,833 BRL Hardy Ltd.** . . . . . . . . . . . . . . . . . . 57,284
275,000 Cortecs International, Ltd. (Pharmaceutical
company) . . . . . . . . . . . . . . . . . . . . . 152,140
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,280,400 E.R.G. Australia Ltd. (Producer and installer of
electronic ticketing equipment, and manufacturer
of radio communication equipment) . . . . . . . 2,320,013
---------
5,403,042
---------
AUSTRIA 0.4% 20,100 Mayr-Meinhof Karton AG (Leading carton
producer) . . . . . . . . . . . . . . . . . . . 1,091,498
---------
BRAZIL 2.7% 11,030,290 Companhia Cervejaria Brahma (pfd.)
(Leading beer producer and distributor) . . . . 3,881,512
344,777 Companhia Cervejaria Brahma (pfd.)
Warrants (expire 9/30/96)* . . . . . . . . . . 32,680
190,300 Usinas Siderurgicas de Minas Gerais S/A
(pfd.) (ADR) (Non-coated flat products and
electrolytic galvanized products) . . . . . . . 3,163,738
---------
7,077,930
---------
CANADA 1.5% 25,000 Magna International, Inc. "A" (Manufacturer
of automotive parts) . . . . . . . . . . . . . . 884,903
15,000 Magna International, Inc. "A" (ADR) . . . . . . . 532,500
179,000 Petromet Resources Ltd. (Exploration,
development and production of natural
gas in Alberta) . . . . . . . . . . . . . . . . 1,207,626
132,100 Reko International Group Inc. (Designer and
manufacturer of injection molds and
other auto parts) . . . . . . . . . . . . . . . 659,255
30,000 Renaissance Energy Ltd. (Leading oil and
gas producer) . . . . . . . . . . . . . . . . . 695,908
---------
3,980,192
---------
CHILE 0.6% 76,400 Cristalerias de Chile (ADR) (Glassworks) . . . . . 1,642,600
---------
CHINA 0.7% 2,524,000 Tsingtao Brewery "H" (Leading brewery) . . . . . . 1,894,429
---------
GERMANY 1.0% 1,260 Hornbach Baumarkt AG (Do-it-yourself home
improvement retailer) . . . . . . . . . . . . . 682,757
3,255 Weru AG (High-quality window manufacturer) . . . . 1,839,533
---------
2,522,290
---------
GREECE 0.1% 90,000 Athens Medical Center (Health services) . . . . . 335,619
360 Hellenic Bottling Co. (Soft drink distributor) . . 11,172
---------
346,791
---------
HONG KONG 3.3% 6,436,000 Hong Kong Toy Centre International, Ltd.
(Major toy manufacturer) . . . . . . . . . . . . 566,351
4,794,000 Innovative International Holdings, Ltd.
(Manufacturer and marketer of automobile
parts and accessories) . . . . . . . . . . . . 1,488,916
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,068,600 Jinhui Holdings Ltd. (Operator of dry bulk
cargo ships in southern China) . . . . . . . . 1,939,509
1,110,000 Johnson Electric Holdings Ltd. (Designer
and manufacturer of micrometers for domestic
and commercial uses) . . . . . . . . . . . . . 3,088,321
700,000 Sime Darby Hong Kong (Vehicle distributor) . . . . 951,148
1,809,501 Yips Hang Cheung (Manufacturer of mixed
solvents and paints) . . . . . . . . . . . . . 649,805
----------
8,684,050
----------
INDIA 0.9% 86,300 Arvind Mills Ltd. (GDR) (Cotton textile
manufacturer) . . . . . . . . . . . . . . . . . 507,013
95,700 Indian Rayon & Industries Ltd. (GDR)
(Manufacturer and marketer of rayon yarn
and textiles) . . . . . . . . . . . . . . . . . 1,830,263
----------
2,337,276
----------
INDONESIA 4.4% 671,000 Gadjah Tunggal (Tire manufacturer) . . . . . . . . 1,143,508
80,400 Indonesia Satellite Corp. (ADR) (International
telecommunication services) . . . . . . . . . . 3,155,700
310,000 Kabelmetal Indonesia (Cable manufacturer) . . . . 446,197
702,640 Kalbe Farma (Foreign registered)
(Pharmaceutical producer and distributor) . . . 3,106,843
116,500 Medco Energy Corp. (Foreign registered)
(Oil drilling company) . . . . . . . . . . . . 289,758
100,000 Merck-Indonesia (Foreign registered)
(Pharmaceutical company) (b) . . . . . . . . . 575,738
195,000 Modern Photo Film Co. (Photographic film
distributor) . . . . . . . . . . . . . . . . . 983,476
169,000 Supreme Cable Co. (Foreign registered)
(Manufacturer of power and telecommunication
cables) . . . . . . . . . . . . . . . . . . . . 564,339
157,440 Surya Toto Indonesia (Foreign registered)
(Manufacturer of bathroom fixtures) (b) . . . . 377,080
51,743 Unilever-Indonesia (Foreign registered)
(Consumer products manufacturer) . . . . . . . 929,461
----------
11,572,100
----------
IRELAND 2.7% 5,511,000 Aran Energy PLC (Oil and natural gas
exploration) . . . . . . . . . . . . . . . . . . 3,454,611
820,932 Bank of Ireland PLC (Bank) . . . . . . . . . . . . 3,773,787
----------
7,228,398
----------
ITALY 0.4% 130,000 Arnoldo Mondadori Editore SpA (Book
publisher) . . . . . . . . . . . . . . . . . . . 1,174,641
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JAPAN 18.6% 138,000 Amano Corp. (Time-management systems). . . . . . . . 2,322,321
64,000 Cox Co., Ltd. (Men's and ladies' wear chain
store operator) . . . . . . . . . . . . . . . . . 1,784,018
17,000 Eyeful Home Technology Inc. (Homebuilding
franchise operator) . . . . . . . . . . . . . . . 584,452
48,000 Genki Sushi Co., Ltd. (North Kanto-based
fast-food sushi chain) . . . . . . . . . . . . . 1,432,170
180,000 Hitachi Construction Machinery Co., Ltd.
(Leading maker of hydraulic shovels) . . . . . . . 2,397,274
25,000 Horipro Inc. (Growing entertainment production
company) . . . . . . . . . . . . . . . . . . . . 668,491
66,000 Hosoda Corp. (Tokyo-based construction firm) . . . . 984,617
146,000 JAMCO Corp. (Leading manufacturer of galleys
and lavatories for commercial aircraft) . . . . . 2,110,262
124,000 Japan Radio Co., Ltd. (Manufacturer of wireless
telecommunication equipment) . . . . . . . . . . 2,329,961
43,000 Kyokuto Kaihatsu Kogyo Co., Ltd. (Leading
maker of dump trucks and other specialty
vehicles) . . . . . . . . . . . . . . . . . . . . 1,340,698
79,000 Ministop Co., Ltd. (Growing convenience
store chain) . . . . . . . . . . . . . . . . . . 2,503,923
63,800 Nichiei Co., Ltd. (Finance company for small
and medium size firms) . . . . . . . . . . . . . 4,116,766
61,200 Nissen Co., Ltd. (Mail-order women's apparel
distributor) . . . . . . . . . . . . . . . . . . 2,502,085
72,000 Rock Field Co., Ltd. (Major delicatessen food
processor) . . . . . . . . . . . . . . . . . . . 1,672,517
79,000 Royal Ltd. (Wholesaler and retailer of automobile
equipment and parts) . . . . . . . . . . . . . . 3,425,563
18,000 Sankyo Co., Ltd. (Leading manufacturer
of pachinko game equipment) . . . . . . . . . . . 1,393,764
54,000 Shimamura Co., Ltd. (Discount retailer) . . . . . . 2,547,801
114,000 ShinMaywa Industries, Ltd. (Leading maker of
dump trucks and other specialty vehicles) . . . . 1,341,730
21,100 Shohkoh Fund & Co., Ltd. (Finance company
for small and medium size firms) . . . . . . . . 5,032,108
35,000 Simree Co., Ltd. (Clothing mail-order sales firm). . 437,229
184,000 Takuma Co., Ltd. (Leading maker of boilers,
garbage incinerators and water
treatment plants) . . . . . . . . . . . . . . . . 3,647,326
75,000 Ten Allied Co., Ltd. (Tavern chain operator) . . . 2,013,215
26,000 Toyo Exterior Co., Ltd. (Exterior garden products
manufacturer) . . . . . . . . . . . . . . . . . . 751,600
17,000 Tsutsumi Jewelry Co., Ltd. (Manufacturer,
wholesaler and retailer of jewelry) . . . . . . . 1,607,681
----------
48,947,572
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KOREA 0.4% 180 units Korea 1990 Trust IDR (Investment company) (c) . . . . 966,600
---------
MALAYSIA 2.4% 125,000 Aokam Perdana Bhd. (Forest products
company) . . . . . . . . . . . . . . . . . . . . . 1,032,290
50,000 Aokam Perdana Bhd. (New(d)) . . . . . . . . . . . . 391,389
243,600 Malaysian Helicopter Bhd. (Aviation
transportation services) . . . . . . . . . . . . 600,658
500 Matsushita Electric Malaysia (Consumer
electronics manufacturer) . . . . . . . . . . . . 5,186
609,000 Technology Resources Industries (Mobile
telephone operator)* . . . . . . . . . . . . . . 2,371,644
279,000 Westmont Bhd. (Manufacturer and trader
of garments in Hong Kong) . . . . . . . . . . . . 1,976,478
---------
6,377,645
---------
MEXICO 2.3% 580,000 Grupo Financiero Inversiones Bursatiles S.A.
(Stock brokerage) . . . . . . . . . . . . . . . . 2,497,527
1,333,400 Grupo Industrial Maseca S.A. de C.V. "B"
(Food producer) . . . . . . . . . . . . . . . . . 2,172,546
62,700 Hylsamex (ADS) (Leading steel company,
making finished steel products for use in
construction, auto parts and household
appliances) . . . . . . . . . . . . . . . . . . . 1,387,238
---------
6,057,311
---------
NETHERLANDS 1.9% 40,000 IHC Caland N.V. (Dredging and offshore
services) . . . . . . . . . . . . . . . . . . . . 1,015,408
9,000 Telegraaf Holdings CVA (Newspaper publisher) . . . . 1,014,222
40,708 Wolters Kluwer CVA (Publisher) . . . . . . . . . . . 2,943,205
---------
4,972,835
---------
NORWAY 0.9% 127,800 Unitor A/S (Provider of broad range of ship
services, leading supplier of marine chemicals). . 2,306,540
---------
PHILIPPINES 0.2% 518,780 Keppel Philippines Shipyard "B" (Shipbuilding
and repair) (b) . . . . . . . . . . . . . . . . . 396,174
126,000 Kepphil Shipyard Inc. (Shipbuilding and
repair) . . . . . . . . . . . . . . . . . . . . . 17,219
---------
413,393
---------
PORTUGAL 1.8% 7,025 Corporacion Industrial do Norte (Paint
producer and distributor) . . . . . . . . . . . . 182,762
59,460 Jeronimo Martins (Food producer and retailer) . . . 2,668,422
63,000 Uniao Cervejaria (Brewery) . . . . . . . . . . . . . 950,625
63,000 Uniao Cervejaria (New(d)) (b) . . . . . . . . . . . 950,625
---------
4,752,434
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SINGAPORE 0.4% 400,000 GP Batteries International (Developer,
manufacturer and distributor of batteries
and battery related products) . . . . . . . . . . 1,176,000
----------
SWEDEN 1.2% 91,600 Autoliv AB (Free) (Manufacturer of safety air
bags for automobiles)* . . . . . . . . . . . . . . 3,236,904
----------
SWITZERLAND 0.4% 3,000 Phoenix Mecano AG (Bearer) (Manufacturer
of housings and components for computers) . . . . 979,533
----------
THAILAND 0.4% 28,200 American Standard Sanitaryware (Foreign
registered) (Manufacturer of bathroom fixtures). . 534,061
132,599 Bangkok Dusit Medical Services Co., Ltd.
(Health services) (b) . . . . . . . . . . . . . . 563,957
----------
1,098,018
----------
UNITED KINGDOM 5.7% 125,300 Brake Brothers (Specialist supplier of frozen
foods to the catering industry) . . . . . . . . . 873,751
1,985,830 City Centre Restaurants PLC (Restaurant chain) . . . 2,500,060
110,000 Control Techniques (Leading manufacturer
of electronics control systems) . . . . . . . . . 653,754
408,400 Grampian Holdings Inc. (Pharmaceutical retailer) . . 641,024
903,300 Hambros Insurance Services Group PLC
(Insurance company) . . . . . . . . . . . . . . . 1,654,122
542,200 Serco Group PLC (Facilities management
company) . . . . . . . . . . . . . . . . . . . . 2,561,975
513,100 Tibbett and Britten Group PLC (Transportation
services for manufacturing and retail
industries) . . . . . . . . . . . . . . . . . . . 6,040,211
----------
14,924,897
----------
UNITED STATES 23.8% 39,900 A.O. Smith Corp. (Manufacturer of equipment
for automobiles, trucks and farms) . . . . . . . . 972,563
282,000 Allegheny Ludlum Corp. (Major stainless steel
manufacturer) . . . . . . . . . . . . . . . . . . 5,604,750
105,100 American Classic Voyager Co. (North
American operator of steamboat cruises) . . . . . 1,839,250
222,600 Atmel Corp. (Developer and manufacturer of
integrated circuits)* . . . . . . . . . . . . . . 8,208,375
45,500 Automotive Industries Holdings Inc. "A"
(Manufacturer of auto and van interior
trim systems) . . . . . . . . . . . . . . . . . . 1,103,375
266,500 BE Aerospace (Airline audio/video control
systems) . . . . . . . . . . . . . . . . . . . . 2,315,219
200,000 Benton Oil & Gas Co. (Oil and gas exploration,
development and production)* . . . . . . . . . . 1,562,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
57,900 Central European Media Enterprises Ltd. "A"
(Owner and operator of national and regional
private commercial television stations in
central Europe) . . . . . . . . . . . . . . . . 940,875
71,200 Coastal Healthcare Group, Inc. (Physician
recruiting and management services) . . . . . . 2,242,800
118,200 First Colony Corp. (Holding company which
sells individual life insurance and annuity
products throughout the U.S.) . . . . . . . . . 2,364,000
120,775 Fiserv Inc. (Data processing services)* . . . . . 2,838,213
53,000 Franklin Quest Co. (Provider of training
seminars and products) . . . . . . . . . . . . 1,874,875
235,000 IGEN Inc. (Producer of medical supplies) . . . . . 1,527,500
85,000 M.S. Carriers Inc. (Truckload carrier of
general freight) . . . . . . . . . . . . . . . 1,997,500
20,300 Maxim Integrated Products Inc. (Manufacturer
and marketer of integrated circuits) . . . . . . 1,370,250
63,300 Microchip Technology Inc. (Manufacturer of
high performance, field programmable
microcontrollers and specialty memory
products)* . . . . . . . . . . . . . . . . . . 2,967,188
116,500 Millicom International Cellular SA (Developer
and operator of cellular telephone networks) . . 3,276,563
91,500 Nu-Kote Holdings Inc. "A" (Manufacturer of
office and home printing products) . . . . . . 1,704,188
46,300 PhyCor Inc. (Operator of specialty medical
clinics) . . . . . . . . . . . . . . . . . . . 1,585,775
1,100 R.P. Scherer Corp. (Manufacturer of drug
delivery system)* . . . . . . . . . . . . . . . 49,088
50,600 Sigma-Aldrich Corp. (Producer of biochemicals,
organic and inorganic chemicals) . . . . . . . 1,758,350
96,900 Sterling Software Inc. (Computer software
products)* . . . . . . . . . . . . . . . . . . 3,028,125
17,000 Superior Industries International Inc.
(Manufacturer of aluminum wheels for
automobiles) . . . . . . . . . . . . . . . . . 501,500
280,850 Thomas Nelson, Inc. (Publisher) . . . . . . . . . 5,476,575
8,500 Trimedyne Inc. Warrants (expire 12/9/96)* . . . . 7,480
72,000 W.R. Berkley Corp. (Insurance company) . . . . . . 2,610,000
96,400 Zilog Inc. (Manufacturer and marketer of
integrated circuits)* . . . . . . . . . . . . . 2,771,500
-----------
62,498,377
-----------
TOTAL COMMON STOCKS (Cost $196,829,677). . . . . . 217,736,421
-----------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $231,130,827) (a) . . . . . . . . . . . . 263,172,746
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------
--------------------------------------------------------------------------
* Non-income producing security.
** Market value and cost reflect partial payment. An additional
payment equal to the U.S. dollar equivalent of Aus. $91,833 is
payable, at the applicable exchange rate, on June 28, 1995.
(a) The cost for federal income tax purposes was $235,369,751. At
October 31, 1994, net unrealized apprecia- tion for all
securities based on tax cost was $27,802,995. This consisted of
aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of
$42,253,099 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market
value of $14,450,104.
(b) Securities valued in good faith by the Valuation Committee of the
Board of Directors. The cost of these securities at October 31,
1994 aggregated $2,535,337. See Note A of the Notes to Financial
Statements.
(c) 1,000 shares = 1 IDR unit for Korea 1990 Trust.
(d) New shares issued during 1994, eligible for a pro rata share of
1994 dividends.
Sector breakdown of the Fund's equity securities is noted on
page 5.
<TABLE>
At October 31, 1994, outstanding written call options on currencies were as follows (Note A):
<CAPTION>
PRINCIPAL EXPIRATION STRIKE MARKET
AMOUNT DATE PRICE VALUE ($)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen (euro) ... Y 923,000,000 6/29/95 Y 95.55 359,970
-------
Total outstanding written options on currencies
(Premiums received $448,218) . . . . . . . . . . . . . . . . . . . . . . . 359,970
=======
</TABLE>
<TABLE>
Transactions in written call options on currencies during the year ended October 31, 1994 were:
<CAPTION>
PREMIUMS
PRINCIPAL AMOUNT RECEIVED ($)
------------------------------------
<S> <C> <C>
Outstanding at
October 31, 1993 ...... -- --
Contracts written ...... Y 923,000,000 448,218
------------------------------------
Outstanding at
October 31, 1994 ...... Y 923,000,000 448,218
============= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $231,130,827)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . $263,172,746
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,795
Foreign currency holdings, at market
(identified cost $16,706) (Note A) . . . . . . . . . . . 16,747
Forward foreign currency exchange contracts to buy,
at market (contract cost $1,464,383) (Notes A and D) . . 1,462,755
Receivable on forward foreign currency exchange
contracts to sell (Notes A and D) . . . . . . . . . . . 24,127,122
Other receivables:
Investments sold . . . . . . . . . . . . . . . . . . . . 735,303
Fund shares sold . . . . . . . . . . . . . . . . . . . . 351,968
Dividends and interest . . . . . . . . . . . . . . . . . 338,524
Foreign taxes recoverable . . . . . . . . . . . . . . . 34,254
Deferred organization expenses (Note A) . . . . . . . . . . 19,215
------------
Total assets . . . . . . . . . . . . . . . . . . . . 290,401,429
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . $ 5,267,567
Fund shares redeemed . . . . . . . . . . . . . . . . . . 403,399
Accrued management fee (Note C) . . . . . . . . . . . . 232,595
Other accrued expenses (Note C) . . . . . . . . . . . . 272,585
Written options, at market
(premiums received $448,218) (Note A) . . . . . . . . 359,970
Forward foreign currency exchange contracts to buy
(Notes A and D) . . . . . . . . . . . . . . . . . . . 1,464,383
Forward foreign currency exchange contracts to sell,
at market (contract cost $24,127,122)
(Notes A and D) . . . . . . . . . . . . . . . . . . . 26,406,820
-----------
Total liabilities . . . . . . . . . . . . . . . . . . 34,407,319
------------
Net assets, at market value . . . . . . . . . . . . . . . . $255,994,110
============
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net
investment income (Note E) . . . . . . . . . . . . . (1,776,624)
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . 32,041,919
Written options . . . . . . . . . . . . . . . . . . . 88,248
Foreign currency related transactions . . . . . . . . (2,275,587)
Accumulated net realized gain (Note E) . . . . . . . . . 1,016,007
Capital stock . . . . . . . . . . . . . . . . . . . . . 157,346
Additional paid-in capital . . . . . . . . . . . . . . . 226,742,801
------------
Net assets, at market value . . . . . . . . . . . . . . . . $255,994,110
============
NET ASSET VALUE, offering and redemption price per
share ($255,994,110 -:-15,734,564 shares
of capital stock outstanding, $.01 par value,
100,000,000 shares authorized) . . . . . . . . . . . . . $16.27
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
SCUDDER GLOBAL SMALL COMPANY FUND
- ----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $222,510) . . $2,373,706
Interest . . . . . . . . . . . . . . . . . . . . . . . . 1,055,244
----------
3,428,950
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $2,497,457
Services to shareholders (Note C) . . . . . . . . . . . . 755,513
Directors' fees and expenses (Note C) . . . . . . . . . . 42,934
Custodian fees . . . . . . . . . . . . . . . . . . . . . 462,360
Reports to shareholders . . . . . . . . . . . . . . . . . 146,843
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 51,710
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 49,775
State registration . . . . . . . . . . . . . . . . . . . 38,957
Federal registration . . . . . . . . . . . . . . . . . . 18,837
Amortization of organization expenses (Note A) . . . . . 10,406
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 22,770 4,097,562
----------------------
Net investment loss . . . . . . . . . . . . . . . . . . . (668,612)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . 1,352,291
Foreign currency related transactions . . . . . . . . (25,563) 1,326,728
----------
Net unrealized appreciation (depreciation)
during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . 6,163,113
Written options . . . . . . . . . . . . . . . . . . . 88,248
Foreign currency related transactions . . . . . . . . (2,288,704) 3,962,657
----------------------
Net gain on investment transactions . . . . . . . . . . . 5,289,385
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $4,620,773
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) . . . . . . . . . . . $ (668,612) $ 512,974
Net realized gain from investment
transactions . . . . . . . . . . . . . . . . . . 1,326,728 3,144,786
Net unrealized appreciation on investment
transactions during the period . . . . . . . . . 3,962,657 26,529,468
------------ ------------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . 4,620,773 30,187,228
------------ ------------
Distributions to shareholders:
From net investment income ($.07 per share) . . -- (327,384)
------------ ------------
In excess of net investment income ($.18
per share) . . . . . . . . . . . . . . . . . . . (2,271,808) --
------------ ------------
From net realized gains ($.15 and $.12
per share, respectively) . . . . . . . . . . . . (1,947,264) (561,229)
------------ ------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . 167,361,242 147,442,135
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . . . 3,818,846 829,178
Cost of shares redeemed . . . . . . . . . . . . . . (113,105,251) (34,780,240)
------------ ------------
Net increase in net assets from Fund share
transactions . . . . . . . . . . . . . . . . . . 58,074,837 113,491,073
------------ ------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . 58,476,538 142,789,688
Net assets at beginning of period . . . . . . . . . 197,517,572 54,727,884
------------ ------------
NET ASSETS AT END OF PERIOD (including
accumulated distributions in excess of
net investment income of $1,776,624
and undistributed net investment income
of $483,473, respectively) . . . . . . . . . . . $255,994,110 $197,517,572
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 12,238,526 4,541,708
------------ ------------
Shares sold . . . . . . . . . . . . . . . . . . . . 10,300,657 10,092,030
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 232,856 68,301
Shares redeemed . . . . . . . . . . . . . . . . . . (7,037,475) (2,463,513)
------------ ------------
Net increase in Fund shares . . . . . . . . . . . . 3,496,038 7,696,818
------------ ------------
Shares outstanding at end of period . . . . . . . . 15,734,564 12,238,526
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
SCUDDER GLOBAL SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
FOR THE PERIOD
SEPTEMBER 10, 1991
(COMMENCEMENT
YEARS ENDED OCTOBER 31, OF OPERATIONS)
---------------------------- TO OCTOBER 31,
1994 1993 1992 1991
---------------------------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . $16.14 $12.05 $11.92 $12.00
------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (a) . . . . . . . . . . (.02) .04 .07 .01
Net realized and unrealized gain (loss) on investment
transactions . . . . . . . . . . . . . . . . . . . . .48 4.24 .08 (.09)
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . .46 4.28 .15 (.08)
------ ------ ------ ------
Less distributions:
From net investment income . . . . . . . . . . . . . -- (.07) (.02) --
In excess of net investment income . . . . . . . . . (.18) -- -- --
From net realized gains on investment transactions . (.15) (.12) -- --
------ ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . . . (.33) (.19) (.02) --
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . $16.27 $16.14 $12.05 $11.92
====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . 2.80 36.04 1.26 (.67)*
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . 256 198 55 9
Ratio of operating expenses net, to average daily
net assets (%) (a) . . . . . . . . . . . . . . . . . 1.70 1.50 1.50 1.50**
Ratio of net investment income (loss) to average daily
net assets (%) . . . . . . . . . . . . . . . . . . . (.28) .53 .78 2.47**
Portfolio turnover rate (%) . . . . . . . . . . . . . . 45.8 54.6 23.4 --
<FN>
(a) Reflects a per share amount of expenses, exclusive of
management fees, reimbursed by the Adviser of . . $ -- $ -- $ -- $ .06
Reflects a per share amount of management fee not
imposed by the Adviser of . . . . . . . . . . . . $ .01 $ .04 $ .09 $ .01
Operating expense ratio including expenses
reimbursed, management fee and other expenses
not imposed (%) . . . . . . . . . . . . . . . . . 1.76 2.01 2.53 15.34**
* Not annualized
** Annualized
</FN>
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Global Small Company Fund (the "Fund") is a diversified series of
Scudder Global Fund, Inc., a Maryland corporation registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The policies described below are followed consistently by
the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system.
If there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such
market. If no sale occurred, the security is then valued at the calculated mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors. Securities valued in good
faith by the Valuation Committee of the Board of Directors at fair value
amounted to $2,863,574 (1.12% of net assets) and have been noted in the
investment portfolio as of October 31, 1994.
23
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------
OPTIONS. The Fund may write (sell) exchange-listed and over-the-counter call
and put options on securities and other financial instruments. When the Fund
writes a call, it gives the purchaser of the call option the right to buy the
underlying security at the price specified in the option (the "exercise price")
at any time during the option period, generally ranging up to nine months. When
the Fund writes a put option, it gives the purchaser of the put option the
right to sell the underlying security to the Fund at the exercise price at any
time during the option period, generally ranging up to nine months.
If the option expires unexercised, the Fund will realize income, in the form of
a capital gain, to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option holder or
purchase the underlying security from the option holder at the exercise price.
Certain options, including options on indices will require cash settlement by
the Fund if the option is exercised. By writing a call option, the Fund
foregoes, in exchange for the premium less the commission ("net premium"), the
opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price. By writing a put
option, the Fund, in exchange for the net premium received, accepts the risk of
a decline in the market value of the underlying security below the exercise
price.
The liability representing the Fund's obligation under an exchange traded
written call or put option is valued at the last sale price or, in the absence
of a sale, the mean between the closing bid and asked quotations or at the most
recent asked quotation if no bid and asked quotations are available.
Over-the-counter written options are valued at the most recent asked quotation.
In addition, the Fund may purchase, singly and in combination, call and put
options on securities and other financial instruments. Exchange traded
purchased options are valued at the last sales price or, in the absence of a
sale, the mean between the closing bid and asked quotations or at the most
recent bid quotation if no bid and asked quotations are available.
Over-the-counter purchased options are valued at the most recent bid quotation.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the resale price.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the Fund
may enter into forward foreign currency exchange contracts ("contracts").
Additionally, the Fund may enter into contracts to hedge certain other foreign
currency denominated assets. Contracts are recorded at market value. Certain
risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts. Realized and
unrealized gains and losses arising from such transactions are included in net
realized and unrealized gain (loss) from foreign currency related transactions.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes
in market prices of the investments. Such fluctuations are included with the
net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
25
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes and no federal income tax
provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences primarily relate to investments in forward contracts, passive
foreign investment companies, and certain securities sold at a loss. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are
being amortized on a straight-line basis over a five-year period.
OTHER. Investment security transactions are accounted for on a trade-date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the year ended October 31, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $150,388,055 and
$99,710,849, respectively.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Fund's Investment Management Agreement (the "Agreement") with
Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund has agreed to pay to
the Adviser a fee equal to an annual rate of 1.10% of the Fund's average daily
net assets, computed and accrued daily and payable monthly. As manager of the
assets of the Fund, the Adviser directs the investments of the Fund in
accordance with its investment objectives, policies, and restrictions. The
Adviser determines the securities, instruments, and other contracts relating to
investments to be purchased, sold or entered into by the Fund. In addition to
portfolio management services, the Adviser provides certain administrative
services in accordance with the Agreement. The Agreement provides that if the
Fund's expenses, exclusive of taxes, interest, and extraordinary expenses,
exceed specified limits, such excess, up to the amount of the management fee,
will be paid by the Adviser. In addition, the Adviser agreed not to impose all
or a portion of its management fee until February 28, 1994, and during such
period to maintain the annualized expenses of the Fund at not more than 1.50%
of average daily net assets. Effective March 1, 1994, the Adviser is no longer
maintaining the Fund's annualized expenses at the specified rate. For the year
ended October 31, 1994, the Adviser did not impose a portion of its management
fee amounting to $160,728 and the amount imposed amounted to $2,497,457.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended October 31, 1994, the amount charged by SSC aggregated
$596,637, of which $52,783 is unpaid at October 31, 1994.
The Fund pays each Director not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1994, Directors' fees and expenses aggregated $42,934.
27
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
- --------------------------------------------------------------------------------
<TABLE>
D. COMMITMENTS
- --------------------------------------------------------------------------------
As of October 31, 1994, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized depreciation of
$2,281,326.
<CAPTION>
NET UNREALIZED
APPRECIATION
SETTLEMENT (DEPRECIATION)
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
------------------------------- ----------------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
U.S. Dollars 677,435 Canadian Dollars 914,808 11/3/94 (1,077)
U.S. Dollars 95,606 British Pounds 58,379 11/9/94 (158)
U.S. Dollars 691,342 British Pounds 422,598 11/14/94 (394)
Malaysian Ringgits 262,534 U.S. Dollars 102,894 11/1/94 141
Greek Drachmas 1,768,705 U.S. Dollars 7,624 11/2/94 (10)
Japanese Yen 1,612,082 U.S. Dollars 16,604 11/4/94 (39)
Japanese Yen 530,675,000 U.S. Dollars 5,000,000 1/22/96 (721,637)
Japanese Yen 529,100,000 U.S. Dollars 5,000,000 1/25/96 (706,330)
Japanese Yen 782,080,000 U.S. Dollars 8,000,000 4/8/96 (496,307)
Japanese Yen 584,040,000 U.S. Dollars 6,000,000 4/25/96 (355,515)
-----------
(2,281,326)
===========
</TABLE>
E. RECLASSIFICATION OF CAPITAL ACCOUNTS
- --------------------------------------------------------------------------------
As required, effective November 1, 1993, the Fund has adopted the provisions of
Statement of Position 93-2 "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies (SOP)." In implementing the SOP, the Fund has reclassified
$5,042 to decrease undistributed net investment income and $5,042 to increase
accumulated net realized gain. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains under
federal income tax rules and regulations versus generally accepted accounting
principles. The statement of changes in net assets and financial highlights for
prior periods have not been restated to reflect this change in presentation.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF SCUDDER GLOBAL FUND, INC. AND TO THE SHAREHOLDERS
OF SCUDDER GLOBAL SMALL COMPANY FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Global Small Company Fund including the investment portfolio, as of October 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the three years in the
period then ended and for the period September 10, 1991 (commencement of
operations) to October 31, 1991. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Global Small Company Fund as of October 31, 1994, the results of its
operations for the year then ended, the changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
three years in the period then ended, and for the period September 10, 1991
(commencement of operations) to October 31, 1991 in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 12, 1994
29
<PAGE>
SCUDDER GLOBAL SMALL COMPANY FUND
TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund will mail shareholders IRS Form 1099-Div in late January, summarizing
all taxable distributions paid for 1994.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,283,681 as capital gain dividends for its taxable year ended October 31,
1994.
The Fund paid foreign taxes of $222,510 and the Fund recognized $222,510 of
foreign source income during the taxable year ended October 31, 1994. Pursuant
to section 853 of the Internal Revenue Code, the Fund designates $.014 per
share of foreign taxes and $.014 of gross income from foreign sources as having
been paid in the taxable year ended October 31, 1994.
Please consult a tax adviser if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Service
Representative at 1-800-225-5163.
30
<PAGE>
(This page intentionally left blank.)
31
<PAGE>
(This page intentionally left blank.)
32
<PAGE>
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
Edmond D. Villani*
Chairman of the Board and Director
Nicholas Bratt*
President and Director
Daniel Pierce*
Vice President and Director
Paul Bancroft III
Director; Venture Capitalist and Consultant to Bessemer Securities
Corporation
Thomas J. Devine
Director; Consultant
William H. Gleysteen, Jr.
Director; President, The Japan Society, Inc.
William H. Luers
Director; President, The Metropolitan Museum of Art
Robert G. Stone, Jr.
Director; Chairman of the Board and Director, Kirby Corporation
Robert W. Lear
Honorary Director; Executive-in-Residence, Columbia University
Graduate School of Business
Carol L. Franklin*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Douglas M. Loudon*
Vice President
Gerald J. Moran*
Vice President
Cornelia Small*
Vice President
Lawrence Teitelbaum*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
David S. Lee*
Vice President and Assistant Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Juris Padegs*
Vice President and Assistant Secretary
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
33
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
<S> <C>
Money market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- -------------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-end Funds#
- -------------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- -------------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including management fees and expenses, call or write
for a free prospectus. Read it carefully before you invest or send money. +A portion of the income from the
tax-free funds may be subject to federal, state and local taxes. *Not available in all states. +++A no-load
variable annuity contract provided by Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are traded
on various stock exchanges. ++For information on Scudder Treasurers Trust(tm), an institutional cash management
service that utilizes certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
</TABLE>
34
<PAGE>
HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------
Account Service and Information
- --------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
- --------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
- --------------------------------------------------------------------------------
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
- --------------------------------------------------------------------------------
Scudder Investor Information and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.
35
<PAGE>
Celebrating 75 Years of Serving Investors
- --------------------------------------------------------------------------------
This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in the
United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 36 pure no load(tm) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Short Term
Global Income
Fund
Annual Report
October 31, 1994
* A fund designed to provide high current income by investing primarily
in short-term, high-grade fixed-income securities denominated in
foreign currencies and the U.S. dollar.
* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
CONTENTS
2 Highlights
3 Letter from the Fund's Chairman
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
29 Officers and Directors
30 Investment Products Services
31 How to Contact Scudder
HIGHLIGHTS
* Scudder Short Term Global Income Fund generated an annual total return
of -0.25% for the year ended October 31, 1994, compared to an average
annual return of -0.66% for the 34 short world multimarket funds
tracked by Lipper Analytical Services.
* To avoid the potentially negative impact of currency fluctuation,
approximately 26% of the portfolio was invested in U.S.
dollar-denominated bonds as of October 31, while another 13% was in
bonds issued by so-called dollar-block countries, namely Australia and
New Zealand.
* The Fund did suffer currency-related losses during the year, however,
resulting from the declining U.S. dollar relative to major European
currencies. Since U.S. tax law treats such losses as offsets to
ordinary income, most of the Fund's 1994 income payments will be
treated as nontaxable distributions.
* The Fund's relatively high level of income ($0.87 per share) was
achieved during a challenging investment environment, and partially
offset the Fund's price decline of $0.90 per share for the period. Due
to higher interest rates around the world, the Fund's 30-day net
annualized yield was 8.13% on October 31, 1994 versus 6.63% on October
31, 1993.
2
<PAGE>
LETTER FROM THE FUND'S CHAIRMAN
- --------------------------------------------------------------------------------
Dear Shareholders,
Interest rates continued to rise in the third quarter of 1994 but at a
slower rate than in the previous two quarters. However, investors' fears of
higher inflation remain a problem for the bond market. Throughout the year,
investors have reacted swiftly to reports of robust economic growth in the
United States, pushing bond prices lower and yields on long-term securities
higher as
a result.
In the months ahead, interest rates may rise further in the face of
continued monetary tightening by the Federal Reserve. In addition, with
finite savings around the world, capital to invest in financial markets and
growing economies is increasingly in short supply, adding upward pressure
to interest rates as countries compete for savings.
What does this mean for fixed-income investors? Because interest rates
are now higher, investors are currently receiving more income than in prior
months. Rising interest rates detract from bond price performance (since
bond prices move in the opposite direction of interest rates), so our
investment strategy will focus on providing a competitive level of income,
while balancing changing bond prices with an emphasis on capital
preservation. Your Fund's investment team also plans to seek out potential
opportunities in anticipation of an expected 1995 peak in inflation and an
eventual turnaround in the trend of bond prices. In the near-term, current
yields will likely make up most of your Fund's total return.
Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or other Scudder investments. Page 31 contains
more information on how to contact Scudder. Thank you for choosing Scudder
Short Term Global Income Fund to help meet your investment needs.
Sincerely,
/s/Edmond D. Villani
Edmond D. Villani
Chairman,
Scudder Short Term Global Income Fund
3
<PAGE>
Scudder Short Term Global Income Fund
Performance Update as of October 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- ------------------------------------------------------------------
Scudder Short Term Global Income Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,975 -.25% -.25%
Life of
Fund* $12,290 22.90% 5.79%
Salomon Brothers Currency-Hedged
World Government Bond Index (1-3 years)
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,187 1.87% 1.87%
Life of
Fund* $12,210 22.10% 5.73%
*The Fund commenced operations on
March 1, 1991. Index comparisons
begin March 31, 1991.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly Periods ended October 31
Scudder Short Term Global Income Fund
Year Amount
- --------------------
3/31/91 10000
91 10653
92 11487
93 12307
94 12277
Salomon Brothers Currency-Hedged World
Government Bond Index (1-3 years)
Year Amount
- --------------------
3/31/91 10000
91 10465
92 11327
93 11986
94 12210
The unmanaged Salomon Brothers Currency-Hedged World
Government Bond Index (1-3 years) consists of worldwide
fixed-rate government bonds with one-to-three years to
maturity. Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect and fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly Periods ended October 31
- ----------------------------------
<TABLE>
<S> <C> <C> <C> <C>
1991* 1992 1993 1994
-------------------------------
Net Asset Value... $12.01 $11.84 $11.68 $10.78
Income Dividends.. $ .76 $ 1.08 $ .95 $ .87
Capital Gains
Dividends......... $ -- $ -- $ .02 $ --
Fund Total
Return (%)........ 6.65 7.83 7.14 -.25
Index Total
Return (%)........ 5.56 7.56 6.08 1.87
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than when purchased. If the Advisor
had not temporarily capped expenses, the average annual total return for the
Fund for the one year and life of Fund would have been lower.
4
<PAGE>
Portfolio Summary as of October 31, 1994
- ---------------------------------------------------------------------------
Market Exposure
- ---------------------------------------------------------------------------
Debt Currency
Holdings Exposure(a)
-------- -----------
Australia 7.7% 2.0% We have maintained the
Belgium 0.0 -4.1 Fund's conservative
Canada 0.0 0.4 strategy by constructing
Chile 2.4 2.4 a well-diversified
Czech 0.3 0.3 portfolio representing
Denmark 8.4 1.9 17 countries, while
ECU 9.5 7.0 hedging the portfolio to
Finland 0.0 -3.8 help manage the impact of
France 8.2 -5.8 currency exchange
Germany 3.1 -2.6 fluctuations.
Italy 8.5 7.2
Japan 0.0 -0.9
New Zealand 5.3 0.8
South Africa 2.6 2.6
Spain 3.7 1.3
Sweden 4.8 1.8
Switzerland 0.0 -2.6
Thailand 9.3 9.3
Turkey 0.1 0.1
U.S. 26.1 82.7
------ ------
100.0% 100.0%
====== ======
(a) Currency exposure after taking into account the effects
of foreign currency options, futures, and forward contracts.
For more complete details about the Fund's Investment Portfolio,
see page 9.
A monthly investment portfolio summary is available upon request.
5
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
Throughout the year, rising interest rates around the world have
caused bond prices to fall and exchange rates to fluctuate. The U.S.
Federal Reserve played a significant role in altering the direction of
interest rates this year by initiating a series of increases in short-term
interest rates. In early 1994, it was expected that the Fed's actions on
short-term rates would help stabilize long-term rates (which are determined
primarily by bond market activity) and keep inflation in check. As 1994
progressed, however, investors drove both short- and long-term global
interest rates higher and bond prices lower, due in part to fears that
inflation would escalate. Negative market sentiment was also exacerbated by
the growing competition for--and therefore the rising cost of--capital among
governments and corporations around the world.
While Scudder Short Term Global Income Fund's performance for the
fiscal year ended October 31, 1994, was affected by this challenging
investment climate, the Fund has also provided a relatively high level of
income, maintained a well-diversified portfolio, and taken actions to help
reduce share-price volatility. Reflecting generally higher interest rates,
the Fund provided a 30-day net annualized yield of 8.13% on October 31,
1994, compared with 6.63% on October 31, 1993. The Fund's net asset value
declined to $10.78 per share on October 31, down from $11.68 at the end of
the previous year. Fortunately, the $0.87 per share in distributions
shareholders received during the year largely offset the price decline.
Price change plus distributions translated into an essentially flat total
return of -0.25% for the 12 months--above average for the category.
According to Lipper Analytical Services, the average short world
multimarket fund returned -0.66% for the 12 months. Lipper, which tracked
34 funds for the period, is an independent analyst of investment
performance. The Fund's average annual total return for the three years
ended October 31 was 4.84%, versus 2.55% on average for the 23 short world
multimarket funds tracked by Lipper.
Defensive Investment Strategy
At the beginning of the Fund's fiscal year, we expected short-term
interest rates to decline throughout most of Europe, but anticipated some
increase in U.S. interest rates. Consequently, we maintained the Fund's
core holdings in high-yielding government bonds issued by Ireland, Italy,
and Spain, and also kept the Fund heavily hedged to help protect against
6
<PAGE>
weakening local currencies. At present, much of the Fund's currency
exposure is either to the dollar or dollar-linked emerging markets, as in
Southeast Asia.
As 1994 progressed, however, positive economic fundamentals were
overwhelmed by worldwide concern about rising U.S. interest rates, which
pushed global markets lower and weakened the dollar. Consequently, over the
course of the year, our hedges lost money as European currencies
strengthened against the dollar. Since U.S. tax law treats foreign currency
losses as offsets to ordinary income, approximately 98% of the Fund's 1994
income payments will be treated as nontaxable distributions. In this year's
challenging environment, we maintained the Fund's conservative strategy by
structuring a well-diversified portfolio (17 countries as of October 31)
and keeping a relatively short average effective maturity (2.1 years).
The Fund's global investment strategy allows us to find markets where
we believe the income stream from bond investments in relatively stable
currencies has the potential to be higher than might be available from U.S.
instruments. We believe this strategy enables the Fund to provide a degree
of share-price stability while focusing on higher yield.
Because we anticipate near-term currency volatility, we invested
approximately 13% of the portfolio in the United States as of October 31.
We invested another 13% in bonds issued by so-called dollar-block
countries, namely Australia and New Zealand, to add stability to the
portfolio. We also bought dollar-denominated bonds in Latin America and
Europe that offer the interest-rate exposure of foreign markets without the
risk of currency fluctuation.
Fiscal and Labor Policies in Denmark and Italy
Show Improvement
At the end of the period, more than 40% of the Fund was invested in
Europe, led by holdings in Denmark and Italy. We believe Denmark is one of
the best-managed European countries in terms of its fiscal and labor
markets. Indeed, our holdings in Denmark provided some of the best
investment returns for the portfolio during the course of 1994. The
political situation in Italy remains uncertain; however, we see signs of
fundamental improvement in terms of fiscal management and moderating wage
growth.
7
<PAGE>
Shifting Portfolio Allocations
Among the countries represented in the Fund, Germany is a small and
recent addition. Until a few months ago, we had avoided Germany altogether
because of its resistance to lowering interest rates. We are concerned
about the German budget deficit, which continues to balloon because of the
heavy cost of reunification, and will monitor the situation closely.
We have also added small positions in the Czech Republic and South
Africa. While these markets are not yet liquid enough to permit large core
holdings, we are confident we have added positions that will make positive
contributions to the Fund's long-term performance.
At the same time, we have eliminated the Fund's positions in Greece
and Malaysia. Greece has generated much income for the Fund in the recent
past. But we believe the current economic and political climate is not
sufficiently stable to warrant the additional risk. We withdrew from the
Malaysian market following certain developments in the currency markets
that called into question the near-term credibility of the Malaysian
central bank.
Looking Ahead
Looking ahead, we expect interest rates to continue rising as an
ever-expanding list of countries tries to attract scarce global capital for
investment in financial markets and growing economies. The interest-rate
environment will provide us with both investment opportunities and risks.
Because of continued volatility in the currency markets, we will remain
cautious and continue our dollar-based currency exposure. At the same time,
we will also continue research into markets that we feel will add to your
Fund's yield without significantly affecting share-price volatility.
Sincerely,
Your Portfolio Management Team
/s/Margaret Craddock /s/Gary P. Johnson
Margaret Craddock Gary P. Johnson
/s/Lawrence Teitelbaum
Lawrence Teitelbaum
Scudder Short Term Global Income Fund:
A Team Approach to Investing
Scudder Short Term Global Income Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund's portfolio. They are
supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in Scudder's offices
across the United States and abroad. Scudder believes its team approach
benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Lead Portfolio Manager Margaret Craddock has set the Fund's investment
strategy and overseen its daily operation since she joined Scudder in 1991.
Maggie has seven years of experience in global fixed-income research and
investing. Gary P. Johnson, Portfolio Manager, concentrates on the Fund's
hedging strategies and research, a role he has filled since the Fund
commenced operations. Gary joined Scudder in 1987 and has worked with
quantitative analysis and strategic trading since 1982. Lawrence
Teitelbaum, Portfolio Manager, contributes expertise on global interest
rates and currency strategies, a role he assumed when he joined Scudder in
1993. Larry has worked with global fixed-income investments and strategies
since 1981.
8
<PAGE>
<TABLE>
SCUDDER SHORT TERM GLOBAL INCOME FUND INVESTMENT PORTFOLIO as of October 31, 1994
- -------------------------------------------------------------------------------------------------------------------
% of Principal Market
Portfolio Amount Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
73.8% FOREIGN DENOMINATED DEBT OBLIGATIONS
AUSTRALIAN DOLLARS 7.7% AUD 53,625,000 Commonwealth of Australia, 12.5%, 1/15/98 . . . . 42,839,339
----------
CHILEAN PESOS 2.4% CLP 626,144,783 Citibank indexed Time Deposit, 16.2%, 11/10/94 . 1,507,693
542,658,812 Citibank indexed Time Deposit, 16.5%, 1/4/95(b) . 1,306,667
2,401,068,663 Citibank indexed Time Deposit, 14.25%, 1/30/95(b) 5,781,528
982,101,578 Citibank indexed Time Deposit, 14.5%, 2/6/95(b) . 2,364,800
979,362,264 Citibank indexed Time Deposit, 14.45%, 5/3/95(b) 2,358,204
----------
13,318,892
----------
CZECH KORUNA 0.3% CSK 40,000,000 Czech Republic, 14.6%, 3/18/97 . . . . . . . . . 1,594,002
----------
DANISH KRONER 8.4% DKK 154,000,000 Kingdom of Denmark, 6%, 2/10/96 . . . . . . . . . 25,643,438
20,000,000 Kingdom of Denmark, 5.25%, 8/10/96 . . . . . . . . 3,259,004
106,800,000 Kingdom of Denmark, 9%, 11/15/96 . . . . . . . . . 18,464,818
----------
47,367,260
----------
DEUTSCHEMARKS 3.0% DEM 24,000,000 Federal Republic of Germany, 8.25%, 7/21/97 . . . 16,550,404
----------
EUROPEAN CURRENCY
UNITS 9.5% ECU 1,000,000 Nacional Financiera SNC, 10.25%, 3/11/97 . . . . . 1,264,355
4,000,000 Republic of Turkey, 11.5%, 5/26/95 . . . . . . . . 5,044,744
10,500,000 United Kingdom Treasury Bond, 8%, 1/23/96. . . . . 13,447,410
28,000,000 United Kingdom Treasury Bond, 5.25%, 1/21/97 . . . 33,726,773
----------
53,483,282
----------
FRENCH FRANCS 8.2% FRF 240,000,000 Government of France, 6.5%, 10/12/96 . . . . . . . 46,107,777
----------
ITALIAN LIRE 8.5% ITL 37,000,000,000 Republic of Italy, 8.5%, 1/1/97 . . . . . . . . . 22,878,212
40,000,000,000 Republic of Italy, 8.5%, 4/1/97 . . . . . . . . . 24,546,006
----------
47,424,218
----------
NEW ZEALAND
DOLLARS 5.3% NZD 46,525,000 Government of New Zealand, 101%, 7/15/97 . . . . 29,427,416
----------
SOUTH AFRICAN RANDS 2.6% ZAL 61,200,000 Republic of South Africa, 14%, 8/15/97 . . . . . . 14,538,806
----------
SPANISH PESETAS 3.7% ESP 2,500,000,000 Kingdom of Spain, 11.85%, 8/30/96 . . . . . . . . 20,472,394
----------
SWEDISH KRONOR 4.8% SEK 105,000,000 Kingdom of Sweden, Treasury Bill, 6/21/95 . . . . 13,891,528
54,000,000 Kingdom of Sweden, Treasury Bill, 8/16/95 . . . . 7,040,943
46,000,000 Kingdom of Sweden, Treasury Bill, 9/20/95 . . . . 5,942,730
----------
26,875,201
----------
THAI BAHTS 9.3% THB 140,000,000 Bank for Agriculture and Agricultural
Cooperatives, 6.24%, 12/24/96 . . . . . . . . . 5,217,349
267,280,729 New South Wales Note, 1/27/95 . . . . . . . . . . 10,498,943
915,000,000 New South Wales Medium Term Note,
8%, 6/23/95 . . . . . . . . . . . . . . . . . . 36,442,134
----------
52,158,426
----------
</TABLE>
The accompanying notes are an integral part of the financial statments.
9
<PAGE>
<TABLE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
- --------------------------------------------------------------------------------------------------------------------
% of Principal Market
Portfolio Amount Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TURKISH LIRE 0.1% TKL 26,400,000,000 Republic of Turkey Treasury Bill, 12/21/94 . . . 688,824
-----------
TOTAL FOREIGN DENOMINATED DEBT
OBLIGATIONS (Cost $407,447,621) . . . . . . . 412,846,241
-----------
---------------------------------------------------------------------------------
26.1% U.S. DOLLAR DENOMINATED DEBT OBLIGATIONS
---------------------------------------------------------------------------------
U.S. DOLLARS USD 1,201,000 Associates Corp. of North America, Commercial
Paper, 4.801%, 11/1/94 . . . . . . . . . . . . 1,201,000
3,200,000 Argentina Bonos del Tesoro, Floating Rate
Bond, LIBOR, 5.319%, 5/31/96 . . . . . . . . 3,131,436
15,785,000 Argentina Bonos del Tesoro, Floating Rate Bond,
LIBOR, 5%, 9/1/97 . . . . . . . . . . . . . . 15,110,426
199,026 Federal Home Loan Mortgage Corp., REMIC,
Series 1543 PN, Interest only, 2/15/08 . . . . 751,932
2,636,916 Federal Home Loan Mortgage Corp.,
Series 1223 C, 7.25%, 7/15/20 . . . . . . . . 2,603,955
4,075,204 General Electric Capital Mortgage Services,
Inc. 1991-5 Series A (PT), 8.5%, 9/25/06*. . . 3,969,504
17,300,000 Home Savings of America Subordinated Note,
10.5%, 6/12/97 . . . . . . . . . . . . . . . . 17,701,360
12,500,000 ITT Financial Corp. Medium Term Note,
6.3%, 4/21/95 . . . . . . . . . . . . . . . . 12,223,750
2,591,267 Merrill Lynch Mortgage Investors Inc. Series
1992-B Series 4 -A, 7.85%, 4/15/12 . . . . . . 2,579,114
11,900,000 Queensland Treasury Corp. Medium Term Note,
12.1%, 7/8/95 . . . . . . . . . . . . . . . . 11,899,881
4,500,000 RJR Nabisco Inc. Medium-Term Note, 6.8%,
9/1/01 . . . . . . . . . . . . . . . . . . . . 4,303,125
3,500,000 Time Warner Inc., Ssenior Nnote, 7.45%, 2/1/98 . 3,395,000
11,000,000 U.S. Treasury Note, 5.625%, 8/31/97 . . . . . . 10,590,938
7,047,380 United Companies Financial Corp., Home Loan
Trust, Series 1993 B1, 6.075%, 7/25/14 . . . . 6,679,507
3,525,000 United Mexican States Tesobonos, 1/12/95 . . . . 3,476,778
6,374,000 United Mexican States Tesobonos, 1/26/95 . . . . 6,270,231
17,319,000 United Mexican States Tesobonos, 4/20/95 . . . . 16,704,002
15,000,000 United Mexican States Tesobonos, 8/3/95 . . . . 14,098,500
10,000,000 United Savings Association of Texas, 98.05%,
5/15/98 . . . . . . . . . . . . . . . . . . . 9,475,000
-----------
TOTAL U.S. DOLLAR DENOMINATED DEBT
OBLIGATIONS (Cost $149,169,353) . . . . . . . 146,165,439
-----------
TOTAL INVESTMENTS (Cost $556,616,974) . . . . . 559,011,680
-----------
</TABLE>
The accompanying notes are an integral part of the financial statments.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
% of Principal Market
Portfolio Amount Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
0.1% PURCHASED OPTIONS
--------------------------------------------------------------------------------------------
AUD 20,900,000 Put on Australian Dollars, strike price
AUD.725, expiration date 11/28/94 . . . . . . . . . 6,270
AUD 49,293,000 Put on Australian Dollars, strike price AUD.725,
expiration date 11/2/94 . . . . . . . . . . . . . . --
USD 50,000,000 Put on 1 year Canadian Bankers' Acceptance
rates Trust BA, strike price 9.25%,
expiration date 4/21/95 . . . . . . . . . . . . . 110,000
CAD 64,000,000 Put on Canadian Dollars, strike price
CAD1.4103, expiration date 11/3/94 . . . . . . . . --
DEM 63,000,000 Put on Deutschemarks, strike price DEM1.7,
expiration date 11/16/94 . . . . . . . . . . . . . --
DEM 64,000,000 Put on Deutschemarks, strike price DEM1.71,
expiration date 11/17/94 . . . . . . . . . . . . . --
DEM 54,180,000 Put on Deutschemarks, strike price DEM1.61,
expiration date 3/23/95 . . . . . . . . . . . . . . 189,630
NZD 82,007,751 Put on New Zealand Dollars, strike price
NZD.5874, expiration date 12/15/94 . . . . . . . . 12,301
ESP 2,540,000,000 Put on Spanish Pesetas vs Deutschemarks,
strike price ESP84.5, expiration date 12/15/94 . . . 37,146
Number of
Contracts
--------------------------------------------------------------------------------------------
178 Put on December 1994 Eurodollar Futures,
strike price 94, expiration date 12/19/94 . . . . . 40,050
176 Put on March 1995 Eurodollar Futures, strike
price 93.75, expiration date 3/13/95 . . . . . . . . 132,000
-----------
TOTAL PURCHASED OPTIONS (Cost $3,564,656) . . . . . . 527,397
-----------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $560,181,630) (a) . . . . . . . . . . . . . 559,539,077
===========
<FN>
(a) The cost for federal income tax purposes was $560,707,823. At October 31, 1994,
net unrealized depreciation for all securities based on tax cost was $1,168,746.
This consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $8,262,666 and
aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $9,431,412.
(b) Securities valued in good faith by the Valuation Committee of the Board of Directors.
The cost of these securities at October 31, 1994 aggregated $11,463,798. See
Note A of the Notes to the Financial Statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statments.
11
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
----------------------------------------------------------------------
FUTURES
----------------------------------------------------------------------
* At October 31, 1994, $2,150,802 par value of General Electric Capital
Mortgage Services, Inc., 8.5%, 9/25/06 with a market value of
$2,095,016 was pledged to cover initial margin requirements on open
futures contracts.
<TABLE>
At October 31, 1994, open futures contracts purchased were as follows (Note A):
<CAPTION>
Number of Aggregate Market
Index Expiration Contracts Face Value ($) (1) Value ($) (1)
----- ---------- --------- ------------------ -------------
<S> <C> <C> <C> <C>
Euroyen . . . . . Mar 1995 1,500 377,236,082 376,238,902
===== =========== ===========
Net unrealized depreciation on open futures contracts
purchased . . . . . . . . . . . . . . . . . . . . . . . . . . (997,180)
------------
</TABLE>
<TABLE>
At October 31, 1994, open futures contracts sold short were as follows (Note A):
<CAPTION>
Number of Aggregate Market
Index Expiration Contracts Face Value ($) (1) Value ($) (1)
----- ---------- --------- ------------------ -------------
<S> <C> <C> <C> <C>
Eurolira . . . . Dec 1994 75 11,003,321 11,084,171
Eurolira . . . . Mar 1995 75 10,946,036 10,995,196
Eurodollars . . . Jun 1995 115 26,999,585 26,777,750
Eurolira . . . . Jun 1995 75 10,895,657 10,928,159
Eurodollars . . . Sep 1995 115 26,939,550 26,680,000
Eurolira . . . . Sep 1995 75 10,829,026 10,881,843
Eurodollars . . . Dec 1995 110 25,533,525 25,429,250
Eurodollars . . . Mar 1996 110 25,552,850 25,401,750
Eurodollars . . . Jun 1996 110 25,487,650 25,363,250
--- ----------- ------------
860 174,187,200 173,541,369
=== =========== ============
Net unrealized appreciation on open futures contracts
sold short . . . . . . . . . . . . . . . . . . . . . . . . . . . 645,831
------------
Total unrealized depreciation on open futures contracts . . . . . (351,349)
============
<FN>
(1) For purposes of these tables, values of foreign denominated futures
contracts have been translated into U.S. dollars using the period
ended foreign exchange rates.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statments.
12
<PAGE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------
--------------------------------------------------------------------
WRITTEN OPTIONS
--------------------------------------------------------------------
<TABLE>
At October 31, 1994 outstanding written options were as follows (Note A):
<CAPTION>
Principal
Amount Expiration Strike Market
Call Options (000's) Date Price Value ($)
------------ ----------------------------------------------------------
<S> <C> <C> <C> <C>
AUD . . . . . . 18,293 11/2/94 AUD.7419 36,623
ITL vs DEM . . . 43,000,000 11/8/94 ITTL1017.00/DEM 42,876
SEK vs DEM . . . 160,000 11/17/94 SEK4.8212/DEM 319,075
AUD . . . . . . 20,900 11/28/94 AUD./7396 131,670
ESP vs DEM . . . 2,540,000 12/15/94 ESP82.81/DEM 60,784
NZD . . . . . . 35,500 12/15/94 NZD.6007 493,450
JPY . . . . . . 934,928 6/29/95 JPY95.89 383,320
</TABLE>
<TABLE>
<CAPTION>
Number of
Contracts
---------
<S> <C> <C> <C> <C>
Eurodeutschemark
Futures . . . . . . . 250 3/13/95 94.50 99,711
3 year Australian
Bond . . . . . . . . 620 12/15/94 90.50 111,888
Canadian Bankers'
Acceptance . . . . . 50 12/19/94 93.00 87,784
---------
Total outstanding written options
(Premiums received $2,172,372). . . . . . . . . . . . . . 1,767,181
=========
</TABLE>
<TABLE>
<CAPTION>
CURRENCY ABBREVIATIONS
----------------------------------------------------------------------------
<S> <C> <C> <C>
AUD Australian Dollar ITL Italian Lira
BEF Belgian Franc JPY Japanese Yen
GBP British Pound NZD New Zealand Dollar
CAD Canadian Dollar ZAL South African Rand
CLP Chilean Peso ESP Spanish Peseta
CSK Czech Koruna SEK Swedish Krona
DKK Danish Krone CHF Swiss Franc
ECU European Currency Unit THB Thai Baht
FRF French Franc TKL Turkish Lira
DEM German Deutschemark USD United States Dollar
</TABLE>
The accompanying notes are an integral part of the financial statments.
13
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------------------------------------------------------
OCTOBER 31, 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $556,616,974) (Note A) . . . . . . $ 559,011,680
Purchased options, at market (identified cost $3,564,656) (Note A). . . . . . . . . . 527,397
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639
Foreign currency, at market (identified cost $1,875,771) (Note A) . . . . . . . . . . 1,908,455
Forward foreign currency exchange contracts to buy, at market
(contract cost $108,474,575) (Notes A and E) . . . . . . . . . . . . . . . . . . . . 112,113,732
Receivable on forward foreign currency exchange contracts
to sell (Notes A and E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365,049,710
Receivable on investment sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,646,644
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,784,207
Receivable on fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 506,342
Daily variation margin on open futures contracts (Note A) . . . . . . . . . . . . . . 17,250
Deferred organization expenses (Note A) . . . . . . . . . . . . . . . . . . . . . . . 15,524
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,015
-------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089,616,595
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,471,820
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,484,641
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,027,672
Accrued management fee (Note C) . . . . . . . . . . . . . . . . . . . . . . . . . . 330,444
Other accrued expenses (Note C) . . . . . . . . . . . . . . . . . . . . . . . . . . 346,704
Foreign currency due to broker, at market (Note A) . . . . . . . . . . . . . . . . . 1,212,771
Written options, at market (premiums received $2,172,372) (Note A) . . . . . . . . . 1,767,181
Net payable on closed forward foreign currency exchange contracts (Note A) . . . . . 3,121,164
Payable for forward foreign currency exchange contracts to buy (Notes A and E) . . . 108,474,575
Payable for forward foreign currency exchange contracts to sell
(contract cost $365,049,710) (Notes A and E) . . . . . . . . . . . . . . . . . . . 379,450,405
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529,687,377
-------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . $559,929,218
=============
NET ASSETS
Net assets consist of:
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,394,706
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,632,068)
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (351,349)
Foreign currency related transactions . . . . . . . . . . . . . . . . . . . . . . (10,412,025)
Accumulated net realized loss (Note F) . . . . . . . . . . . . . . . . . . . . . . . (5,071,829)
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519,600
Additional paid-in capital (Note F) . . . . . . . . . . . . . . . . . . . . . . . . 575,482,183
-------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 559,929,218
=============
NET ASSET VALUE, offering and redemption price per share
($559,929,218/51,959,978 shares of capital stock
outstanding, $.01 par value, 300,000,000 shares authorized) . . . . . . . . . . . . $10.78
======
</TABLE>
The accompanying notes are an integral part of the financial statments.
14
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
- ----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1994
- ----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest (net of foreign taxes withheld of $742,470) . . . . . . . . $ 67,681,085
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . . . . . . . $ 4,625,076
Services to shareholders (Note C) . . . . . . . . . . . . . . . . . . 1,521,715
Directors' fees and expenses (Note C) . . . . . . . . . . . . . . . . 42,932
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,039,249
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . 190,308
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,329
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,662
State registration fees . . . . . . . . . . . . . . . . . . . . . . . 67,670
Amortization of organization expenses (Note A) . . . . . . . . . . . 11,706
Interest (Note D) . . . . . . . . . . . . . . . . . . . . . . . . . . 20,424
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,140 7,727,211
--------------------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . 59,953,874
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,057,339)
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,752,469)
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . 3,787,162
Foreign currency related transactions. . . . . . . . . . . . . . . . (36,924,956) (52,947,602)
------------ ------------
Net unrealized appreciation (depreciation) during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,537,241
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,077,116
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . (1,794,347)
Foreign currency related transactions . . . . . . . . . . . . . . . (17,137,912) (12,317,902)
------------ ------------
Net loss on investment transactions . . . . . . . . . . . . . . . . . (65,265,504)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . $ (5,311,630)
============
</TABLE>
The accompanying notes are an integral part of the financial statments.
15
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,953,874 $ 87,265,028
Net realized loss from investment transactions . . . . . . . . . . . . . (52,947,602) (14,059,490)
Net unrealized depreciation on investment transactions
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,317,902) (2,432,002)
-------------- -------------
Net increase (decrease) in net assets resulting from operations . . . . . (5,311,630) 70,773,536
-------------- -------------
Distributions to shareholders from:
Net investment income ($.02 and $.95 per share) . . . . . . . . . . . . (1,254,033) (87,265,028)
-------------- -------------
Net realized gains from investment transactions ($.02 per share) . . . . -- (1,930,308)
-------------- -------------
Tax return of capital distribution ($.85 per share). . . . . . . . . . . (58,437,746) --
-------------- -------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . 212,114,019 506,619,737
Net asset value of shares issued to
shareholders in reinvestment of distributions . . . . . . . . . . . . . 45,034,626 66,970,854
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . (673,153,473) (883,422,065)
-------------- -------------
Net decrease in net assets from Fund share transactions . . . . . . . . . (416,004,828) (309,831,474)
-------------- -------------
DECREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . (481,008,237) (328,253,274)
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . 1,040,937,455 1,369,190,729
-------------- -------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 559,929,218 $1,040,937,455
============== =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . . . 89,107,607 115,606,640
-------------- -------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,796,142 43,147,306
Shares issued to shareholders in reinvestment
of distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,010,556 5,700,572
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,954,327) (75,346,911)
-------------- -------------
Net decrease in Fund shares . . . . . . . . . . . . . . . . . . . . . . . (37,147,629) (26,499,033)
-------------- -------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . . 51,959,978 89,107,607
============== =============
</TABLE>
The accompanying notes are an integral part of the financial statments.
16
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
FOR THE PERIOD
MARCH 1, 1991
(COMMENCEMENT
YEARS ENDED OCTOBER 31, OF OPERATIONS)
---------------------------------------------- TO OCTOBER 31,
1994 1993 1992 1991
---------------------------------------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . $11.68 $11.84 $12.01 $12.00
------ ------ ------ ------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . .87 .95 1.08 .76
Net realized and unrealized gain (loss) on investment
transactions . . . . . . . . . . . . . . . . . . . . . (.90) (.14) (.17) .01
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . . (.03) .81 .91 .77
------ ------ ------ ------
Less distributions from:
Net investment income . . . . . . . . . . . . . . . . . (.02) (.95) (1.08) (.76)
Net realized gains on investments . . . . . . . . . . . -- (.02) -- --
Tax return of capital distribution . . . . . . . . . . (.85) -- -- --
------ ------ ------ ------
Total distributions . . . . . . . . . . . . . . . . . . . (.87) (.97) (1.08) (.76)
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . $10.78 $11.68 $11.84 $12.01
====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . (.25) 7.14 7.83 6.65**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . 560 1,041 1,369 205
Ratio of operating expenses, net to average daily
net assets (%) (a) . . . . . . . . . . . . . . . . . . 1.00 1.00 1.00 1.00*
Ratio of net investment income to average daily
net assets (%) . . . . . . . . . . . . . . . . . . . . 7.76 8.10 8.94 9.97*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . 272.4 259.8 274.2 26.1*
(a) Reflects a per share amount of management fee not
imposed by the Adviser . . . . . . . . . . . . . . . $ .02 $ .01 $ .03 $ .06
Operating expense ratio including management fee and
other expenses not imposed (%) . . . . . . . . . . . 1.15 1.11 1.23 1.89*
<FN>
* Annualized
** Not annualized
</FN>
</TABLE>
17
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Short Term Global Income Fund (the "Fund") is a non-diversified series
of Scudder Global Fund, Inc., a Maryland corporation registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The policies described below are followed consistently by the Fund in
the preparation of its financial statements in conformity with generally
accepted accounting principles.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which prices reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $11,811,199 (2.1% of net assets) and have
been noted in the investment portfolio as of October 31, 1994. Short-term
investments having a maturity of sixty days or less are valued at amortized
cost.
OPTIONS. The Fund may write (sell) exchange-listed and over-the-counter call and
put options on securities, currencies and other financial instruments. When the
Fund writes a call, it gives the purchaser of the call option the right to buy
the underlying security or currency at the price specified in the option (the
"exercise price") at any time during the option period, generally ranging up to
nine months for American style options and for European style options at the
expiration date. When the Fund writes a put option, it gives the purchaser of
the put option the right to sell the underlying security or currency to the Fund
at the exercise price at any time during the option period, generally ranging up
to nine months for American style options and for European style options at the
expiration date. If the option expires unexercised, the Fund will realize
income, in the form of a capital gain, to the extent of the amount received for
the option (the "premium"). If the option is exercised, a decision over which
the Fund has no control, the Fund must sell the underlying security or currency
to the option holder or purchase the underlying security or currency from the
option holder at the exercise price. Certain options,
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
including options on indices will require cash settlement by the Fund if the
option is exercised. By writing a call option, the Fund foregoes, in exchange
for the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security or currency above the exercise price. By writing a put option, the
Fund, in exchange for the net premium received, accepts the risk of a decline in
the market value of the underlying security or currency below the exercise
price. The liability representing the Fund's obligation under an exchange traded
written call or put option is valued at the last sale price or, in the absence
of a sale, the mean between the closing bid and asked price or at the most
recent asked price if no bid and asked price are available. Over-the-counter
written options are valued using dealer supplied valuations.
In addition, the Fund may purchase, singly and in combination, call
and put options on securities, currencies and securities indices. Exchange
traded purchased options are valued at the last sales price or, in the absence
of a sale, the mean between the closing bid and asked prices or at the most
recent bid price if no bid and asked prices are available. Over-the-counter
purchased options are valued using dealer supplied valuations.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write (sell) call and
put options on futures contracts which are traded for bona fide hedging
purposes. Options on futures contracts will be valued in accordance with the
security and options valuation policies described above.
FUTURES CONTRACTS. The Fund may enter into interest rate, securities index and
currency futures contracts for bona fide hedging purposes. Upon entering into a
futures contract, the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price indicated
in the futures contract. Subsequent payments ("variation margin") are made or
received by the Fund each day for U.S. futures contracts (periodically for
foreign futures), dependent on the daily fluctuations in the value of the
underlying security, and are recorded for financial reporting purposes as
unrealized gains or losses by the Fund. When entering into a closing
transaction, the Fund will realize, for book purposes, a gain or loss equal to
the difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent
settlement price. Certain risks may arise upon entering into futures contracts
from the contingency of imperfect market conditions.
19
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
INDEXED SECURITIES. Indexed securities held by the Fund are investments whose
value is indexed to another financial instrument, index, currency, or commodity
(the "reference instrument"). For principal indexed securities, the principal
amount payable at maturity may be more or less than the amounts shown depending
on fluctuations in the value of the reference instrument. For coupon indexed
securities, the principal amount payable at maturity is fixed. However, the
coupon is indexed to the reference instrument. The price sensitivity of these
securities may be greater than that of non-indexed securities with similar
maturities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the Fund
may enter into forward foreign currency exchange contracts ("contracts").
Additionally, the Fund may enter into contracts to hedge certain other foreign
currency denominated assets. Contracts are recorded at market value. Certain
risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts. Realized and unrealized
gains and losses arising from such transactions are included in net realized and
unrealized gain (loss) from foreign currency related transactions.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and
certain expenses at the daily rates of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the accrual and payment dates on interest
and foreign withholding taxes.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies, and to distribute all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes, and no federal income tax
provision was required.
At October 31, 1994, the Fund had a net tax basis capital loss carryforward
of approximately $4,462,620, which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
October 31, 2002, whichever occurs first.
DISTRIBUTION OF INCOME AND GAINS. Distribution of net investment income is
declared as a dividend to shareholders of record as of the close of business
each day and is distributed to shareholders monthly. During any particular year
net realized gains and certain unrealized gains (which for federal income tax
reporting purposes may be considered realized) from investment transactions,
in excess of available capital loss carryforwards, would be taxable to the
Fund if not distributed and, therefore, will be distributed to shareholders.
An additional distribution may be made to the extent necessary to avoid the
payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences relate primarily to investments in options, futures,
forward foreign currency contracts and foreign currency denominated
investments. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund
may periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are
being amortized on a straight-line basis over a five-year period.
OTHER. Investment security transactions are accounted for on a trade date
basis. Distributions of net realized gains to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
discounts are accreted for both tax and financial reporting purposes.
21
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the year ended October 31, 1994, purchases and sales (including
maturities) of investment securities (excluding short-term investments)
aggregated $1,586,900,677 and $1,823,694,859, respectively.
The aggregate face value of futures contracts opened and closed during the year
ended October 31, 1994 was $6,428,929,506 and $6,878,764,411, respectively.
<TABLE>
Transactions in written options for the year ended October 31, 1994 are summarized as follows:
<CAPTION>
OPTIONS ON CURRENCIES (000 OMITTED)
-----------------------------------
NUMBER OF
CONTRACTS PREMIUMS AUD CAD CHF DEM PREMIUMS
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning
of Period. . . -- -- -- 45,000 72,100 -- $ 1,265,750
Written . . . 1,770 855,957 266,817 351,468 442,200 201,747 10,663,976
Closed . . . (850) (453,623) (129,328) (155,602) (316,200) (201,747) (6,665,966)
Exercised. . . -- -- (73,102) (155,157) (198,100) -- (4,277,620)
Expired . . . -- -- (25,194) (85,709) -- -- (549,803)
----- -------- -------- -------- -------- -------- ---------
End of
Period . . . 920 402,334 39,193 -- -- -- $ 436,337
===== ======== ======== ======== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS ON CURRENCIES (000 OMITTED)
-----------------------------------
ESP FRF ITL JPY NZD SEK PREMIUMS
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning
of Period . . -- -- -- -- -- -- $ --
Written . . . 5,300,000 255,000 29,000,000 934,928 232,133 1,120,500 4,229,540
Closed . . . . (3,700,000) -- -- -- (89,000) (500,000) (1,182,846)
Exercised. . . -- -- -- -- (107,633) (248,000) (949,459)
Expired . . . (1,600,000) (255,000) (29,000,000) -- -- (372,500) (1,377,435)
---------- -------- ----------- ------- -------- --------- -----------
End of
Period . . . -- -- -- 934,928 35,500 -- $ 719,800
========== ======== =========== ======= ======== ========= ===========
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTIONS ON CURRENCIES (000 OMITTED)
----------------------------------
ESP/DEM GBP/DEM ITL/DEM SEK/DEM PREMIUMS
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning
of Period. . . . -- -- -- -- $ --
Written. . . . . 8,640,000 32,100 220,045,900 1,636,500 3,989,273
Closed . . . . . (800,000) -- -- (788,000) (1009,833)
Exercised. . . . -- -- (107,045,900) (442,500) (1,241,569)
Expired. . . . . (5,300,000) (32,100) (70,000,000) (246,000) (1,123,970)
---------- ------- ------------ --------- ----------
End of
Period . . . . . 2,540,000 -- 43,000,000 160,000 $ 613,901
========== ======= ============ ========= ==========
</TABLE>
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund has agreed to pay to the Adviser
a fee equal to an annual rate of 0.75% of the first $1,000,000,000 of average
daily net assets and 0.70% of such assets in excess of $1,000,000,000 computed
and accrued daily and payable monthly. As manager of the assets of the Fund, the
Adviser directs the investments of the Fund in accordance with its investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Agreement also provides that if the Fund's expenses, exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser. The
Adviser has agreed not to impose all or a portion of its management fee until
February 28, 1995, and during such period to maintain the annualized expenses of
the Fund at not more than 1.00% of average daily net assets. For the year ended
October 31, 1994, the Adviser did not impose a portion of its management fee
aggregating $1,176,118 and the amount imposed aggregated $4,625,076, which was
equivalent to an annual effective rate of 0.60% of the Fund's average daily net
assets.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended October 31, 1994, the amount charged by SSC aggregated
$1,083,858, of which $65,804 is unpaid at October 31, 1994.
23
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
The Fund pays each Director not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1994, Directors' fees and expenses aggregated $42,932.
D. SHORT-TERM DEBT
- --------------------------------------------------------------------------------
During the year ended October 31, 1994, the Fund periodically borrowed amounts
from a bank at the existing prime rates. The arrangement with the bank
allows the Fund to borrow a maximum amount based on net asset value. There were
no month-end borrowings outstanding during the year ended October 31, 1994.
During the year ended October 31, 1994, the weighted average outstanding
daily balance of bank loans (based on the number of days the loans were
outstanding) was $5,225,500 with a weighted average interest rate of
6.55. Interest expense for the year ended October 31, 1994 was $20,424
(less than $.01 per share).
E. COMMITMENTS
- --------------------------------------------------------------------------------
As of October 31, 1994, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized depreciation of
$10,761,538
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (U.S.$)
---------------------- ---------------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
USD 20,695 DEM 31,250 11/1/94 82
JPY 3,750,000 USD 38,481 11/1/94 (234)
CSK 36,138,229 USD 1,314,117 11/4/94 (1,052)
FRF 405,119,610 USD 76,041,017 11/7/94 to 11/16/94 (2,595,253)
GBP 22,163,386 USD 33,998,635 11/8/94 (2,245,660)
USD 34,386,181 GBP 22,163,386 11/8/94 1,875,904
AUD 17,232,275 USD 12,709,998 11/14/94 to 11/28/94 (70,537)
ITL 13,972,300 USD 8,837 11/14/94 (231)
DKK 217,803,080 USD 35,902,567 11/17/94 to 1/6/95 (1,034,332)
FIM 98,284,506 USD 20,628,504 11/17/94 (714,958)
USD 44,956,185 DEM 69,273,171 11/21/94 to 1/18/95 1,119,116
USD 2,011,514 CAD 2,725,601 11/28/94 3,718
NZD 6,285,700 USD 3,835,911 11/28/94 (28,882)
CHF 52,760,170 USD 39,808,849 12/15/94 to 3/13/95 (2,342,048)
ECU 11,343,792 USD 13,977,820 12/15/94 (388,684)
BEF 720,097,000 USD 21,320,415 12/19/94 (1,965,835)
DEM 162,972,292 USD 105,464,559 1/18/95 to 3/14/95 (3,012,989)
USD 27,100,000 CHF 34,692,065 2/3/95 640,337
-----------
(10,761,538)
===========
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
F. RECLASSIFICATION OF CAPITAL ACCOUNTS
- --------------------------------------------------------------------------------
As required, effective November 1, 1993, the Fund has adopted the provisions of
Statement of Position 93-2 "Determination, Disclosure and Financial
Statement Presentation of Income, Capital Gain and Return of Capital
Distributions by Investment Companies (SOP)." In implementing the SOP, the Fund
has reclassified $10,832,234 to increase distributions in excess of net
investment income, $38,912,438 to decrease accumulated net realized loss and
$28,080,204 to decrease additional paid-in capital. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to differences in the characterization of certain foreign currency
related gains and losses under federal tax regulations versus generally accepted
accounting principles. The statement of changes in net assets and financial
highlights for prior periods have not been restated to reflect this change in
presentation.
25
<PAGE>
SCUDDER SHORT TERM GLOBAL INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF SCUDDER GLOBAL FUND, INC. AND TO THE SHAREHOLDERS
OF SCUDDER SHORT TERM GLOBAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Short Term Global Income Fund including the investment portfolio, as of
October 31, 1994, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended and for the period March 1, 1991 (commencement of
operations) to October 31, 1991. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Scudder Short Term Global Income Fund as of October 31, 1994, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended and for the
period March 1, 1991 (commencement of operations) to October 31, 1991 in
conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 20, 1994
26
<PAGE>
TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund paid foreign taxes of $742,470 and the Fund recognized $1,996,503 of
foreign source income during the taxable year ended October 31, 1994. Pursuant
to section 853 of the Internal Revenue Code, the Fund designates $.014 per share
of foreign taxes paid and $.038 of gross income earned from foreign sources in
the taxable year ended October 31, 1994.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Service
Representative at 1-800-225-5163.
27
<PAGE>
(This page intentionally left blank.)
28
<PAGE>
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
Edmond D. Villani*
Chairman of the Board and Director
Nicholas Bratt*
President and Director
Paul Bancroft III
Director
Thomas J. Devine
Director
William H. Gleysteen, Jr.
Director
William H. Luers
Director
Robert W. Lear
Honorary Director; Executive-in-Residence, Columbia University
Graduate School of Business
Daniel Pierce*
Director and Vice President
Robert G. Stone, Jr.
Director
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President and Assistant Treasurer
Douglas M. Loudon*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Gerald J. Moran*
Vice President
Edward J. O'Connell*
Vice President and Assistant Treasurer
Juris Padegs*
Vice President and Assistant Secretary
Kathryn L. Quirk*
Vice President and Assistant Secretary
Cornelia Small*
Vice President
Lawrence Teitelbaum*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
29
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
<S> <C>
Money market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- --------------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-end Funds#
- --------------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- --------------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including management fees and expenses, call or write
for a free prospectus. Read it carefully before you invest or send money. +A portion of the income from the tax-free
funds may be subject to federal, state and local taxes. *Not available in all states. +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are traded on various stock
exchanges. ++For information on Scudder Treasurers Trust(tm), an institutional cash management service that utilizes
certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
</TABLE>
30
<PAGE>
HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------
Account Service and Information
- --------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
- --------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
- --------------------------------------------------------------------------------
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
- --------------------------------------------------------------------------------
Scudder Investor Information and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.
31
<PAGE>
Celebrating 75 Years of Serving Investors
- --------------------------------------------------------------------------------
This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in the
United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 36 pure no load(tm) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Emerging Markets
Income Fund
Annual Report
October 31, 1994
* For investors seeking high current income and, secondarily, long-term
capital appreciation from a professionally managed portfolio
consisting primarily of high-yielding debt securities issued in
emerging markets.
* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER EMERGING MARKETS INCOME FUND
- --------------------------------------------------------------------------------
CONTENTS
2 Highlights
3 Letter from the Fund's Chairman
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
11 Investment Portfolio
15 Financial Statements
18 Financial Highlights
19 Notes to Financial Statements
24 Report of Independent Accountants
25 Officers and Directors
26 Investment Products and Services
27 How to Contact Scudder
HIGHLIGHTS
* Interest rates rose substantially in the United States and abroad
during 1994, driving down global bond prices. Emerging debt markets
felt the additional pressure of heavy selling by speculative investors
and returned -12.23% from December 31, 1993, through October 31, 1994.
* Scudder Emerging Markets Income Fund outperformed emerging debt
markets overall, but still felt the effects of the market's decline,
posting a -3.54% return from its inception on December 31 through
October 31.
* The Fund's yield increased as its cash position was invested and
interest rates rose. The Fund closed the annual period with a 30-day
net annualized yield of 9.13%, despite cash holdings totaling 16% of
the portfolio.
* Latin American holdings continue to comprise the bulk of the
portfolio, but where possible, your portfolio management team worked
to diversify Fund holdings in areas like Eastern Europe and Africa. By
October 31, 21 countries were represented in the portfolio.
2
<PAGE>
LETTER FROM THE FUND'S CHAIRMAN
- --------------------------------------------------------------------------------
Dear Shareholders,
Interest rates continued to rise in the third quarter of 1994 but at a
slower rate than in the first half of the year. Even so, investors' fear of
higher inflation remains a problem for the bond market. Throughout the
year, investors have reacted swiftly to reports of robust economic growth
in the United States, pushing bond prices lower and yields on long-term
securities higher as a result.
In the months ahead, interest rates may move higher in the face of
continued monetary tightening by the Federal Reserve. In addition, with
finite savings around the world, capital to invest in financial markets and
growing economies is increasingly in short supply, adding upward pressure
to interest rates as countries compete for savings by offering attractive
lending rates.
What does this mean for fixed-income investors? In the near term,
current yields will likely make up most of your Fund's total return. On the
plus side, because interest rates are now higher, investors are currently
receiving more income. Because rising interest rates could detract from
bond price performance (since bond prices move in the opposite direction of
interest rates), our investment strategy will focus on providing a
competitive level of income, while balancing changing bond prices with an
emphasis on capital preservation. Your Fund's investment team also plans to
seek out potential opportunities in anticipation of an expected 1995 peak
in inflation and an eventual turnaround in the trend of bond prices.
Please call Scudder Investor Information at 1-800-225-2470 if you have
questions about your Fund or other Scudder investments. Page 27 contains
more information on how to contact Scudder. Thank you for choosing Scudder
Emerging Markets Income Fund to help meet your investment needs.
Sincerely
/s/Edmond D. Villani
Edmond D. Villani
Chairman,
Scudder Emerging Markets Income Fund
3
<PAGE>
Scudder Emerging Markets Income Fund
Performance Update as of October 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- ------------------------------------------------------------------
Scudder Emerging Markets Income Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $ 9,646 -3.54% -%
JP Morgan Composite Emerging Markets
Bond/Latin Eurobond Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
10/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
Life of
Fund* $ 8,777 -12.23% -%
*The Fund commenced operations on December 31, 1993.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Emerging Markets Income Fund
Year Amount
- --------------------------------------
12/31/93* 10000
1/94 10058
2/94 9767
3/94 9050
4/94 8962
5/94 9416
6/94 8945
7/94 9067
8/94 9614
9/94 9768
10/94 9646
JP Morgan Composite Emerging
Markets Bond/Latin Eurobond Index
Year Amount
- ----------------------------------------
12/31/93* 10000
1/94 10041
2/94 9284
3/94 8358
4/94 8314
5/94 8824
6/94 8217
7/94 8397
8/94 8942
9/94 9006
10/94 8777
The JP Morgan Composite Emerging Markets Bond/Latin
Eurobond Index (EMBI/LEI) tracks the performance of
U.S. dollar-denominated sovereign restructured bonds
(mostly Brady bonds) and Latin-issued Eurobonds.
The composite includes debt issues from seven
countries in Latin America, plus Nigeria and the
Philippines. Index returns assume reinvested
dividends and, unlike Fund returns, do not reflect
any fees or expenses.
- -------------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Periods ended October 31
- ----------------------------------
<TABLE>
<S> <C>
1994*
-----------
Net Asset Value... $ 11.05
Income Dividends.. $ .51
Fund Total
Return (%)........ -3.54
Index Total
Return (%)........ -12.23
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Total return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. If the
Adviser had not maintained the Fund's expenses, the total return
would have been approximately -4.05%.
4
<PAGE>
Emerging Markets Income Fund
Portfolio Summary as of October 31, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Debt Obligations 81% We kept a relatively high
Convertible Bonds 3% level of cash equivalents
Cash Equivalents 16% throughout the year to
---- help reduce the impact of
100% market volatility on the
==== Fund's share price.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Market Exposure (Excludes 16% Cash Equivalents)
- --------------------------------------------------------------------------
Geographical Currency
- ----------------- -----------------------------------------
Brazil 28% United States 91%
Argentina 25% Argentina 3%
Morocco 8% Chile 2%
Panama 5% Czech Republic 1%
Venezuela 5% France 1%
Mexico 5% Indonesia 1%
United States 4% Mexico 1%
Other 20% ----
---- 100%
100% ====
====
During the year, we diversified assets
away from Latin America, making modest
investments in the emerging markets
of Eastern Europe and Africa.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Average Life (Excludes 16% Cash Equivalents)
- --------------------------------------------------------------------------
0 - 3 years 15% We emphasized shorter-maturity investments
3 - 5 years 24% throughout the year to help provide a
5 - 10 years 42% buffer against volatile markets worldwide.
Greater than 10 years 19%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
For more complete details about the Fund's Investment Portfolio,
see page 11.
A monthly Investment Portfolio Summary is available upon request.
5
<PAGE>
SCUDDER EMERGING MARKETS INCOME FUND
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
The world's emerging markets have traditionally offered investors the
potential for attractive returns in exchange for certain investment risks
characteristic of these regions, namely relatively undeveloped and often
illiquid securities markets, political uncertainty, and currency
fluctuation. This year, however, these markets have been affected more by
events taking place in the world's developed markets, specifically the
United States.
In February, the U.S. Federal Reserve began a series of interest-rate
hikes (there have been six to date) to help contain inflation and moderate
the pace of economic growth, which had picked up at the end of 1993.
Nervous investors, fearing inflation would rise despite the Fed's efforts,
sold bonds and stocks, sending the prices of these securities lower
throughout the world.
Emerging-market debt suffered during the spring months as hedge funds
and other leveraged accounts took the opportunity to lock in the strong
gains they had made in 1993 by selling their ample holdings of
emerging-market debt to cover losses in U.S. Treasury and foreign currency
positions. Demand for emerging-market bonds weakened further as dealers
received securities back from leveraged investors unable to satisfy rising
margin requirements and as a debt restructuring in Brazil added
approximately $40 billion in new bonds to the market.
After the rapid succession of interest-rate increases in the first few
months of the year, the U.S. Federal Reserve raised rates at a more
moderate pace in the summer and autumn. And although the world's
fixed-income markets remain volatile, the forced selling that exacerbated
the negative market activity in March and April has subsided.
Scudder Emerging Markets Income Fund managed to outperform the broad
market in this volatile environment by concentrating on defensive
investment strategies. For its abbreviated fiscal year, the ten months
ended October 31, 1994, the Fund's total return was -3.54%, reflecting a
decline in net asset value to $11.05 at the end of October, from $12.00 on
December 31, 1993, and $0.51 per share of income distributions. The Fund's
30-day net annualized yield on October 31 was 9.13%. Although negative,
your Fund's overall performance compares favorably to the J.P. Morgan
Composite Emerging Market Bond/Latin Eurobond Index, which fell 12.23%
during the same period.
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Investors Focus on Emerging-Market Fundamentals
In recent months, calmer markets have allowed investors to focus
again on the market fundamentals of developing countries, where the news
remains positive and values remain attractive. Developing countries,
notably in Latin America, are undertaking the bold steps necessary to
participate in a global economy and to compete successfully for global
capital. Governments of once-state-run economies are now privatizing key
businesses to reduce inflation, stimulate economic growth, improve
operating efficiencies in important industries, and encourage greater
domestic savings.
Despite these fundamentally positive developments, emerging market
debt--indeed, bond markets around the world--remain vulnerable to rising
interest rates and the threat of inflation. As a result, we took several
steps during the year to construct a defensive portfolio.
Building a Defensive Portfolio
To lessen the impact of rising interest rates, we invested principally
in floating-rate bonds (62% on October 31), maintained a large cash
position (roughly 16%), and made select investments in securities
denominated in foreign currencies. Floating-rate securities adjust the rate
of interest they pay periodically to mirror the changing level of interest
rates. Since investors are less inclined to sell "floaters" when rates are
rising, they tend to be less susceptible to price volatility.
Our investment strategy has included investing primarily in
dollar-denominated securities to reduce the impact of the currency
fluctuation common to emerging markets. By charter, no more than 35% of the
Fund can be invested in foreign currencies, and fully 91% of portfolio
assets was invested in dollar-denominated securities at the end of October.
But most foreign currencies have been relatively stable next to the
declining U.S. dollar this year, and we made select investments during the
period using the local currencies of the Czech Republic, Indonesia,
Thailand, Argentina, and Chile. Although intended as a defensive strategy,
these investments performed well as the local currencies strengthened,
helping to support the Fund's share price throughout the year.
7
<PAGE>
SCUDDER EMERGING MARKETS INCOME FUND
- --------------------------------------------------------------------------------
During the period, we also allowed our U.S. high-yield corporate bond
position to diminish as a percentage of total fund assets. Earlier in the
year, the Fund's U.S. high-yield bond position accounted for nearly 10% of
the portfolio. These bonds served the Fund well during the year, generally
outperforming emerging-market holdings. The strong performance of U.S.
high-yield corporate bonds was a direct result of the healthy U.S. economy,
which, based on reports of gross domestic product, grew 3.7% on average
during the first three quarters of the year.
However, U.S. high-yield corporate bonds have outperformed other asset
classes for the past three years, and we believe they are now fully valued.
Like stocks, high-yield corporate bonds are also vulnerable to economic
downturns, which affect the issuer's earnings and ability to make payments
of interest and principal. In light of the high valuations of these bonds,
we concluded it was best to trim our holdings and invest elsewhere. By the
end of October, U.S. high-yield corporate bonds accounted for just 3.3% of
portfolio holdings.
Although the Fund is capable of investing as much as 50% of its assets
in corporate debt worldwide, we have chosen to invest predominantly in
government-issued securities (currently 82% of portfolio holdings).
Corporations are generally considered less creditworthy than governments
and thus have traditionally paid higher coupons to attract investors to
their bonds. This is true in emerging and developed economies, although
some corporations are more creditworthy than others. In our view, the
premium paid by Latin American corporations in recent months has not been
sufficient to merit consideration in all but a few cases. During the
period, we carefully researched and selected bonds we believed would
provide the best risk-adjusted returns within the emerging markets,
investing heavily in the government debt of countries like Brazil and
Argentina, where governments are increasingly democratic and favor serious
economic reform.
8
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
(BAR CHART TITLE) Geographic Diversification of Bond Holdings
(CHART DATA)
4/30/94 10/31/94
-------- --------
Argentina 32.3 25.0
Brazil 15.7 28.0
Venezuela 17.3 5.0
Mexico 10.5 5.0
United States 8.9 4.0
Morocco 3.8 8.0
(END CHART)
Greater Diversification Ahead
Since the Fund's inception on December 31, 1993, we have invested
primarily in Latin American countries. Of the developing countries, those
in Latin America have offered the best values and boast the largest and
most liquid debt markets. Mexico, Argentina, and Brazil, for example, have
made demonstrable progress with economic and political reforms and yet
still issue bonds with yields significantly higher than U.S. Treasuries of
equivalent maturity.
Although still wide, the difference in yields has narrowed from that
of recent years as investors increasingly participate in Latin American
debt markets, pushing bond prices higher. During the period, we observed
this change in market valuations and began to look elsewhere for investment
opportunities. By period-end, we had diversified portfolio holdings away
from Latin America by making greater investments in the newly emerging
markets of Eastern Europe and Africa. In our view, countries like Poland,
Morocco, and the Czech Republic are undertaking the same steps as Latin
American countries to achieve market-based economic reforms. These markets
currently offer bonds at attractive valuations and the potential for
capital appreciation as more investors respond to those opportunities.
Scudder Emerging Markets Income Fund:
A Team Approach to Investing
Scudder Emerging Markets Income Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund's portfolio. They are
supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in Scudder's offices
across the United States and abroad. We believe our team approach benefits
Fund investors by bringing together many disciplines and leveraging
Scudder's extensive resources.
Lead Portfolio Manager Lincoln Y. Rathnam has responsibility for the
Fund's investment strategies. Lincoln, who joined Scudder in 1984, has 15
years of experience in international investing. M. Isabel Saltzman,
Portfolio Manager, is responsible for the Fund's day-to-day management.
Isabel, who joined Scudder in 1990, has been involved in foreign finance
and investing since 1979 and contributes special expertise in Latin
America. Susan E. Gray, Portfolio Manager, has responsibility for
developing the Fund's trading strategies. Susan, who has over four years of
investment trading experience, has worked at Scudder since 1987.
9
<PAGE>
SCUDDER EMERGING MARKETS INCOME FUND
- --------------------------------------------------------------------------------
In the coming months, in anticipation of a peak in U.S. interest
rates, and as demand for dollar-denominated assets increases, we expect to
decrease the Fund's large cash position and further diversify portfolio
assets away from Latin America. In keeping with the Fund's objectives, we
will continue to look for opportunities to provide high current income and
long-term capital appreciation for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/Lincoln Y. Rathnam /s/Susan E. Gray
Lincoln Y. Rathnam Susan E. Gray
/s/M. Isabel Saltzman
M. Isabel Saltzman
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of October 31, 1994
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
16.4% COMMERCIAL PAPER
--------------------------------------------------------------------------
5,300,000 Associates Corp. of North America,
4.8%, 11/1/94 . . . . . . . . . . . . . . . . 5,300,000
5,301,000 Dow Chemical Company, 4.8%, 11/1/94 . . . . . . . 5,301,000
5,289,000 Household Finance Corp., 4.75%, 11/1/94. . . . . . 5,289,000
----------
TOTAL COMMERCIAL PAPER
(Cost $15,890,000) . . . . . . . . . . . . . . 15,890,000
----------
80.9% DEBT OBLIGATIONS
--------------------------------------------------------------------------
ARGENTINA 21.2% 1,250,000 Acindar Industries Floating Rate Note,
11%, 11/12/98 . . . . . . . . . . . . . . . . . 1,107,813
400,000 Banco de Galicia y Buenos Aires, 9%, 11/1/03 . . . 322,940
3,850,000 Bonos del Tesoro, Conea II,
Floating Rate Bond, Libor, (5%), 9/1/97. . . . . 3,685,470
300,000 Banco Rio de la Plata Medium Term Note,
8.5%, 7/15/98 . . . . . . . . . . . . . . . . . 275,550
270,000 Bridas Sapic, 11.75%, 2/24/97 . . . . . . . . . . 271,350
2,000,000 Cedulas Hipotecarias, Floating Rate Bond,
(7.9%), 9/1/00 . . . . . . . . . . . . . . . . 1,800,000
450,000 Gascart S.A., 9%, 1/20/99 . . . . . . . . . . . . 421,875
ARP 2,005,500 Republic of Argentina BIC5 Floating Rate
Note, (18.81%), 5/1/01 . . . . . . . . . . . . 2,213,467
1,000,000 Republic of Argentina Collateralized Discount
Bond, Libor plus .8125%, (5.8125%), 3/31/23. . . 683,750
11,300,000 Republic of Argentina Floating Rate Bond,
Libor plus .8125%, (6.5%), 3/31/05 . . . . . . 8,178,375
3,350,000 Republic of Argentina Collateralized Par Bond,
Series L, Step-Up Coupon, 4.25%, 3/31/23 . . . . 1,566,125
----------
20,526,715
----------
BRAZIL 23.0% 1,000,000 Companhia Brasileira de Petroleo Ipiranga,
8.625%, 2/25/02 . . . . . . . . . . . . . . . . 942,500
1,500,000 Companhia Energetica de Minas Gerais,
Series A, 7.875%, 2/10/99 . . . . . . . . . . . 1,226,250
4,550,000 Companhia Energetica de Minas Gerais,
Series B, 8.25%, 2/10/00 . . . . . . . . . . . 3,674,125
6,630,000 Federative Republic of Brazil C Bond,
Front-Loaded Interest Reduction with Interest
Capitalization Bonds, 8%, 4/15/14 . . . . . . . 3,331,575
11,074,000 Federative Republic of Brazil, IDU Bond,
Libor plus .8125%, (6.0625%), 1/1/01 . . . . . . 9,039,153
714,285 Federative Republic of Brazil
New Money Bond, Floating Rate Note,
Libor plus .8125%, (6.6875%), 10/15/99 . . . . . 646,428
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER EMERGING MARKETS INCOME FUND
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,000,000 Federative Republic of Brazil Floating Rate
Debt Conversion Bond, Series L,
Libor plus .875%, (6.75%), 4/15/12 . . . . . 2,465,000
2,000,000 Federative Republic of Brazil Investment Bond,
6%, 9/15/13 . . . . . . . . . . . . . . . . 1,015,000
----------
22,340,031
----------
BULGARIA 1.0% 1,000,000 Republic of Bulgaria, Collateralized
Discount Bond A, Floating Rate Note,
Libor plus .8125%, (6.0625%), 7/28/24. . . . 497,500
1,000,000 Republic of Bulgaria Floating Rate Note,
6.0625%, 7/28/11 . . . . . . . . . . . . . 441,250
----------
938,750
----------
CHILE 1.6% CLP 87,320,000 Citibank time deposit, 16.3%, 1/10/95 (b) . . . 210,257
CLP 43,820,000 Citibank time deposit, 16.5%, 1/10/95 (b) . . . 105,514
CLP 523,200,000 Citibank time deposit, 16.3%, 2/21/95 (b) . . . 1,259,812
----------
1,575,583
----------
COLOMBIA 0.5% 500,000 Banco de Colombia, 7.5%, 10/21/98 . . . . . . . 462,500
----------
COSTA RICA 0.4% 500,000 Banco Central de Costa Rica, Principal A,
6.25%, 5/21/10 . . . . . . . . . . . . . . . 307,500
200,000 Banco Central de Costa Rica, Principal B,
6.25%, 5/21/15 . . . . . . . . . . . . . . 111,000
----------
418,500
----------
CZECH REPUBLIC 0.9% 700,000 Bankers Trust Company Note, linked to
Koruna-Denominated Domestic Corporate
Bond, 14.375%, 1/27/95 . . . . . . . . . . . 832,720
----------
GUATEMALA 1.9% 1,800,000 Asociacion Nacional del Cafe, 11%, 8/31/98 . . 1,829,250
----------
HUNGARY 2.0% 2,500,000 National Bank of Hungary, 8.875%, 11/1/13 . . . 1,925,000
----------
INDONESIA 2.8% 500,000 Indah Kiat Pulp and Paper Corp.,
8.875%, 11/1/00 . . . . . . . . . . . . . . 425,000
1,000,000 SE Banken Indonesia Medium Term Note,
linked to Indonesian Rupiah, 14%, 10/16/95 . 997,000
1,250,000 Tjiwi Kimia International Finance Co. BV,
13.25%, 8/1/01 . . . . . . . . . . . . . . 1,287,500
----------
2,709,500
----------
IVORY COAST 0.8% FRF 20,000,000 Republic of the Ivory Coast Loan
Participation Note* (d) . . . . . . . . . . 747,645
----------
JAMAICA 1.1% 1,500,000 Government of Jamaica Refinancing
Agreement, Tranche B, Libor plus .8125%,
(5.688%), 11/15/04 (d) . . . . . . . . . . . 1,035,000
----------
MEXICO 3.5% 3,000,000 Banco Nacional de Comercio Exterior SNC,
7.25%, 2/2/04 . . . . . . . . . . . . . . . 2,439,420
MXN 3,554,488 Nacional Financiera Pagares Note, 1/24/95 . . . 995,680
----------
3,435,100
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MOROCCO 6.5% 9,000,000 Kingdom of Morocco Tranche A
Restructuring and Consolidation Agreement,
Libor plus .8125 (5.81375%), 1/1/09 (d). . . 6,333,750
----------
PANAMA 4.4% 5,250,000 Republic of Panama Floating Rate Bond,
Libor plus 1%, (5.9375%), 5/10/02 . . . . . 4,265,625
----------
POLAND 1.1% 1,500,000 Republic of Poland Collateralized
Discount Bond, 6.8125%, 12/29/29 . . . . . . 1,110,000
----------
TURKEY 0.9% 1,000,000 Republic of Turkey, 9%, 6/15/99 . . . . . . . 870,000
----------
UNITED STATES 3.3% 500,000 Alatief Freeport Financial Corp.,
9.75%, 4/15/01 . . . . . . . . . . . . . . . 485,000
500,000 Beazer Homes USA, 9%, 3/1/04 . . . . . . . . 425,000
500,000 Comcast Corp., 9.5%, 1/15/08 . . . . . . . . 455,625
500,000 Payless Cashways Inc., 9.125%, 4/15/03 . . . . 463,125
500,000 Penn Traffic Co., 9.625%, 4/15/05 . . . . . . 445,000
500,000 Seagull Energy Corp., 8.625%, 8/1/05 . . . . . 452,500
500,000 Westpoint Stevens Inc., 9.375%, 12/15/05 . . . 450,000
----------
3,176,250
----------
VENEZUELA 4.0% 4,500,000 Republic of Venezuela Floating Rate Debt
Conversion Bond, Series DL, Libor
plus .875%, (5.75%), 12/18/07 . . . . . . . 2,188,125
2,500,000 Republic of Venezuela Front Loaded Interest
Reduction Bond, Series A, 7%, 3/31/07. . . . 1,240,625
1,000,000 Republic of Venezuela Front Loaded Interest
Reduction Bond, Series B, 7%, 3/31/07. . . . 496,250
----------
3,925,000
----------
TOTAL DEBT OBLIGATIONS (Cost $79,835,168) . . 78,456,919
----------
2.6% CONVERTIBLE BONDS
--------------------------------------------------------------------------
INDIA 0.9% 950,000 Industrial Credit & Investment Corp. of
India, Ltd., 2.5%, 4/3/00 . . . . . . . . . 812,250
----------
MEXICO 0.7% 675,000 Empresa ICA Sociedad Controladora S.A.,
5%, 3/15/04 . . . . . . . . . . . . . . . . 688,500
----------
PERU 1.0% 1,000,000 Tele 2000 SA, 9.75%, 4/14/97 . . . . . . . . 965,000
----------
TOTAL CONVERTIBLE BONDS (Cost $2,527,035) . . 2,465,750
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER EMERGING MARKETS INCOME FUND
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.1% PREFERRED STOCKS
-----------------------------------------------------------------------
ARGENTINA 13,400 Nortel Inversora "A" (ADR)
(Telecommunication services) (Cost $129,980) . . 119,930
----------
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $98,382,183) (a) . . . . . . . . . . . . 96,932,599
==========
<FN>
* Nonincome producing security.
(a) The cost for federal income tax purposes was $99,469,852. At October 31, 1994, net
unrealized depreciation for all securities based on tax cost was $2,537,253. This
consisted of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $1,182,352 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $3,719,605.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors. The cost of these securities was $1,500,000 (Note A).
(c) Principal amount is stated in U.S. dollars unless otherwise noted.
(d) These securities represent loan participations which are arranged through private
negotiations between the Fund and a lender. Due to the nature of these securities
they typically have a longer settlement period than standard security transactions.
During the period between purchase and settlement, no payment is made by the Fund to
the lender and no applicable interest accrues to the Fund.
</FN>
</TABLE>
<TABLE>
Transactions in written call options on currencies during the year ended October 31, 1994 were:
<CAPTION>
PRINCIPAL PRINCIPAL PREMIUMS
AMOUNT Y. AMOUNT ($) RECEIVED ($)
---------------------------------------------------
<S> <C> <C> <C>
Outstanding at
December 31, 1993 ... -- -- --
Contracts written ... 50,000,000 15,000,000 338,175
Contracts closed ... (50,000,000) (7,500,000) (180,675)
Contracts exercised.. -- (7,500,000) (157,500)
---------------------------------------------------
Outstanding at
October 31, 1994 ... -- -- --
=========== ========== ========
</TABLE>
<TABLE>
CURRENCY ABBREVIATIONS
--------------------------
<S> <C>
ARP Argentinean Peso
CLP Chilean Peso
FRF French Franc
MXN Mexican Peso
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
OCTOBER 31, 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $98,382,183) (Note A) . . $ 96,932,599
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Receivables:
Investments sold . . . . . . . . . . . . . . . . . . . . . . . 4,577,927
Loan participations sold . . . . . . . . . . . . . . . . . . . 1,940,625
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,771,866
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . 448,064
Deferred organization expenses (Note A) . . . . . . . . . . . . 63,927
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 105,735,236
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . . . $3,247,558
Loan participations purchased . . . . . . . . . . . . . . . . . 7,265,402
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . 193,871
Accrued management fee (Note C) . . . . . . . . . . . . . . . . 130,294
Other accrued expenses (Note C) . . . . . . . . . . . . . . . . 146,165
----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 10,983,290
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . $ 94,751,946
============
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . $ 743,590
Unrealized depreciation on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . (1,449,584)
Foreign currency related transactions . . . . . . . . . . . . (23,577)
Accumulated net realized loss . . . . . . . . . . . . . . . . . (2,698,606)
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . 85,778
Additional paid-in capital . . . . . . . . . . . . . . . . . . 98,094,345
------------
Net assets, at market value . . . . . . . . . . . . . . . . . . . $ 94,751,946
============
NET ASSET VALUE, offering and redemption price per share
($94,751,946 -:- 8,577,789 shares of capital stock
outstanding, $.01 par value, 100,000,000 shares authorized). . . $11.05
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
SCUDDER EMERGING MARKETS INCOME FUND
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 31, 1993 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,993
Interest (net of withholding taxes of $1,697) . . . . . . . . 5,307,471
-----------
5,319,464
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . . . $ 130,294
Services to shareholders (Note C) . . . . . . . . . . . . . 234,972
Directors' fees and expenses (Note C) . . . . . . . . . . . . 40,174
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . 134,113
Reports to shareholders . . . . . . . . . . . . . . . . . . . 61,501
Auditing . . . . . . . . . . . . . . . . . . . . . . . . . . 40,600
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,301
State registration fees . . . . . . . . . . . . . . . . . . . 40,392
Federal registration fees . . . . . . . . . . . . . . . . . . 31,687
Amortization of organization expenses (Note A) . . . . . . . 12,669
5,355 748,058
--------------------------
OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . 4,571,406
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . . . . $(2,861,595)
Options . . . . . . . . . . . . . . . . . . . . . . . . . . 61,825
Foreign currency related transactions . . . . . . . . . . . 15,645 (2,784,125)
-----------
Net unrealized depreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . (1,449,584)
Foreign currency related transactions . . . . . . . . . . . (23,577) (1,473,161)
--------------------------
Net loss on investment transactions . . . . . . . . . . . . . (4,257,286)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . $ 314,120
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1993
(COMMENCEMENT OF
OPERATIONS) TO
INCREASE (DECREASE) IN NET ASSETS OCTOBER 31, 1994
- ---------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . $ 4,571,406
Net realized loss from investment transactions. . . . . . . . . . . . (2,784,125)
Net unrealized depreciation of investment
transactions during the period . . . . . . . . . . . . . . . . . . . (1,473,161)
------------
Net increase in net assets resulting from operations. . . . . . . . . 314,120
------------
Distributions from net investment income ($.51 per share) . . . . . . (3,742,297)
------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . 126,227,847
Net asset value of shares issued to
shareholders in reinvestment of distributions. . . . . . . . . . . . 3,183,825
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . (31,232,749)
------------
Net increase in net assets from Fund share transactions . . . . . . . 98,178,923
------------
INCREASE IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 94,750,746
Net assets at beginning of period . . . . . . . . . . . . . . . . . . 1,200
------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $743,590). . . . . . . . . . . . . . . . . . . . . . . . . $ 94,751,946
============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . . . . . . . . . . 100
------------
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,083,394
Shares issued to shareholders in reinvestment of distributions. . . . 294,323
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,800,028)
------------
Net increase in Fund shares . . . . . . . . . . . . . . . . . . . . . 8,577,689
------------
Shares outstanding at end of period . . . . . . . . . . . . . . . . . 8,577,789
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
SCUDDER EMERGING MARKETS INCOME FUND
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
For the Period
December 31, 1993
(commencement
of operations) to
October 31, 1994
-----------------
<S> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $12.00
------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60
Net realized and unrealized loss on investment transactions . . . . . . . . . . . . (1.04)
------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . (.44)
------
Less distributions from net investment income . . . . . . . . . . . . . . . . . . . . . (.51)
------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.05
======
TOTAL RETURN (%) (B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.54)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . . . . . . . 95
Ratio of operating expenses, net to average daily net assets (%) (a) . . . . . . . . . 1.50*
Ratio of net investment income to average daily net assets (%) . . . . . . . . . . . . 9.17*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180.6*
<FN>
(a) Reflects a per share amount of management fee not imposed by the Adviser . . . . . $ .05
Operating expense ratio including management fee not imposed (%) . . . . . . . . . 2.23*
(b) Total return is higher due to maintenance of the Fund's expenses.
* Annualized
** Not annualized
</FN>
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Emerging Markets Income Fund (the "Fund") is a non-diversified series
of Scudder Global Fund, Inc., a Maryland corporation registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The policies described below are followed consistently by
the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost.
Securities for which market quotations are not available are valued as
determined in good faith by or under the direction of the Board of Directors
of the Fund. Securities valued in good faith by the Valuation Committee of the
Board of Directors at fair value amounted to $1,575,583 (1.7% of net assets) and
have been noted in the investment portfolio as of October 31, 1994.
OPTIONS. The Fund may write (sell) exchange-listed and over-the-counter call
and put options on securities, currencies and other financial instruments. When
the Fund writes a call, it gives the purchaser of the call option the right to
buy the underlying security or currency at the price specified in the option
(the "exercise price") at any time during the option period, generally ranging
up to nine months. When the Fund writes a put option, it gives the purchaser of
the put option the right to sell the underlying security or currency to the
Fund at the exercise price at any time during the option period, generally
ranging up to nine months. If the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the option is exercised, a decision
over which the Fund has no control, the Fund must sell the underlying security
or currency to the option holder or purchase the underlying security or
currency from the option holder at the exercise price.
19
<PAGE>
SCUDDER EMERGING MARKETS INCOME FUND
- --------------------------------------------------------------------------------
Certain options, including options on indices will require cash settlement by
the Fund if the option is exercised. By writing a call option, the Fund
foregoes, in exchange for the premium less the commission ("net premium"), the
opportunity to profit during the option period from an increase in the market
value of the underlying security or currency above the exercise price. By
writing a put option, the Fund, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security or
currency below the exercise price.
The liability representing the Fund's obligation under an exchange traded
written options are valued at the last sale price or, in the absence of a sale,
the mean between the closing bid and asked quotations or at the most recent
asked quotation if no bid and asked quotations are available. Over the counter
written options are valued at the most recent asked quotation.
In addition, the Fund may purchase, singly and in combination, call and put
options on securities, currencies and other financial instruments. Exchange
traded purchased options are valued at the last sales price or, in the absence
of a sale, the mean between the closing bid and asked quotations or at the most
recent bid quotation if no bid and asked quotations are available.
Over-the-counter purchased options are valued at the most recent bid quotation.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and
certain expenses at the rates of exchange prevailing on the respective
dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes
in market prices of the investments. Such fluctuations are included with the
net realized and unrealized gains and losses from investments.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
WHEN-ISSUED AND FORWARD DELIVERY SECURITIES. The Fund may purchase securities
on a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time. At the time the Fund makes the commitment to
purchase a security on a when-issued basis or forward delivery basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. During the period between purchase and settlement, no payment
is made by the Fund to the issuer and no interest accrues to the Fund. At the
time of settlement, the market value of the security may be more or less than
the purchase price. The Fund will establish a segregated account in which it
will maintain cash and/or liquid debt securities equal in value to commitments
for when-issued or forward delivery securities.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies, and to distribute all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes, and no federal income tax
provision was required.
At October 31, 1994, the Fund had a net tax basis capital loss carryforward of
approximately $1,611,000, which may be applied against any net realized capital
gains of each succeeding year until fully utilized or until October 31, 2002.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made quarterly. During any particular year, net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.
21
<PAGE>
SCUDDER EMERGING MARKETS INCOME FUND
- --------------------------------------------------------------------------------
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences relate primarily to foreign denominated investments and
certain securities sold at a loss. As a result, net investment income (loss)
and net realized gain (loss) on investment transactions for a reporting period
may differ significantly from distributions during such period. Accordingly,
the Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the specific identified cost method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are
being amortized on a straight-line basis over a five-year period.
OTHER. Investment security transactions are accounted for on a trade date
basis. Distributions to shareholders are recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. All discounts are
amortized/accreted for both tax and financial reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the period December 31, 1993 (commencement of operations) to October 31,
1994, purchases and sales of investment securities (excluding short-term
investments) aggregated $162,818,575 and $76,999,381, respectively.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The
management fee payable under the Agreement is equal to an annual rate of 1.00%
of the Fund's average daily nets assets, computed and accrued daily and payable
monthly. The Agreement also provides that if the Fund's expenses exceed
specified limits, such excess, up to the amount of the management fee, will be
paid by the Adviser. In addition, the Adviser agreed not to impose all or a
portion of its management fee until February 28, 1995, and during such period
to maintain the annualized expenses of the Fund at not more than 1.50% of
average daily net assets. For the period December 31, 1993 (commencement of
operations) to October 31, 1994, the Adviser did not impose a portion of its
fee amounting to $364,316, and the portion imposed amounted to $130,294.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the period December 31, 1993 (commencement of operations) to October 31,
1994, the amount charged by SSC aggregated $188,557, of which $21,986 is unpaid
at October 31, 1994.
The Fund pays each Director not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the
period December 31, 1993 (commencement of operations) to October 31, 1994,
Directors' fees aggregated $40,174.
D. INVESTING IN EMERGING MARKETS
- --------------------------------------------------------------------------------
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities issued in these markets may be less liquid
and their prices more volatile than those of comparable securities in the
United States.
23
<PAGE>
SCUDDER EMERGING MARKETS INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF SCUDDER GLOBAL FUND, INC. AND TO THE
SHAREHOLDERS OF SCUDDER EMERGING MARKETS INCOME FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Emerging Markets Income Fund, including the investment portfolio, as of October
31, 1994, and the related statement of operations, statement of changes in net
assets and the financial highlights for the period December 31, 1993
(commencement of operations) to October 31, 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Emerging Markets Income Fund as of October 31, 1994, the results of its
operations, the changes in its net assets and the financial highlights for the
period December 31, 1993 (commencement of operations) to October 31, 1994 in
conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 12, 1994
24
<PAGE>
OFFICERS AND DIRECTORS
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Edmond D. Villani*
Chairman of the Board and Director
Nicholas Bratt*
President
Paul Bancroft III
Director
Thomas J. Devine
Director
William H. Gleysteen, Jr.
Director
William H. Luers
Director
Daniel Pierce*
Director and Vice President
Robert G. Stone, Jr.
Director
Robert W. Lear
Honorary Director; Executive-in-Residence, Columbia Graduate School of
Business
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President and Assistant Treasurer
Douglas M. Loudon*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Gerald J. Moran*
Vice President
Edward J. O'Connell*
Vice President and Assistant Treasurer
Juris Padegs*
Vice President and Assistant Secretary
Kathryn L. Quirk*
Vice President and Assistant Secretary
Cornelia Small*
Vice President
Lawrence Teitelbaum*
Vice President
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
25
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Money market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- --------------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-end Funds#
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The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- --------------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including management fees and expenses, call or write
for a free prospectus. Read it carefully before you invest or send money. +A portion of the income from the tax-free
funds may be subject to federal, state and local taxes. *Not available in all states. +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate, offered by Scudder's insurance
agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are traded on various stock
exchanges. ++For information on Scudder Treasurers Trust(tm), an institutional cash management service that utilizes
certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
</TABLE>
26
<PAGE>
HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------
Account Service and Information
- --------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
- --------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
- --------------------------------------------------------------------------------
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
- --------------------------------------------------------------------------------
Scudder Investor Information and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.
27
<PAGE>
Celebrating 75 Years of Serving Investors
- --------------------------------------------------------------------------------
This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in the
United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 36 pure no load(tm) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
