Filed electronically with the Securities and Exchange Commission on
April 15, 1998
File No. 33-5724
File No. 811-4670
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
--------
Post-Effective Amendment No. 33
--------
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
--------
Scudder Global Fund, Inc.
--------------------------------------------------
(Exact name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
--------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
Thomas F. McDonough
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
----------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
---
X on April 16, 1998 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(1)
---
on __________ pursuant to paragraph (a)(1)
---
75 days after filing pursuant to paragraph (a)(2)
---
on pursuant to paragraph (a)(2) of Rule 485
--- ---------------------
If appropriate, check the following:
--- this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER GLOBAL FUND
CROSS-REFERENCE SHEET
Items Required by Form N-1A
PART A
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description INVESTMENT OBJECTIVE AND POLICIES
of Registrant RISKS OF GLOBAL INVESTING
WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of the A MESSAGE FROM SCUDDER'S CHAIRMAN
Fund INTERNATIONAL INVESTMENT EXPERIENCE
FUND ORGANIZATION--Investment adviser and
Transfer agent
SHAREHOLDER BENEFITS--A team approach to
investing
5A. Management's NOT APPLICABLE
Discussion of Fund
Performance
6. Capital Stock and SHAREHOLDER BENEFITS--Dividend reinvestment
Other Securities plan
DISTRIBUTION AND PERFORMANCE INFORMATION--
Dividends and capital gains
distributions
FUND ORGANIZATION
HOW TO CONTACT SCUDDER
7. Purchase of PURCHASES
Securities Being TRANSACTION INFORMATION
Offered INVESTMENT PRODUCTS AND SERVICES
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
FUND ORGANIZATION--Underwriter
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION--Redeeming shares
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 1
<PAGE>
SCUDDER GLOBAL FUND
(continued)
PART B
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information ORGANIZATION OF THE FUNDS
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES AND
and Policies POLICIES
14. Management of the Fund DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and DIRECTORS AND OFFICERS
Principal Holders of
Securities
16. Investment Advisory INVESTMENT ADVISER
and Other Services ADDITIONAL INFORMATION--Experts and Other
Information
17. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage
Commissions and Portfolio Turnover
18. Capital Stock and ORGANIZATION OF THE FUNDS
Other Securities
19. Purchase, Redemption PURCHASES AND EXCHANGES
and Pricing of REDEMPTIONS
Securities Being FEATURES AND SERVICES OFFERED BY THE FUNDS
Offered --Dividend and Capital Gain
Distribution Options
SPECIAL PLAN ACCOUNTS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
NET ASSET VALUE
20. Tax Status TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 2
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER INTERNATIONAL BOND FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description INVESTMENT OBJECTIVES AND POLICIES
of Registrant INTERNATIONAL BOND INVESTING
WHY INVEST IN THE FUND?
SPECIAL RISK CONSIDERATIONS
INVESTMENTS
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of the A MESSAGE FROM SCUDDER'S CHAIRMAN
Fund INTERNATIONAL INVESTMENT EXPERIENCE
FUND ORGANIZATION--Investment adviser and
Transfer agent
SHAREHOLDER BENEFITS--A team approach to
investing
5A. Management's NOT APPLICABLE
Discussion of Fund
Performance
6. Capital Stock and SHAREHOLDER BENEFITS--Dividend reinvestment
Other Securities plan
DISTRIBUTION AND PERFORMANCE INFORMATION--
Dividends and capital gains
distributions
FUND ORGANIZATION
HOW TO CONTACT SCUDDER
7. Purchase of PURCHASES
Securities Being TRANSACTION INFORMATION
Offered INVESTMENT PRODUCTS AND SERVICES
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
FUND ORGANIZATION--Underwriter
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION--Redeeming shares
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 3
<PAGE>
SCUDDER INTERNATIONAL BOND FUND
(continued)
PART B
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information ORGANIZATION OF THE FUNDS
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES AND
and Policies POLICIES
14. Management of the Fund DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and DIRECTORS AND OFFICERS
Principal Holders of
Securities
16. Investment Advisory INVESTMENT ADVISER
and Other Services ADDITIONAL INFORMATION--Experts and Other
Information
17. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage
Commissions and Portfolio Turnover
18. Capital Stock and ORGANIZATION OF THE FUNDS
Other Securities
19. Purchase, Redemption PURCHASES
and Pricing of EXCHANGES AND REDEMPTIONS
Securities Being FEATURES AND SERVICES OFFERED BY THE FUNDS
Offered --Dividend and Capital Gain
Distribution Options
SPECIAL PLAN ACCOUNTS
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
NET ASSET VALUE
20. Tax Status TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 4
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER GLOBAL BOND FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description INVESTMENT OBJECTIVES AND POLICIES of
Registrant WHY INVEST IN THE FUND?
SPECIAL RISK CONSIDERATIONS
INVESTMENTS
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of the FINANCIAL HIGHLIGHTS
Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
INTERNATIONAL INVESTMENT EXPERIENCE
FUND ORGANIZATION--Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS--A team approach to
investing
DIRECTORS AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of Fund
Performance
6. Capital Stock and DISTRIBUTION AND PERFORMANCE
Other Securities INFORMATION--Dividends and capital gains
distributions
FUND ORGANIZATION
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder
Automated Information Line, Dividend
reinvestment plan, T.D.D. service for
the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of PURCHASES
Securities Being FUND ORGANIZATION--Underwriter
Offered TRANSACTION INFORMATION--Purchasing shares,
Share price, Processing time, Minimum
balances, Third party transactions
SHAREHOLDER BENEFITS--Dividend reinvestment
plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION--Redeeming shares,
Tax identification number, Minimum
balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 5
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER GLOBAL BOND FUND
(continued)
PART B
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information ORGANIZATION OF THE FUNDS
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES AND
and Policies POLICIES
PORTFOLIO TRANSACTIONS--Brokerage
Commissions, Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and DIRECTORS AND OFFICERS
Principal Holders of
Securities
16. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other
Information
17. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage
and Other Practices Commissions, Portfolio Turnover
18. Capital Stock and ORGANIZATION OF THE FUNDS
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption PURCHASES
and Pricing of EXCHANGES AND REDEMPTIONS
Securities Being FEATURES AND SERVICES OFFERED BY THE FUNDS
Offered --Dividend and Capital Gain
Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 6
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER GLOBAL DISCOVERY FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description INVESTMENT OBJECTIVES AND POLICIES of
Registrant WHY INVEST IN THE FUND?
SPECIAL RISK CONSIDERATIONS
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of the FINANCIAL HIGHLIGHTS
Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
INTERNATIONAL INVESTMENT EXPERIENCE
FUND ORGANIZATION--Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS--A team approach to
investing
DIRECTORS AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion of Fund
Performance
6. Capital Stock and DISTRIBUTION AND PERFORMANCE INFORMATION--
Other Securities Dividends and capital gains
distributions
FUND ORGANIZATION
SHAREHOLDER BENEFITS--SAIL(TM) - Scudder
Automated Information Line, Dividend
Reinvestment Plan, T.D.D. service for
the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of PURCHASES
Securities Being FUND ORGANIZATION--Underwriter
Offered TRANSACTION INFORMATION--Purchasing shares,
Share price, Processing time, Minimum
balances, Third party transactions
SHAREHOLDER BENEFITS--Dividend reinvestment
plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION--Redeeming shares,
Tax identification number, Minimum
balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 7
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER GLOBAL DISCOVERY FUND
(continued)
PART B
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information ORGANIZATION OF THE FUNDS
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES AND
and Policies POLICIES
PORTFOLIO TRANSACTIONS--Brokerage
Commissions, Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and DIRECTORS AND OFFICERS
Principal Holders of
Securities
16. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other
Information
17. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage
and Other Practices Commissions, Portfolio Turnover
18. Capital Stock and ORGANIZATION OF THE FUNDS
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption PURCHASES
and Pricing of EXCHANGES AND REDEMPTIONS
Securities Being FEATURES AND SERVICES OFFERED BY THE FUNDS
Offered --Dividend and Capital Gain
Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 8
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER EMERGING MARKETS INCOME FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description INVESTMENT OBJECTIVES AND POLICIES of
Registrant WHY INVEST IN THE FUND?
SPECIAL RISK CONSIDERATIONS
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION
5. Management of the FINANCIAL HIGHLIGHTS
Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
INTERNATIONAL INVESTMENT EXPERIENCE
FUND ORGANIZATION--Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS--A team approach to
investing
DIRECTORS AND OFFICERS
5A. Management's NOT APPLICABLE
Discussion
of Fund Performance
6. Capital Stock and DISTRIBUTION AND PERFORMANCE
Other Securities INFORMATION--Dividends and capital gains
distributions
FUND ORGANIZATION
SHAREHOLDER BENEFITS--Toll-Free Telephone
Service and Information, Dividend
reinvestment plan
HOW TO CONTACT SCUDDER
7. Purchase of PURCHASES
Securities Being FUND ORGANIZATION--Underwriter
Offered TRANSACTION INFORMATION--Purchasing shares,
Share price, Processing time, Minimum
balances, Third party transactions
INVESTMENT PRODUCTS AND SERVICES
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION--Redeeming shares,
Tax identification number, Minimum
balances
9. Pending Legal NOT APPLICABLE
Proceedings
Cross Reference - Page 9
<PAGE>
SCUDDER GLOBAL FUND, INC.
SCUDDER EMERGING MARKETS INCOME FUND
(continued)
PART B
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information ORGANIZATION OF THE FUNDS
and History
13. Investment Objectives THE FUNDS' INVESTMENT OBJECTIVES AND
and Policies POLICIES
PORTFOLIO TRANSACTIONS--Brokerage
Commissions, Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and DIRECTORS AND OFFICERS
Principal Holders of
Securities
16. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other
Information
17. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage
Commissions, Portfolio Turnover
18. Capital Stock and ORGANIZATION OF THE FUNDS
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption PURCHASES
and Pricing of EXCHANGES AND REDEMPTIONS
Securities Being FEATURES AND SERVICES OFFERED BY THE FUNDS
Offered --Dividend and Capital Gain
Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 10
<PAGE>
Table of Contents
Summary _
Summary of Expenses _
Investment Objective, Policies and Risk Factors _
Investment Adviser and Underwriter _
Dividends, Distributions and Taxes _
Net Asset Value _
Purchase of Shares _
Redemption or Repurchase of Shares _
Special Features _
Performance _
Capital Structure _
------------------------------------------------------------
This prospectus contains concisely the information about the Class A, B and C
shares (the "Kemper Shares" or "Shares") of Global Discovery Fund (the "Fund"),
that a prospective investor should know before investing and should be retained
for future reference. A Statement of Additional Information, which contains
additional information about the Fund, dated April 16, 1998, has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated
herein by reference. It is available upon request without charge from the Fund
at the address or telephone number on this cover or the firm from which this
prospectus was received. It is also available along with other related materials
on the SEC's Internet Web Site (http://www.sec.gov).
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in the
Fund's shares involves risk, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[KEMPER FUNDS LOGO]
KEMPER GLOBAL DISCOVERY FUND
PROSPECTUS DATED APRIL 16, 1998
GLOBAL DISCOVERY FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
The investment objective of the Fund is to provide above-average capital
appreciation over the long term by investing primarily in the equity securities
of small companies located throughout the world. The Fund invests primarily in
small, rapidly growing companies that offer the potential for above-average
returns relative to larger companies, yet are frequently overlooked and thus
undervalued by the market.
There is no assurance that the Fund's objective will be achieved.
<PAGE>
SUMMARY
Investment Objective. The Fund's investment objective is to seek above-average
capital appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world. There is no
assurance that the Fund's objective will be achieved. The Fund invests primarily
in small, rapidly growing companies that offer the potential for above-average
returns relative to larger companies, yet are frequently overlooked and thus
undervalued by the market.
Risk Factors. The Fund's risks are determined by the nature of the securities
held in the Fund and the portfolio management strategies used by the Fund's
investment manager, Scudder Kemper Investments, Inc. (the "Adviser"). The Fund
is designed for investors looking for above-average appreciation potential (when
compared with the overall domestic stock market as reflected by Standard &
Poor's Corporation 500 Composite Price Index) and the benefits of investing
globally, but who are willing to accept above-average stock market risk, the
impact of currency fluctuation and little or no current income. The following
are descriptions of certain risks related to the investments and techniques that
the Fund may use from time to time. For a more complete discussion of risks
involved in an investment in the Fund, please see "Special Risk Factors."
The market value of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Foreign investments by
the Fund involve risk and opportunity considerations not typically associated
with investing in U.S. companies. Global investing involves economic and
political considerations not typically found in U.S. markets. These
considerations, which may favorably or unfavorably affect the Fund's
performance, include changes in exchange rates and exchange rate controls,
(which may include suspension of the ability to transfer currency from a given
country), costs incurred in conversions between currencies, nonnegotiable
brokerage commissions, different accounting standards, lower trading volume and
greater market volatility, the difficulty of enforcing obligations in other
countries, less securities regulation, different tax provisions (including
withholding on interest and dividends paid to the Fund), war, expropriation,
political and social instability, and diplomatic developments Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets. A small portion of the assets of the Fund may be
invested in lower rated or unrated high yield bonds, which entail greater risk
of loss of principal and interest than higher rated fixed-income securities. The
Fund may also engage in options and financial futures transactions ("Strategic
Transactions") and may also invest to a limited extent in illiquid and
restricted securities. There are special risks associated with options,
financial futures and foreign currency transactions and other derivatives and
there is no assurance that use of those investment techniques will be
successful. See "Investment Objective, Policies and Risk Factors."
Purchases and Redemptions. The Fund provides investors with the option of
purchasing shares in the following ways:
Class A Shares Offered at net asset value plus a maximum sales charge of
5.75% of the offering price. Reduced sales charges apply to
purchases of $50,000 or more. Class A shares purchased at net
asset value under the "Large Order NAV Purchase Privilege" may
be subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a 0.50% contingent
deferred sales charge if redeemed within the second year of
purchase.
Class B Shares Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales charge
applied to the value of shares redeemed within six years of
purchase. The contingent deferred sales charge is computed at
the following rates:
2
<PAGE>
Year of Redemption Contingent Deferred
After Purchase Sales Charge
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
Class B Shares convert to Class A shares six years after issuance.
Class C Shares Offered at net asset value without an initial sales charge,
but subject to a Rule 12b-1 distribution fee and a 1%
contingent deferred sales charge on redemptions made within
one year of purchase. Class C shares do not convert into any
other class.
Each class of shares represents interests in the same portfolio of investments
of the Fund. The minimum initial investment for each class is $1,000 and
investments thereafter must be for at least $100. Shares are redeemable at net
asset value, which may be more or less than original cost, subject to any
applicable contingent deferred sales charge. See "Purchase of Shares" and
"Redemption or Repurchase of Shares."
Investment Manager and Underwriter. Scudder Kemper Investments, Inc. serves as
the Fund's investment adviser. The Fund pays the Adviser an annual fee of 1.10%
of the Fund's average daily net assets. Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, is principal underwriter and administrator for the
Class A, B and C shares of Kemper Global Discovery Fund. For each of Class B and
Class C shares, KDI receives a Rule 12b-1 distribution fee of .75% of average
daily net assets of each such class. KDI also receives the amount of any
contingent deferred sales charges paid on the redemption of shares.
Administrative services are provided to shareholders under an administrative
services agreement with KDI. The Fund pays an administrative services fee at an
annual rate of up to .25% of average daily net assets of each of Class A, B and
C shares of the Fund, which KDI pays to financial services firms. See
"Investment Adviser and Underwriter."
Dividends. The Fund normally distributes dividends of net investment income and
any net realized short-term and long-term capital gains at least annually.
Income and capital gain dividends of the Fund are automatically reinvested in
additional shares of the Fund, without a sales charge, unless the investor makes
an election otherwise. See "Dividends and Taxes."
SUMMARY OF EXPENSES
Shareholder Transaction Expenses (1) Class A Class B Class C
------------------------------------ ------- ------- -------
Maximum Sales Charge on Purchases (as a
percentage of offering price) ............. 5.75%(2) None None
Maximum Sales Charge on Reinvested
Dividends ................................. None None None
Redemption Fees ........................... None None None
Exchange Fee .............................. None None None
3
<PAGE>
Maximum Contingent Deferred Sales
Charge (as a percentage of redemption
proceeds) ................................. None(3) 4%(4) 1%(5)
- ----------
(1) Investment dealers and other firms may independently charge additional
fees for shareholder transactions or for advisory services; please see
their materials for details. The table does not include the $9.00
quarterly small account fee. See "Redemption or Repurchase of Shares."
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares-- Initial Sales Charge Alternative-- Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
"Large Order NAV Purchase Privilege" may be subject to a contingent
deferred sales charge of 1% during the first year and 0.50% during the
second year. See "Purchase of Shares-- Initial Sales Charge Alternative
Class A Shares."
(4) The maximum Contingent Deferred Sales Charge on Class B Shares applies to
redemptions during the first year. The charge is 4% during the first year,
3% during the second and third years, 2% during the fourth and fifth years
and 1% in the sixth year.
(5) The Contingent Deferred Sales Charge of 1% on Class C Shares applies to
redemptions during the first year after purchase.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A Class B Class C
Shares Shares Shares
Management Fees 1.10% 1.10% 1.10%
12b-1 Fees (6)(7) None .75% .75%
Other Expenses .85% .98% .95%
Total Fund
Operating Expenses 1.95% 2.83% 2.80%
==== ==== ====
- ----------
(6) Long-term Class B shareholders of the Fund may, as a result of the Fund's
Rule 12b-1 fees, pay more than the economic equivalent of the maximum
initial sales charges permitted by the National Association of Securities
Dealers, Inc., although KDI believes that this is unlikely because of the
automatic conversion feature described under "Purchase of Shares --
Deferred Sales Charge Alternative -- Class B Shares."
(7) As a result of the accrual of Rule 12b-1 fees, long-term Class C
shareholders of the Fund may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, Inc.
Example
The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.
4
<PAGE>
<TABLE>
<CAPTION>
1 year 3 year 5 year 10 years
------ ------ ------ --------
<S> <C> <C> <C> <C>
Class A Shares (8)
Based on the level of total operating $77 $119 $163 $285
expenses listed above, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return and redemption
at the end of each time period:
Class B Shares (9)
Based on the level of total operating $69 $120 $172 N/A (11)
expenses listed above, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return and redemption
at the end of each time period:
You would pay the following expenses on $29 $88 $149 N/A (11)
the same investment, assuming no
redemption:
Class C Shares (10)
Based on the level of total operating $39 $87 $148 $313
expenses listed above, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return and redemption
at the end of each time period:
You would pay the following expenses on $28 $87 $148 $313
the same investment, assuming no redemption
</TABLE>
- ----------
(8) Assumes deduction of the maximum 5.75% initial sales charge at the time of
purchase and no deduction of a Contingent Deferred Sales Charge at the
time of redemption.
(9) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge was applied as follows: 1
year (4%), 3 years (3%), 5 years (2%) and 10 years (0%).
(10) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge of 1.00 % was applied.
(11) Class B Shares convert to Class A Shares six years after issuance.
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Investment Adviser and Underwriter" for more information.
The Fund commenced operations on September 10, 1991. The inception date for the
Fund's Class A, B
5
<PAGE>
and C shares is April 16, 1997. Accordingly, the expense ratios shown above are
estimates based on amounts incurred by the Fund during the fiscal year ended
October 31, 1997, prior to the creation of multiple classes of the Fund.
Each Example assumes a 5% annual rate of return pursuant to requirements of the
SEC and assumes reinvestment of all dividends and distributions. This
hypothetical rate of return is not intended to be representative of past or
future performance of the Fund. The Examples should not be considered to be a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
The Fund also offers one other class of shares which has different fees and
expenses (which may affect performance), has different minimum investment
requirements and is entitled to different services.
FINANCIAL HIGHLIGHTS. The inception date for the Fund's Kemper Global Discovery
Fund Class A, B and C shares is April 16, 1998. Accordingly, no financial
information for these shares is presented. Financial highlights for the class of
shares in existence prior to April 16, 1998. The Fund's Annual Report is
incorporated by reference into the Kemper Shares' Statement of Additional
Information.
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The following information sets forth the Fund's investment objective, policies
and risk factors. The Fund's returns and net asset value will fluctuate, and
there is no assurance that the Fund will achieve its objective.
The Fund seeks above-average capital appreciation over the long term by
investing primarily in the equity securities of small companies located
throughout the world. The Fund is designed for investors looking for
above-average appreciation potential (when compared with the overall domestic
stock market as reflected by Standard & Poor's 500 Composite Price Index) and
the benefits of investing globally, but who are willing to accept above-average
stock market risk, the impact of currency fluctuation and little or no current
income.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may not be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current financial
position and needs.
In pursuit of its objective, the Fund generally invests in small, rapidly
growing companies that offer the potential for above-average returns relative to
larger companies, yet are frequently overlooked and thus undervalued by the
market. The Fund has the flexibility to invest in any region of the world. It
can invest in companies based in emerging markets, typically in the Far East,
Latin America and lesser developed countries in Europe, as well as in firms
operating in developed economies, such as those of the United States, Japan and
Western Europe.
The Adviser invests the Fund's assets in companies it 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.
Under normal circumstances, the Fund invests at least 65% of its total assets in
the equity securities of small companies. While the Adviser believes that
smaller, lesser-known companies can offer greater growth potential than larger,
more established firms, the former also involve greater risk and price
volatility. To help reduce risk, the Fund expects, under normal market
conditions, to diversify its
6
<PAGE>
portfolio widely by company, industry and country. The Fund intends to allocate
investments among at least three countries at all times, one of which may be the
United States.
The equity securities in which the Fund may invest consist of common stocks,
preferred stocks (either convertible or nonconvertible), rights and warrants.
These securities may be listed on the U.S. or foreign securities exchanges or
traded over-the-counter. For capital appreciation purposes, the Fund may
purchase notes, bonds, debentures, government securities and zero coupon bonds
(any of which may be convertible or nonconvertible). The Fund may invest in
foreign securities and American Depositary Receipts which may be sponsored or
unsponsored. The Fund may also invest in closed-end investment companies holding
foreign securities, enter into repurchase agreements, purchase securities on a
when-issued or forward delivery basis, and engage in strategic transactions,
including derivatives. For temporary defensive purposes, the Fund may, during
periods in which conditions in securities markets warrant, invest without limit
in cash and cash equivalents. It is impossible to accurately predict how long
such alternative strategies will be utilized.
From time to time, for temporary defensive purposes, when the Adviser feels such
a position is advisable in light of economic or market conditions, the Fund may
invest all or a portion of its assets in cash and cash equivalents. It is
impossible to accurately predict for how long such alternative strategies will
be utilized.
The Fund offers convenient, low-cost access to a diversified, global portfolio
of equity securities issued by smaller companies. The Fund's experienced,
professional management can help investors take advantage of a rapidly changing
world economy.
Unlike small company funds which limit themselves to U.S. investments, the Fund
seeks investment opportunities wherever they arise. The Fund enjoys the
flexibility to invest in all established markets, as well as in newly opened or
newly industrialized economies around the world. Because the Fund operates
globally, it may, under certain market conditions, augment the returns available
from a comparable investment in the U.S. market alone.
The Fund focuses specifically on small companies believed to have favorable
long-term growth prospects. Small companies can be attractive because they are
frequently sources of new technologies and services, often compete with larger
companies on the basis of lower labor costs and often grow faster than larger
firms. Their smaller size often allows them to respond rapidly to changing
business conditions. Also, small companies may not be closely followed by
securities analysts, so they may reward the investor with the patience and
knowledge to carefully seek them out and understand them. This can mean
significant long-term opportunity as these companies achieve greater recognition
over time.
While the Fund is broadly diversified, it is not a complete investment program.
However, adding shares of the Fund to a portfolio can increase diversification,
which should moderate overall portfolio risk.
The Fund is designed for investors who can accept the greater risks of global,
small company investing for the potentially greater rewards. Investing directly
in foreign securities is usually impractical for individual investors. Investors
frequently find it difficult to arrange purchases and sales, obtain current
information about companies abroad, hold securities in safekeeping, and convert
their profits from foreign currencies to U.S. dollars. The Fund makes it easy
for investors to take advantage of small company opportunities on a global basis
and benefit from the Adviser's experience researching and managing investments
both in the U.S. and abroad.
The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will invest 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, which enhances the Fund's appeal as a
diversification tool. The Fund's share price will reflect the movements of the
different stock markets in which the investments are denominated. The strength
or weakness of the U.S. dollar against foreign
7
<PAGE>
currencies is likely to account for part of the Fund's investment performance,
although the Adviser believes that, over the long-term, the impact of currency
changes on Fund performance will not be as significant as changes in the
underlying investments. As with any long-term investment, the value of shares
when sold may be higher or lower than when purchased.
Foreign investments by the Fund involve risk and opportunity considerations not
typically associated with investing in U.S. companies. Global investing
involves economic and political considerations not typically found in U.S.
markets. These considerations, which may favorably or unfavorably affect the
Fund's performance, include changes in exchange rates and exchange rate
controls, (which may include suspension of the ability to transfer currency from
a given country), costs incurred in conversions between currencies,
nonnegotiable brokerage commissions, different accounting standards, lower
trading volume and greater market volatility, the difficulty of enforcing
obligations in other countries, less securities regulation, different tax
provisions (including withholding on interest and dividends paid to the Fund),
war, expropriation, political and social instability, and diplomatic
developments.
Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic markets. These considerations are generally more of a
concern in developing countries. For example, the possibility of political
upheaval and the dependence on foreign economic assistance may be greater in
these countries than in developed countries. The Adviser seeks to mitigate the
risks associated with these considerations through diversification and active
professional management. The Fund will limit investments in securities of
issuers located in Eastern Europe to 5% of its total assets.
There is typically less publicly available information concerning foreign and
smaller companies than for domestic and larger, more established companies. Some
small companies have limited product lines, distribution channels and financial
and managerial resources. Also, because smaller companies normally have fewer
shares outstanding than larger companies and trade less frequently, it may be
more difficult for the Fund to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. Some of the companies
in which the Fund may invest may distribute, sell or produce products which have
recently been brought to market and may be dependent on key personnel with
varying degrees of experience.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net asset
value of the Fund's shares will increase or decrease with changes in the market
prices of the Fund's investments and there is no assurance that the Fund's
objective will be achieved.
INVESTMENT PROCESS. 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; 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.
The Fund invests primarily in companies whose individual equity market
capitalization would place them in the same size range as companies in
approximately the lowest 20% of world market capitalization as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 7,500 small-, medium- and large-sized companies based in 22 markets
around the globe. Based on this policy, the companies represented in the Fund's
portfolio typically will have individual equity market capitalizations of
between approximately $50 million and $2 billion, although the Fund will be free
to invest in smaller capitalization issues. Furthermore, the median market
capitalization of the companies in which the Fund invests will not exceed $750
million.
8
<PAGE>
SPECIAL RISK FACTORS. The Fund's risks are determined by the nature of the
securities held and the portfolio management strategies used by the Adviser. The
following are descriptions of certain risks related to the investments and
techniques that the Fund may use from time to time. The Fund is appropriate for
investors who can accept the greater risks of global, small company investing
for the potentially greater rewards.
Common stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Special situation securities. From time to time, the Fund may invest in equity
or debt securities issued by companies that are determined by the Adviser to
possess "special situation" characteristics. In general, a special situation
company is a company whose securities are expected to increase in value solely
by reason of a development particularly or uniquely applicable to the company.
Developments that may create special situations include, among others, a
liquidation, reorganization, recapitalization or merger, material litigation,
technological breakthrough and new management or management policies. The
principal risk associated with investments in special situation companies is
that the anticipated development thought to create the special situation may not
occur and the investments therefore may not appreciate in value or may decline
in value.
Convertible securities. The Fund may invest in convertible securities (bonds,
notes, debentures, preferred stocks and other securities convertible into common
stocks) which may offer higher income than the common stocks into which they are
convertible. The convertible securities in which the Fund may invest include
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. Prior to their conversion, convertible securities may have
characteristics similar to both nonconvertible debt securities and equity
securities. While convertible securities generally offer lower yields than
nonconvertible debt securities of similar quality, their prices may reflect
changes in the value of the underlying common stock. Convertible securities
generally entail less credit risk than the issuer's common stock.
Debt securities. The Fund may 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 Investor Services, Inc. ("Moody's"), or below BBB by Standard & Poor's
Corporation ("S&P") or unrated securities of equivalent quality. Securities
rated below BBB/Baa are commonly referred to as "junk bonds". The lower the
ratings of such debt securities, the greater their risks render them like equity
securities. Also, longer-maturity bonds tend to fluctuate more in price as
interest rates change than do short-term bonds, providing both opportunity and
risk.
Illiquid securities. The Fund may invest in securities for which there is not an
active trading market, or which have resale restrictions. These types of
securities generally offer a higher return than more readily marketable
securities, but carry the risk that the Fund may not be able to dispose of them
at an advantageous time or price. The absence of a trading market can make it
difficult to ascertain a market value for these investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Repurchase agreements. As a means of earning income for periods as short as
overnight, the Fund may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, the Fund acquires securities,
subject to the seller's agreement to repurchase at a specified time and price.
If
9
<PAGE>
the seller under a repurchase agreement becomes insolvent, the Fund's right to
dispose of the securities may be restricted, or the value of the securities may
decline before the Fund is able to dispose of them. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs, including a decline in
the value of the securities, before being able to sell the securities.
Strategic Transactions and derivatives. The 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 the 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, the 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
spossible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the 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 the 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 the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The 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 to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the 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 the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of settlements
or the inability to deliver or receive a specified currency. The use of options
and futures transactions entails certain other risks. In particular, the
variable degree of correlation between price movements of futures contracts and
price movements in the related portfolio position of the 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.
10
<PAGE>
As a result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.
ADDITIONAL INVESTMENT INFORMATION. The Fund has certain investment restrictions
which are designed to reduce the Fund's investment risk. Fundamental investment
restrictions may not be changed without a vote of shareholders; non-fundamental
investment restrictions may be changed by a vote of the Fund's Board of
Directors.
As a matter of fundamental policy, the Fund may not borrow money except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
its total asset in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.
The Fund may invest up to 35% of its total assets in equity securities of larger
companies located throughout the world and in debt securities if the Adviser
determines that the capital appreciation of debt securities is likely to exceed
the capital appreciation of equity securities. The Fund may purchase
investment-grade bonds, those rated Aaa, Aa or Baa by Moody's, or AAA, AA, A or
BBB by S&P or, if unrated, of equivalent quality as determined by the Adviser.
The Fund may invest up to 5% of its net assets in debt securities rated below
investment-grade. See "Special Risk Factors."
A complete description of these and other policies and restrictions is contained
in "Investment Restrictions" in the Fund's Statement of Additional Information.
INVESTMENT ADVISER AND UNDERWRITER
INVESTMENT ADVISER. The Fund retains the investment management firm of Scudder
Kemper Investments, Inc. (the "Adviser"), a Delaware corporation, to manage the
Fund's daily investment and business affairs subject to the policies established
by the Corporation's Board of Directors. The Directors have overall
responsibility for management of the Fund under Maryland law.
Scudder Kemper Investments, Inc., an investment counsel firm, acts as investment
manager to the Fund. This organization, which resulted from the combination of
the businesses of Scudder, Stevens & Clark, Inc. ("Scudder") and Zurich Kemper
Investments, Inc., ("Kemper"), is one of the largest and most experienced
investment counsel firms in the United States. Scudder was established as a
partnership in 1919 and reorganized into a corporation in 1985. Since launching
its first fund in 1948, Kemper had grown into one of the industry's leading
mutual fund companies. On December 31, 1997, Kemper's parent company, Zurich
Insurance Company ("Zurich"), acquired a majority interest in Scudder and
combined the businesses of the two organizations to create a single global
money-management firm, Scudder Kemper Investments, Inc., which has more than
$200 billion under management.
11
<PAGE>
The Adviser is located at 345 Park Avenue, New York, New York.
Under the Investment Management Agreement with the Adviser, dated December 31,
1997 the Fund is responsible for all of its expenses, including fees and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund's accounting agent; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Directors, officers and employees of the Corporation 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.
For the fiscal year ended October 31, 1997, the Adviser received an investment
management fee of 1.10% of average daily net assets on an annual basis. The Fund
pays the Adviser an annual fee of 1.10% of the Fund's average daily net assets.
The fee is payable monthly, provided the Fund will make such interim payments as
may be requested by the Adviser not to exceed 75% of the amount of the fee then
accrued on the books of the Fund and unpaid.
The fee is higher than that charged to most other funds. However, management of
the Fund involves analyzing companies, markets and economies throughout the
world and the management fee is not necessarily higher than the fees charged to
funds with similar investment objectives and policies.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world. Zurich owns approximately 70% of the Adviser, with the balance owned
by the Adviser's officers and employees.
The Fund is managed by a team of investment professionals who each plays an
important role in the Fund's investment process. Team members work together to
develop investment strategies and select securities for the Fund's portfolio.
They are supported by the Adviser's large staff of economists, research
analysts, traders and other investment specialists who work in the Adviser's
offices across the United States and abroad. The Adviser believes its team
approach benefits Fund investors by bringing together many disciplines and
leveraging its extensive resources.
Lead Portfolio Manager Gerald J. Moran has set the Fund's investment strategy
and overseen its daily operation since the Fund was introduced in 1991. Mr.
Moran joined Scudder's equity research and management area in 1968 as an
analyst, has focused on small company stocks since 1982 and has been a portfolio
manager since 1985. Sewall Hodges, Portfolio Manager, joined the Adviser in
1995 and the team in 1996. Mr. Hodges, who has eleven years of experience in
global analysis and portfolio management, focuses on the Fund's stock selection
and research.
Like other mutual funds and financial and business organizations worldwide, the
Fund could be adversely affected if computer systems on which the Fund relies,
which primarily include those used by the Adviser, its affiliates or other
service providers, are unable to correctly process date-related information on
and after January 1, 2000. This risk is commonly called the Year 2000 Issue.
Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the Fund's business and
operations. The Adviser has commenced a review of the Year 2000 Issue as it may
affect the Fund and is taking steps it believes are reasonably designed to
address the Year 2000 Issue, although there can be no assurances that these
steps will be sufficient. In addition, there can be no assurances that the Year
2000 Issue will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies generally.
12
<PAGE>
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, a subsidiary of
the Adviser, is the principal underwriter and distributor of the Fund's shares
and acts as agent of the Fund in the sale of its shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. KDI provides for the preparation of advertising
or sales literature and bears the cost of printing and mailing prospectuses to
persons other than shareholders. KDI may enter into related selling group
agreements with various broker-dealers, including affiliates of KDI, that
provide distribution services to investors. KDI also may provide some of the
distribution services.
CLASS A SHARES. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of Class A shares and
pays out a portion of this sales charge or allows concessions or discounts to
firms for the sale of the Fund's Class A shares.
CLASS B SHARES. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the annual rate of 0.75% of average
daily net assets of the Fund attributable to its Class B shares. This fee is
accrued daily as an expense of Class B shares. KDI also receives any contingent
deferred sales charges received on redemptions of Class B shares. See
"Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class B
Shares." KDI currently compensates firms for sales of Class B shares at a
commission rate of 3.75%.
CLASS C SHARES. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the annual rate of 0.75% of average
daily net assets of the Fund attributable to its Class C shares. This fee is
accrued daily as an expense of Class C shares. KDI currently advances to firms
the first year distribution fee at a rate of 0.75% of the purchase price of
Class C shares. For periods after the first year, KDI currently pays firms for
sales of Class C shares a distribution fee, payable quarterly, at an annual rate
of 0.75% of net assets attributable to Class C shares maintained and serviced by
the firm and the fee continues until terminated by KDI or the Fund. KDI also
receives any contingent deferred sales charges. See "Redemption or Repurchase
of Shares--Contingent Deferred Sales Charges--Class C Shares."
RULE 12B-1 PLANS. Since the distribution agreement provides for fees payable as
an expense of each of the Class B shares and the Class C shares that are used by
KDI to pay for distribution services for those classes, the agreement is
approved and reviewed separately for the Class B shares and the Class C shares
in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"), which regulates the manner in which an investment company may,
directly or indirectly, bear the expenses of distributing its shares.
If a Rule 12b-1 Plan (the "Plan") for a class is terminated in accordance with
its terms, the obligation of the Fund to make payments to KDI pursuant to such
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under a Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under a Plan
may or may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of the Fund pursuant to an administrative services
agreement ("administrative agreement"). KDI may enter into related arrangements
with broker-dealer firms and other service or administrative firms ("firms"),
that provide services and facilities for their customers or clients who are
investors in the Fund. Such administrative services and assistance may include,
but are not limited to, establishing and
13
<PAGE>
maintaining shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund and its special
features, and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. KDI bears all
of its expenses of providing services pursuant to the administrative agreement,
including the payment of any service fees. For services under the administrative
agreement, the Fund pays KDI a fee, payable monthly, at the annual rate of up to
0.25% of average daily net assets of each of Class A, B and C shares of such
Fund. KDI then pays each firm a service fee, normally payable quarterly, at an
annual rate of up to 0.25% of net assets of each of Class A, B and C shares
maintained and serviced by the firm. Firms to which service fees may be paid
include affiliates of KDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the Fund accounts maintained and serviced by the firm
commencing in the month following the month of purchase and the fee continues
until terminated by KDI or the Fund. The fees are calculated monthly and paid
quarterly.
CLASS B AND CLASS C SHARES. KDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of each of Class B
and Class C shares of the Fund. For periods after the first year, KDI currently
intends to pay firms a service fee at a rate of up to 0.25% (calculated monthly
and normally paid quarterly) of the net assets attributable to each of Class B
and Class C shares maintained and serviced by the firm during such period. After
the first year, a firm becomes eligible for the quarterly service fee and the
fee continues until terminated by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all of the administrative services fee that it receives from
the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which a firm provides administrative services as well as, with
respect to Class A shares, the date when shares representing such assets were
purchased. In addition, KDI may, from time to time, from its own resources pay
certain firms additional amounts for ongoing administrative services and
assistance provided to their customers and clients who are shareholders of the
Fund.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Brown Brothers Harriman
& Co., as custodian, has custody of all securities and cash of the Fund. Kemper
Service Company ("Shareholder Service Agent"), an affiliate of the Adviser,
serves as transfer agent and dividend-paying agent for the Kemper Shares of the
Fund. For a description of the transfer agency fees payable to Kemper Service
Company, see "Investment Manager and Underwriter" in the Statement of Additional
Information.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes
net asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee.
PORTFOLIO TRANSACTIONS. The Adviser places all orders for purchases and sales of
the Fund's securities. Subject to seeking the best execution of orders, the
Adviser may consider sales of shares of the Fund and other funds managed by the
Adviser or its affiliates as a factor in selecting broker-dealers. See
"Portfolio Transactions" in the Statement of Additional Information.
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<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund normally distributes dividends of
net investment income, and any net realized short-term and long-term capital
gains at least annually. The Fund intends to distribute any dividends from net
investment income and any net realized capital gains after utilization of
capital loss carryforwards, if any, in December to prevent application of
federal excise tax. Additional distributions may be made at a later date, if
necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional shares of the same class of shares of the Fund. If an investment is
in the form of a retirement plan, all dividends and capital gains distributions
must be reinvested in the shareholder's account.
Dividends paid by the Fund with respect to each class of its shares will be
calculated in the same manner, at the same time and on the same day. The level
of income dividends per share (as a percentage of net asset value) will be lower
for Class B and Class C shares than for Class A shares primarily as a result of
the distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income and capital gain dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional shares of the same class of the Fund
at net asset value on the reinvestment date, except that, upon written request
to the Shareholder Service Agent, a shareholder may select one of the following
options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of the Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of the Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Fund will reinvest dividend checks (and future
dividends) in shares of that same Fund and class if checks are returned as
undeliverable. Dividends and other distributions of the Fund in the aggregate
amount of $10 or less are automatically reinvested in shares of the Fund unless
the shareholder requests that such policy not be applied to the shareholder's
account.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, generally will not be liable for
federal income taxes to the extent its earnings are distributed. To so qualify,
the Fund must satisfy certain income, asset diversification and distribution
requirements annually. Dividends derived from net investment income and net
short-term capital gains are taxable to shareholders as ordinary income and
properly designated net long-term capital gain dividends are taxable to
individual shareholders as long-term gains regardless of how long the shares
have been held and whether received in cash or shares. Long-term capital gain
dividends received by individual shareholders are taxed at a maximum rate of 20%
on gains realized by a Fund from securities held more than 18 months and at a
maximum rate of 28% on gains realized by a Fund from securities held more than
12 months but not more than 18 months. Dividends declared in October, November
or December to shareholders of record as of a date in one of those months and
paid during the following
15
<PAGE>
January are treated as paid on December 31 of the calendar year declared. A
portion of the dividends paid by the Fund may qualify for the dividends received
deduction available to corporate shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. Thus, investors should
consider the tax implications of buying shares just prior to a dividend. The
price of shares purchased at that time includes the amount of the forthcoming
dividend, which nevertheless will be taxable to them.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss if held by the shareholder as a capital
asset, and may qualify for reduced tax rates applicable to certain capital
gains, depending upon the shareholder's holding period for the shares. Further
information relating to tax consequences is contained in the Statement of
Additional Information. Shareholders of the Fund may be subject to state, local
and foreign taxes on Fund distributions and dispositions of Fund shares.
Shareholders should consult their own tax advisors regarding the particular tax
consequences of an investment in the Fund.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Any amounts so withheld are not an additional
tax, and may be applied against the affected shareholder's U.S. federal income
tax liability. Trustees of qualified retirement plans and 403(b)(7) accounts are
required by law to withhold 20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20% withholding requirement does not apply
to distributions from Individual Retirement Accounts ("IRAs") or any part of a
distribution that is transferred directly to another qualified retirement plan,
403(b)(7) account, or IRA. Shareholders should consult with their tax advisors
regarding the 20% withholding requirement.
The Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of the Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the New York Stock Exchange (the "Exchange") on each day the Exchange is open
for
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<PAGE>
trading. The Exchange is scheduled to be closed on the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. Portfolio
securities for which market quotations are readily available are generally
valued at market value. All other securities may be valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees (as
a % of average daily
Sales Charge net assets) Other Information
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge
5.75% of the public offering price waived or reduced for
certain purchases (1)
Class B Maximum contingent deferred sales 0.75% Shares convert to
charge of 4% of redemption Class A shares six
proceeds; declines to zero after years after issuance
six years
Class C Contingent deferred sales charge of 0.75% No conversion feature
1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
- ----------
(1) Class A shares purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a 0.50% contingent deferred sales
charge if redeemed within the second year of purchase.
The minimum initial investment for each of Class A, B and C of the Fund is
$1,000 and the minimum subsequent investment is $100. The minimum initial
investment for an Individual Retirement Account is $250 and the minimum
subsequent investment is $50. Under an automatic investment plan, such as Bank
Direct Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent investment is $50. These minimum amounts may be changed
at any time in management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange
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<PAGE>
privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
INITIAL SALES CHARGE ALTERNATIVE--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
Allowed to Dealers
As a Percentage As a Percentage of as a Percentage of
Amount of Purchase of Offering Price Net Asset Value* Offering Price
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000....... 4.50 4.71 4.00
$100,000 but less than $250,000...... 3.50 3.63 3.00
$250,000 but less than $500,000...... 2.60 2.67 2.25
$500,000 but less than $1 million.... 2.00 2.04 1.75
$1 million and over.................. .00** .00** ***
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow to dealers up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of the Fund may be purchased at net asset value to the extent
that the amount invested represents the net proceeds from a redemption of shares
of a mutual fund for which the investment manager does not serve as investment
manager and KDI does not serve as Distributor ("non-Kemper Fund") provided that:
(a) the investor has previously paid either an initial sales charge in
connection with the purchase of the non-Kemper Fund shares redeemed or a
contingent deferred sales charge in connection with the redemption of the
non-Kemper Fund shares, and (b) the purchase of Fund shares is made within 90
days after the date of such redemption. To make such a purchase at net asset
value, the investor or the investor's dealer must, at the time of purchase,
submit a request that the purchase be processed at net asset value pursuant to
this privilege. KDI may in its discretion compensate firms for sales of Class A
shares under this privilege at a commission rate of 0.50% of the amount of Class
A shares purchased. The redemption of the shares of the non-Kemper Fund is, for
Federal income tax purposes, a sale upon which a gain or loss may be realized.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in such Fund or other Kemper Fund
listed under "Special Features--Class A Shares--Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of the purchase of shares
purchased under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales
18
<PAGE>
charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
KDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer-sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Kemper Fund
listed under "Special Features--Class A Shares--Combined Purchases," including
purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above. The privilege of purchasing
Class A shares of the Fund at net asset value under the Large Order NAV Purchase
Privilege is not available if another net asset value purchase privilege also
applies.
Class A shares of the Fund or of any other Kemper Fund listed under "Special
Features--Class A Shares--Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at net asset
value pursuant to this privilege, KDI may in its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to 0.25% of net assets attributable to such shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to shares purchased under this
privilege in the month after the month of purchase and the concession continues
until terminated by KDI. The privilege of purchasing Class A shares of the Fund
at net asset value under this privilege is not available if another net asset
value purchase privilege also applies.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, employees (including retirees) and sales representatives of the Fund,
its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and
19
<PAGE>
employees of broker-dealers having selling group agreements with KDI and
officers, directors and employees of service agents of the Fund, for themselves
or their spouses or dependent children; (c) any trust, pension, profit-sharing
or other benefit plan for only such persons; (d) persons who purchase such
shares through bank trust departments that process such trades through an
automated, integrated mutual fund clearing program provided by a third party
clearing firm; and (e) persons who purchase shares of the Fund through KDI as
part of an automated billing and wage deduction program administered by
RewardsPlus of America for the benefit of employees of participating employer
groups. Class A shares may be sold at net asset value in any amount to selected
employees (including their spouses and dependent children) of banks and other
financial services firms that provide administrative services related to order
placement and payment to facilitate transactions in shares of the Fund for their
clients pursuant to an agreement with KDI or one of its affiliates. Only those
employees of such banks and other firms who as part of their usual duties
provide services related to transactions in Fund shares may purchase Fund Class
A shares at net asset value hereunder. Class A shares may be sold at net asset
value in any amount to unit investment trusts sponsored by Ranson & Associates,
Inc. In addition, unitholders of unit investment trusts sponsored by Ranson &
Associates, Inc. or its predecessors may purchase the Fund's Class A shares at
net asset value through reinvestment programs described in the prospectuses of
such trusts that have such programs. Class A shares of the Fund may be sold at
net asset value through certain investment advisers registered under the 1940
Act and other financial services firms that adhere to certain standards
established by KDI, including a requirement that such shares be sold for the
benefit of their clients participating in an investment advisory program under
which such clients pay a fee to the investment adviser or other firm for
portfolio management and other services. Such shares are sold for investment
purposes and on the condition that they will not be resold except through
redemption or repurchase by the Fund. The Fund may also issue Class A shares at
net asset value in connection with the acquisition of the assets of or merger or
consolidation with another investment company, or to shareholders in connection
with the investment or reinvestment of income and capital gain dividends.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when they have been
outstanding long enough for KDI to have been compensated for distribution
related expenses. For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and
20
<PAGE>
other distributions paid with respect to Class B shares in a shareholder's Fund
account will be converted to Class A shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Funds listed
under "Special Features--Class A Shares--Combined Purchases" is in excess of $5
million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Fund. Non cash compensation includes luxury merchandise and trips to
21
<PAGE>
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell during specified time
periods certain minimum amounts of shares of the Fund, or other Fund
underwritten by KDI.
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value of the Fund next determined after receipt in good order
by KDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). The Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Fund's shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, the Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
SPECIAL PROMOTION. From April 16, 1998 until June 30, 1998 ("Special Offering
Period"), KDI, the principal underwriter for the Fund, intends to re-allow to
dealers the full applicable sales charge with respect to Class A shares of the
Fund purchased during the Special Offering Period (not including shares
purchased at net asset value). KDI also intends to pay to firms an additional
commission of .50% with respect to Class B shares of the Fund purchased during
the Special Offering Period, not including exchanges or other transactions for
which commissions are not paid.
TAX IDENTIFICATION NUMBER. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new account applications without a correct
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<PAGE>
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association, federal savings bank, member firm of a
national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Payment for shares redeemed will be made in cash
as promptly as practicable but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for transfer. When the Fund is asked to redeem shares for which
it may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase Privilege may be subject
to a contingent deferred sales charge (see "Purchase of Shares--Initial Sales
Charge Alternative--Class A Shares"), the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge--Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge--Class C Shares"
below).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer-sponsored employee benefit plans
using the subaccount record-keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable
23
<PAGE>
verification procedures, that the telephonic instructions are genuine. The
shareholder will bear the risk of loss, including loss resulting from fraudulent
or unauthorized transactions, so long as reasonable verification procedures are
followed. Verification procedures include recording instructions, requiring
certain identifying information before acting upon instructions and sending
written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. The
repurchase price will be the net asset value of the Fund next determined after
receipt of a request by KDI. However, requests for repurchases received by
dealers or other firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of KDI's business day will
be confirmed at the net asset value effective on that day. The offer to
repurchase may be suspended at any time. There is no charge by KDI with respect
to repurchases; however, dealers or other firms may charge customary commissions
for their services. Dealers and other financial services firms are obligated to
transmit orders promptly. Requirements as to stock powers, certificates,
payments and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by the Fund for up to seven days
if the Fund or the Shareholder Service Agent deems it appropriate under
then-current market conditions. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048 or in writing,
subject to the limitations on liability described under "General" above. The
Fund is not responsible for the efficiency of the federal wire system or the
account holder's financial services firm or bank. The Fund currently does not
charge the account holder for wire transfers. The account holder is responsible
for any charges imposed by the account holder's firm or bank. There is a $1,000
wire redemption minimum (including any contingent deferred sales charge). To
change the designated account to receive wire redemption proceeds, send a
written request to the Shareholder Service Agent with signatures guaranteed as
described above or contact the firm through which shares of the Fund were
24
<PAGE>
purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire transfer until such shares have been owned
for at least 10 days. Account holders may not use this privilege to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege, although investors can still
redeem by mail. The Fund reserves the right to terminate or modify this
privilege at any time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer-sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
Contingent Deferred
Year of Redemption After Purchase Sales Charge
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute
25
<PAGE>
new purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in the Fund), (c) redemptions in connection with distributions
qualifying under the hardship provisions of the Internal Revenue Code and (d)
redemptions representing returns of excess contributions to such plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed, excluding amounts not subject to the
charge. The contingent deferred sales charge will be waived: (a) in the event of
the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer-sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent, and (g) for redemption of shares by an employer sponsored employee
benefit plan that (i) offers funds in addition to Kemper Funds (i.e.,
"multi-manager"), and (ii) whose dealer of record has waived the advance of the
first year administrative service and distribution fees applicable to such
shares and agrees to receive such fees quarterly, and (h) redemption of shares
purchased through a dealer-sponsored asset allocation program maintained on an
omnibus record-keeping system provided the dealer of record has waived the
advance of the first year and administrative services and distribution fees
applicable to such shares and has agreed to receive such fees quarterly.
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in March
1998 will be eligible for the second year's charge if redeemed on or after March
1, 1999. In the event no specific order is requested when redeeming shares
subject to a contingent deferred sales charge, the redemption will be made first
from shares representing reinvested dividends and then from the earliest
purchase of shares. KDI receives any contingent deferred sales charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Funds. A shareholder of the Fund or other
Kemper Funds who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares--Initial Sales
26
<PAGE>
Charge Alternative--Class A Shares") or Class B shares or Class C shares and
incurs a contingent deferred sales charge may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment, in the same class
of shares as the case may be, of the Fund or of other Kemper Funds. The amount
of any contingent deferred sales charge also will be reinvested. These
reinvested shares will retain their original cost and purchase date for purposes
of the contingent deferred sales charge schedule. Also, a holder of Class B
shares who has redeemed shares may reinvest up to the full amount redeemed, less
any applicable contingent deferred sales charge that may have been imposed upon
the redemption of such shares, at net asset value in Class A shares of the Fund
or of the other Kemper Funds listed under "Special Features--Class A
Shares--Combined Purchases." Purchases through the reinvestment privilege are
subject to the minimum investment requirements applicable to the shares being
purchased and may only be made for Kemper Funds available for sale in the
shareholder's state of residence as listed under "Special Features--Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of shares of the Fund, the reinvestment in
shares of the Fund may be subject to the "wash sale" rules if made within 30
days of the redemption, resulting in a postponement of the recognition of such
loss for federal income tax purposes. The reinvestment privilege may be
terminated or modified at any time.
REDEMPTION IN KIND. Although it is the Fund's present policy to redeem in cash,
if the Board of Trustees determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Trustees may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and selling them could receive less than the redemption value of such securities
and in addition would incur certain transaction costs. Such a redemption would
not be as liquid as a redemption entirely in cash. The Fund has elected,
however, to be governed by Rule 18f-1 under the 1940 Act, as a result of which
the Fund 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 a Share at the beginning of the period.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following Funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Series,
Inc., Kemper Value+ Growth Fund, Kemper Quantitative Equity Fund, Kemper Horizon
Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Global/International
Series, Inc., Kemper Equity Trust, Kemper Securities Trust, Kemper Aggressive
Growth Fund, Kemper Value Fund, Kemper Global Discovery Fund, and Kemper
Classic Growth Fund ("Kemper Funds"). Except as noted below, there is no
combined purchase credit for direct purchases of shares of Zurich Money Funds,
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market
Funds"), which are not considered a "Kemper Fund" for purposes hereof. For
purposes of the Combined Purchases feature described above as well as for the
Letter of Intent and Cumulative Discount features described below, employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent may include: (a) Money Market
Funds as
27
<PAGE>
"Kemper Funds", (b) all classes of shares of any Kemper Fund and (c) the value
of any other plan investment, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer-sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included for this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Kemper Funds (computed at the maximum offering price at
the time of the purchase for which the discount is applicable) already owned by
the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features--Class A Shares--Combined Purchases"
above may be exchanged for each other at their relative net asset values. Shares
of Money Market Funds and the Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the Offering Period for such series as
described in the applicable prospectus. Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
and Investors Cash Trust are available on exchange but only through a financial
services firm having a services agreement with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be
28
<PAGE>
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of
calculating the contingent deferred sales charge.
CLASS B SHARES. Class B shares of the Fund and Class B shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of calculating the contingent deferred
sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.
CLASS C SHARES. Class C shares of the Fund and Class C shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of determining whether there is a
contingent deferred sales charge that may be imposed upon the redemption of the
Class C shares received by exchange, they retain the cost and purchase date of
the shares that were originally purchased and exchanged.
GENERAL. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired by exchange through another Kemper Fund, or
from a Money Market Fund, may not be exchanged thereafter until they have been
owned for 15 days (the "15-Day Hold Policy"). For purposes of determining
whether the 15-Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all accounts under common control, discretion or advice,
including, without limitation, accounts administered by a financial services
firm offering market timing, asset allocation or similar services. The total
value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis of such shares. Shareholders interested in exercising the exchange
privilege may obtain prospectuses of the other Funds from dealers, other firms
or KDI. Exchanges may be accomplished by a written request to Kemper Service
Company, Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Redemption or Repurchase of Shares--General." Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Exchanges may
only be made for Funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Investors Municipal Cash Fund is available for sale
only in certain states. Except as otherwise permitted by applicable regulations,
60 days' prior written notice of any termination or material change will be
provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege,"
29
<PAGE>
except that the $1,000 minimum investment requirement for the Kemper Fund
acquired on exchange is not applicable. This privilege may not be used for the
exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (maximum
$50,000) from the shareholder's account at a bank, savings and loan or credit
union into the shareholder's Fund account. By enrolling in Bank Direct Deposit,
the shareholder authorizes the Fund and its agents to either draw checks or
initiate Automated Clearing House debits against the designated account at a
bank or other financial institution. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Shareholder Service Agent for appropriate forms. A shareholder may terminate
his or her Plan by sending written notice to Kemper Service Company, P.O. Box
419415, Kansas City, Missouri 64141-6415. Termination by a shareholder will
become effective within thirty days after the Shareholder Service Agent has
received the request. A Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Fund may terminate or modify this privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be redeemed
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in their first year following the purchase) under a systematic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and
30
<PAGE>
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
This includes Savings Incentive Match Plan for Employees of Small
Employers ("SIMPLE"), Simplified Employee Pension Plan ("SEP") IRA
accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, simple 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisors before
establishing a retirement plan.
PERFORMANCE
The Fund may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for each of Class A, Class B and Class C
shares. Each of these figures is based upon historical results and is not
representative of the future performance of any class of the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a particular
class of the Fund's portfolio for the period referenced, assuming the
reinvestment of all dividends. Thus, these figures reflect the change in the
value of an investment in the Fund during a specified period. Average annual
total return will be quoted for at least the one, five and ten year periods
ending on a recent calendar quarter (or if any such period has not yet elapsed,
at the end of a shorter period corresponding to the life of the Fund for
performance purposes). Average annual total return figures represent the average
annual percentage change over the period in question. Total return figures
represent the aggregate percentage or dollar value change over the period in
question.
The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's Financial Services Index, the Standard
& Poor's 500 Composite Stock Price Index, the Russell 1000(R) Index, the Russell
1000(R) Growth Index, the Wilshire Large Company Growth Index, the Wilshire 750
Mid Cap
31
<PAGE>
Company Growth Index, the Standard & Poor's/Barra Value Index, the Standard &
Poor's/Barra Growth Index, the Russell 1000(R) Value Index, the
Europe/Australia/Far East Index, International Finance Corporation's Latin
America Investable Return Index, the Morgan Stanley Capital International World
Index, the J.P. Morgan Global Traded Bond Index, and the Salomon Brothers World
Government Bond Index. The performance of the Fund may also be compared to the
performance of other mutual funds or mutual fund indices with similar objectives
and policies as reported by independent mutual fund reporting services such as
Lipper Analytical Services, Inc. ("Lipper"). Lipper performance calculations are
based upon changes in net asset value with all dividends reinvested and do not
include the effect of any sales charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market fund and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things, the IBC
Financial Data Inc.'s Money Fund Report(R) or Money Market Insight(R), reporting
services on money market funds. Performance of U.S. Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes. Certain of
these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured.
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund. The relative performance of
growth stocks versus value stocks may also be discussed.
Because some of the 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 of the 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 Fund. Such historical information is not
indicative of future fluctuations in the value of the U.S. dollar against these
currencies. In addition, marketing materials may cite country and economic
statistics and historical stock market performance for any of the countries in
which the 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.
The Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included. Class B shares and Class C shares are sold at net
asset value. Redemptions of Class B shares within the first six years after
purchase may be subject to a contingent deferred sales charge that ranges from
4% during the first year to 0% after six years. Redemption of Class C shares
within the first year after purchase may be subject to a 1% contingent deferred
sales charge. Average annual total return figures do, and total return figures
may, include the effect of the contingent deferred sales charge for the Class B
shares and Class C shares that may be imposed at the end of the period in
question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included.
The Fund's returns and net asset value will fluctuate. Shares of a class of the
Fund are redeemable by an investor at the then current net asset value of the
class, which may be more or less than original cost. Redemption of Class B
shares and Class C shares may be subject to a contingent deferred sales charge
as
32
<PAGE>
described above. Additional information concerning the Fund's performance
appears in the Statement of Additional Information. Additional information about
the Fund's performance also appears in its Annual Report to Shareholders, which
is available without charge from the Fund.
FUND ORGANIZATION AND CAPITAL STRUCTURE
The Fund is a diversified series of Scudder Global Fund, Inc. (the
"Corporation"), an open-end management investment company registered under the
1940 Act. The Corporation was organized as a Maryland corporation in May, 1986.
The name Kemper Global Discovery Fund as used herein also means Global Discovery
Fund.
The shares of the Corporation have a par value of $.01 per share. The Board of
Directors of the Corporation may authorize the issuance of additional classes
and additional Portfolios if deemed desirable, each with its own investment
objective, policies and restrictions. Since the Corporation may offer multiple
Portfolios, it is known as a "series company." Currently, the Corporation offers
four classes of shares of the Fund. These are Class A, Class B, Class C and
Scudder Shares. Shares of a Portfolio have equal noncumulative voting rights
except that Class B and Class C shares have separate and exclusive voting rights
with respect to each such class' Rule 12b-1 Plan. Shares of each class also have
equal rights with respect to dividends, assets and liquidation of the Fund
subject to any preferences (such as resulting from different Rule 12b-1
distribution fees), rights or privileges of any classes of shares of the Fund.
Shares are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. If shares of more than
one Portfolio are outstanding, shareholders will vote by Portfolio and not in
the aggregate or by class except when voting in the aggregate is required under
the 1940 Act, such as for the election of directors, or when voting by class is
appropriate.
The Fund's activities are supervised by the Corporation's Board of Directors.
The Corporation is not required to hold and has no current intention of holding
annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment management contract. Subject to the
Corporation By-Laws, shareholders may remove Directors. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.
33
<PAGE>
This prospectus sets forth concisely the information about Scudder Shares of
Global Discovery Fund that a prospective investor should know before investing.
Global Discovery Fund is a diversified series of Scudder Global Fund, Inc., an
open-end management investment company. Please retain this prospectus for future
reference.
If you require more detailed information, a Statement of Additional Information
dated April 16, 1998, may be obtained without charge by writing to Scudder
Investor Services, Inc., Two International Place, Boston, MA 02110-4103 or
calling 1-800-225-2470. The Statement, which is incorporated by reference into
this prospectus, has been filed with the Securities and Exchange Commission and
is available along with other related materials on the SEC's Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
- ------------------------------
NOT FDIC- / MAY LOSE VALUE
INSURED / NO BANK GUARANTEE
- ------------------------------
SCUDDER (logo)
Scudder
Global Discovery
Fund
Prospectus
April 16, 1998
A mutual fund which seeks above-average capital appreciation over the long term
by investing primarily in the equity securities of small companies located
throughout the world.
<PAGE>
Expense information
How to compare a Scudder fund
This information is designed to help you understand the various costs and
expenses of investing in the Scudder Shares (the "Scudder Shares" or "Shares"),
a class of shares of Global Discovery Fund (the "Fund").+++ By reviewing this
table and those in other mutual funds' prospectuses, you can compare the Fund's
fees and expenses with those of other funds. 1) Shareholder transaction
expenses: Expenses charged directly to your individual account in the Fund for
various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended October 31, 1997.
Investment management fee 1.10%
12b-1 fees NONE
Other expenses 0.53%
----
Total Fund operating expenses 1.63%
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its
net investment income to shareholders. (As noted above, the Fund has no
redemption fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$17 $51 $89 $193
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than
those shown.
+++ The information set forth on this page relates only to the Scudder Shares.
The Fund also offers three other classes of shares, which may have
different fees and expenses (which may affect performance), have different
minimum investment requirements and are entitled to different services. See
"Fund Organization."
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."
2
<PAGE>
Financial highlights
The following table includes selected data for a share of the Scudder Shares
class of Global Discovery Fund outstanding throughout each period and other
performance information derived from the audited financial statements.+++
The Fund changed its name from Scudder Global Small Company Fund on March 6,
1996. If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated October 31, 1997, which may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the Period
September 10,
1991
(commencement
of operations)
Years Ended October 31, to October 31,
1997 (a) 1996 (a) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------
Net asset value, beginning of period ............ $20.45 $17.54 $16.27 $16.14 $12.05 $11.92 $12.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .................... (.12) (.04) (.03) (.02) .04 .07 .01
Net realized and unrealized gain (loss)
on investment transactions ................... 2.30 3.59 1.38 .48 4.24 .08 (.09)
------------------------------------------------------------------------
Total from investment operations ................ 2.18 3.55 1.35 .46 4.28 .15 (.08)
------------------------------------------------------------------------
Less distributions:
From net investment income ...................... (.13) (.20) -- -- (.07) (.02) --
In excess of net investment income .............. -- -- -- (.18) -- -- --
From net realized gains on investment
transactions ................................. (.86) (.44) (.08) (.15) (.12) -- --
------------------------------------------------------------------------
Total distributions ............................. (.99) (.64) (.08) (.33) (.19) (.02) --
------------------------------------------------------------------------
------------------------------------------------------------------------
Net asset value, end of period .................. $21.64 $20.45 $17.54 $16.27 $16.14 $12.05 $11.92
- --------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................ 11.14 20.97 8.32 2.80 36.04 1.26 (.67)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......... 349 351 255 256 198 55 9
Ratio of operating expenses, net to
average daily net assets (%) ................. 1.63 1.60 1.69 1.70 1.50 1.50 1.50*
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) ......................... 1.63 1.60 1.69 1.76 2.01 2.53 15.34*
Ratio of net investment income (loss)
to average daily net assets (%) .............. (.58) (.20) (.12) (.28) .53 .78 2.47*
Portfolio turnover rate (%) ..................... 60.5 63.0 43.7 45.8 54.6 23.4 --
Average commission rate paid (b) ................ $.0019 $.0026 $ -- $ -- $ -- $ -- $ --
</TABLE>
+++ Effective April 16, 1998, the shares of Global Discovery Fund were divided
into four classes of shares, of which Scudder Shares is one. Shares of the
Fund outstanding on such date were redesignated as the Scuddder Shares
class of the Fund. The data set forth above reflect the investment
performance of the Fund prior to such designation.
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 31, 1996.
* Annualized
** Not annualized
3
<PAGE>
A message from the President
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares. We also manage the mutual funds in a special program for the American
Association of Retired Persons, as well as the fund options available through
Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise The
Japan Fund, and numerous other open- and closed-end funds that invest in this
country and other countries around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.
Funds or fund classes in the Scudder Family of Funds are offered without
commissions to purchase or redeem shares or to exchange from one fund to
another. There are no 12b-1 fees either, which many other funds now charge to
support their marketing efforts. All of your investment goes to work for you. We
look forward to welcoming you as a shareholder.
/s/ Edmond D. Villani
Global Discovery Fund
Investment objective
o above-average capital appreciation over the long term by investing
primarily in the equity securities of small companies located throughout
the world
Investment characteristics
o participation in a diversified, professionally- managed portfolio of
smaller, often lesser- known companies based in the U.S. and foreign
countries
o access to global investment opportunities and diversification
o potential for above-average long-term capital appreciation with the
likelihood of above-average stock market volatility
Contents
Investment objective and policies 5
Why invest in the Fund? 6
International investment experience 7
Special risk considerations 7
Additional information about policies
and investments 8
Distribution and performance information 11
Fund organization 12
Transaction information 14
Shareholder benefits 18
Purchases 20
Exchanges and redemptions 21
Investment products and services 23
How to contact Scudder Back cover
4
<PAGE>
Investment objective and policies
Global Discovery Fund (the "Fund"), a diversified series of Scudder Global Fund,
Inc. (the "Corporation"), seeks above-average capital appreciation over the long
term by investing primarily in the equity securities of small companies located
throughout the world. The Fund is designed for investors looking for
above-average appreciation potential (when compared with the overall domestic
stock market as reflected by Standard & Poor's Corporation 500 Composite Price
Index) and the benefits of investing globally, but who are willing to accept
above-average stock market risk, the impact of currency fluctuation and little
or no current income.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Investments in small companies
In pursuit of its objective, the Fund generally invests in small, rapidly
growing companies that offer the potential for above-average returns relative to
larger companies, yet are frequently overlooked and thus undervalued by the
market. The Fund has the flexibility to invest in any region of the world. It
can invest in companies based in emerging markets, typically in the Far East,
Latin America and lesser developed countries in Europe, as well as in firms
operating in developed economies, such as those of the United States, Japan and
Western Europe.
The Fund's investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"),
invests the Fund's assets in companies it 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; 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.
Under normal circumstances, the Fund invests at least 65% of its total assets in
the equity securities of small companies. While the Adviser believes that
smaller, lesser-known companies can offer greater growth potential than larger,
more established firms, the former also involve greater risk and price
volatility. To help reduce risk, the Fund expects, under normal 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, one of which may be the United States.
The Fund invests primarily in companies whose individual equity market
capitalization would place them in the same size range as companies in
approximately the lowest 20% of world market capitalization as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small-, medium- and large-sized companies based in 22 markets
around the globe. Based on this policy, the companies represented in the Fund's
portfolio typically will have individual equity market
5
<PAGE>
capitalizations of between approximately $50 million and $2 billion, although
the Fund will be free to invest in smaller capitalization issues. Furthermore,
the median market capitalization of the companies in which the Fund invests will
not exceed $750 million.
The equity securities in which the Fund may invest consist of common stocks,
preferred stocks (either convertible or nonconvertible), rights and warrants.
These securities may be listed on the U.S. or foreign securities exchanges or
traded over-the-counter. For capital appreciation purposes, the Fund may
purchase notes, bonds, debentures, government securities and zero coupon bonds
(any of which may be convertible or nonconvertible). The Fund may invest in
foreign securities and American Depositary Receipts which may be sponsored or
unsponsored. The Fund may also invest in closed-end investment companies holding
foreign securities, enter into repurchase agreements and reverse repurchase
agreements, invest in illiquid securities, purchase securities on a when-issued
or forward delivery basis, and engage in strategic transactions, including
derivatives. For temporary defensive purposes, the Fund may, during periods in
which conditions in securities markets warrant, invest without limit in cash and
cash equivalents. It is impossible to accurately predict how long such
alternative strategies will be utilized. More information about investment
techniques is provided under "Additional information about policies and
investments."
Why invest in the Fund?
Global Discovery Fund offers convenient, low-cost access to a diversified,
global portfolio of equity securities issued by smaller companies. The Fund's
experienced, professional management can help investors take advantage of a
rapidly changing world economy.
Unlike small company funds which limit themselves to U.S. investments, the Fund
seeks investment opportunities wherever they arise. The Fund enjoys the
flexibility to invest in all established markets, as well as in newly opened or
newly industrialized economies around the world. Because the Fund operates
globally, it may, under certain market conditions, augment the returns available
from a comparable investment in the U.S. market alone.
The Fund focuses specifically on small companies believed to have favorable
long-term growth prospects. Small companies can be attractive because they are
frequently sources of new technologies and services, often compete with larger
companies on the basis of lower labor costs and often grow faster than larger
firms. Their smaller size often allows them to respond rapidly to changing
business conditions. Also, small companies may not be closely followed by
securities analysts, so they may reward the investor with the patience and
knowledge to carefully seek them out and understand them. This can mean
significant long-term opportunity as these companies achieve greater recognition
over time.
While the Fund is broadly diversified, it is not a complete investment program.
However, adding shares of the Fund to a portfolio can increase diversification,
which should moderate overall portfolio risk.
The Fund is appropriate for investors who can accept the greater risks of
global, small company investing for the potentially greater rewards. Investing
directly in foreign securities is usually impractical for individual investors.
Investors frequently find it difficult to arrange purchases and sales, obtain
current information about companies abroad, hold securities in safekeeping, and
convert their profits from foreign currencies to U.S. dollars. The Fund makes it
easy for investors to take advantage of small company opportunities on a global
basis and benefit from the Adviser's experience researching and managing
investments both in the U.S. and abroad.
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International investment
experience
The Adviser has been a leader in international investment management for over 40
years. Among other funds, the Adviser manages Scudder International Fund, Inc.,
which was incorporated in Canada in 1953 as the first foreign investment company
registered with the United States Securities and Exchange Commission, Scudder
International Bond Fund, which invests internationally, Scudder Global Bond
Fund, which invests worldwide, Scudder Greater Europe Growth Fund, which invests
primarily in the equity securities of European companies, The Japan Fund, Inc.,
which invests primarily in securities of Japanese companies, Scudder Latin
America Fund, which invests in Latin American issuers, Scudder Pacific
Opportunities Fund, which invests in issuers located in the Pacific Basin, with
the exception of Japan, Scudder Emerging Markets Income Fund, which invests in
debt securities issued in emerging markets and Scudder Emerging Markets Growth
Fund, which invests in equity securities issued in emerging markets. The Adviser
also manages the assets of seven closed-end investment companies which invest in
foreign securities: The Argentina Fund, Inc., The Brazil Fund, Inc., Scudder
Spain and Portugal Fund, Inc., Scudder Global High Income Fund, Inc., The Korea
Fund, Inc., Scudder New Asia Fund, Inc., and Scudder New Europe Fund, Inc. As of
December 31, 1997, the Adviser was responsible for managing more than $200
billion in assets globally.
Special risk considerations
The Fund is designed for long-term investors who can accept international
investment risk. Since the Fund normally will invest 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, which enhances the Fund's appeal as a
diversification tool. The Fund's share price will reflect the movements of the
different stock markets in which it is invested and the different currencies in
which the investments are denominated. The strength or weakness of the U.S.
dollar against foreign currencies is likely to account for part of the Fund's
investment performance, although the Adviser believes that, over the long term,
the impact of currency changes on Fund performance will not be as significant as
changes in the underlying investments. As with any long-term investment, the
value of shares when sold may be higher or lower than when purchased.
Global investing involves economic and political considerations not typically
found in U.S. markets. These considerations, which may favorably or unfavorably
affect the Fund's performance, include changes in exchange rates and exchange
rate controls (which may include suspension of the ability to transfer currency
from a given country), costs incurred in conversions between currencies,
nonnegotiable brokerage commissions, different accounting standards, lower
trading volume and greater market volatility, the difficulty of enforcing
obligations in other countries, less securities regulation, different tax
provisions (including withholding on interest and dividends paid to the Fund),
war, expropriation, political and social instability, and diplomatic
developments.
Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic markets. These considerations generally are more of a
concern in developing countries. For example, the possibility of political
upheaval and the dependence on foreign economic assistance may be greater in
these countries than in developed countries. The Adviser seeks to mitigate the
risks associated with these considerations through diversification and active
professional management. The Fund will limit investments in securities of
issuers located in Eastern Europe to 5% of its total assets.
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<PAGE>
There is typically less publicly available information concerning foreign and
smaller companies than for domestic and larger, more established companies. Some
small companies have limited product lines, distribution channels and financial
and managerial resources. Also, because smaller companies normally have fewer
shares outstanding than larger companies and trade less frequently, it may be
more difficult for the Fund to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. Some of the companies
in which the Fund may invest may distribute, sell or produce products which have
recently been brought to market and may be dependent on key personnel with
varying degrees of experience.
Additional information about policies and investments
Investment restrictions
The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Corporation's Board of Directors.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.
The Fund may invest up to 35% of its total assets in equity securities of larger
companies located throughout the world and in debt securities if the Adviser
determines that the capital appreciation of debt securities is likely to exceed
the capital appreciation of equity securities. The Fund may purchase
investment-grade bonds, those rated Aaa, Aa, A or Baa by Moody's Investor
Services, Inc. ("Moody's"), or AAA, AA, A or BBB by Standard & Poor's
Corporation ("S&P") or, if unrated, of equivalent quality as determined by the
Adviser. The Fund may also invest up to 5% of its net assets in debt securities
rated below investment- grade. See "Risk factors."
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Scudder Shares Statement of
Additional Information.
Common stocks
Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Special situation securities
From time to time, the Fund may invest in equity or debt securities issued by
companies that are determined by the Adviser to possess "special situation"
characteristics. In general, a special situation company is a company whose
securities are expected to increase in value solely by reason of a development
particularly or uniquely
8
<PAGE>
applicable to the company. Developments that may create special situations
include, among others, a liquidation, reorganization, recapitalization or
merger, material litigation, technological breakthrough and new management or
management policies. The principal risk associated with investments in special
situation companies is that the anticipated development thought to create the
special situation may not occur and the investments therefore may not appreciate
in value or may decline in value.
Convertible securities
The Fund may invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which the Fund may invest include 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. Prior to
their conversion, convertible securities may have characteristics similar to
both nonconvertible debt securities and equity securities.
Illiquid securities
The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase at a specified time and price.
Strategic Transactions and derivatives
The 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 the 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, the 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 the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the 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
9
<PAGE>
although no more than 5% of the 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 the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The 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 to create leveraged exposure in the Fund. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Convertible securities. While convertible securities generally offer lower
yields than nonconvertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities generally entail less credit risk than the issuer's common stock.
Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Debt securities. The Fund may 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, or unrated securities of equivalent quality.
Securities rated below Baa/BBB are commonly referred to as "junk bonds." The
lower the ratings of such debt securities, the greater their risks render them
like equity securities. Also, longer maturity bonds tend to fluctuate more in
price as interest rates change than do short-term bonds, providing both
opportunity and risk.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the 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 the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability
10
<PAGE>
to deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the 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, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Shares' Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment income and
any net realized capital gains after utilization of capital loss carryforwards,
if any, in December. An additional distribution may be made if necessary. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional Shares of the Fund. If the investment is in the form of a retirement
plan, all dividends and capital gains distributions must be reinvested into the
shareholder's account. Dividends ordinarily will vary from one class of the Fund
to another.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individual shareholders at a maximum 20% or 28% capital gains rate (depending on
the Fund's holding period for the assets giving rise to the gain), regardless of
the length of time shareholders have owned their shares. Short-term capital
gains and any other taxable distributions are taxable as ordinary income. A
portion of dividends from ordinary income may qualify for the dividends-received
deduction for corporations.
Shareholders may be able to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the Fund to
foreign countries.
The Fund sends detailed tax information to its shareholders about the amount and
type of its distributions by January 31 of the following year.
Performance information
From time to time, quotations of the performance of the Fund's Scudder Shares
may be included in advertisements, sales literature or shareholder reports.
Performance information is computed separately for each class of Fund shares in
accordance with formulae prescribed by the Securities and Exchange Commission.
Performance figures will vary in part because of the different expense
structures of the Fund's different classes of shares. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in a class of the
11
<PAGE>
Fund for a specified period. The "average annual total return" is the average
annual compound rate of return of an investment in a particular class of the
Fund assuming the investment has been held for the life of the Fund as of a
stated ending date. "Cumulative total return" represents the cumulative change
in value of an investment in a particular class of the Fund for various periods.
All types of total return calculations assume that all dividends and capital
gains distributions during the period were reinvested in the relevant class of
shares of the Fund. Performance will vary based upon, among other things,
changes in market conditions and the level of the Fund's expenses as well as
particular class expenses.
Fund organization
The Fund is a diversified series of Scudder Global Fund, Inc., an open-end,
management investment company registered under the 1940 Act. The name Scudder
Global Discovery Fund as used herein also means Global Discovery Fund. The
Corporation was organized as a Maryland corporation in May 1986.
The Fund changed its name from Scudder Global Small Company Fund on March 6,
1996.
The Fund's activities are supervised by the Corporation's Board of Directors.
The Corporation has adopted a plan pursuant to Rule 18f-3 (the "Plan") under the
1940 Act to permit the Corporation to establish a multiple class distribution
system.
Under the Plan, shares of each class represent an equal pro rata interest in the
Fund and, generally, shall have identical voting, dividend, liquidation, and
other rights, preferences, powers, restrictions, limitations, qualifications and
terms and conditions, except that: (1) each class shall have a different
designation; (2) each class of shares shall bear its own "class expenses;" (3)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relates to its administrative services, shareholder services
or distribution arrangements; (4) each class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class; (5) each class may have separate
and distinct exchange privileges; (6) each class may have different conversion
features, and (7) each class may have separate account size requirements.
Expenses currently designated as "Class Expenses" by the Corporation's Board of
Directors under the Plan include, for example, transfer agency fees attributable
to a specific class and certain securities registration fees.
In addition to the Scudder Shares class offered herein, the Fund offers three
other classes of shares, which may have different fees and expenses (which may
affect performance), may have different minimum investment requirements and are
entitled to different services.
Each share of a class of the Fund shall be entitled to one vote (or fraction
thereof in respect of a fractional share) on matters that such shares (or class
of shares) shall be entitled to vote. Shareholders of the Fund shall vote
together on any matter, except to the extent otherwise required by the 1940 Act,
or when the Board of Directors of the Corporation has determined that the matter
affects only the interest of shareholders of one or more classes of the Fund, in
which case only the shareholders of such class or classes of the Fund shall be
entitled to vote thereon. Any matter shall be deemed to have been effectively
acted upon with respect to the Fund if acted upon as provided in Rule 18f-2
under the 1940 Act, or any successor rule, and in the Corporation's charter.
Investment adviser
The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage its daily investment and business affairs subject to the policies
established by the Board of Directors. The Directors have overall responsibility
for the management of the Fund under Maryland law.
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<PAGE>
Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
For the fiscal year ended October 31, 1997, the Adviser received an investment
management fee of 1.10% of average daily net assets on an annual basis. The fee
is payable monthly, provided the 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 fee is higher than that charged to most other funds. However, management of
the Fund involves analyzing companies, markets and economies throughout the
world and the management fee is not necessarily higher than the fees charged to
funds with similar investment objectives and policies.
All the Fund's expenses are paid out of gross investment income. Holders of
Scudder Shares pay no direct charges or fees for investment services.
Scudder Kemper Investments, Inc., is located at 345 Park Avenue, New York, New
York.
Like other mutual funds and financial and business organizations worldwide, the
Fund could be adversely affected if computer systems on which the Fund relies,
which primarily include those used by the Adviser, its affiliates or other
service providers, are unable to correctly process date-related information on
and after January 1, 2000. This risk is commonly called the Year 2000 Issue.
Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the Fund's business and
operations. The Adviser has commenced a review of the Year 2000 Issue as it may
affect the Fund and is taking steps it believes are reasonably designed to
address the Year 2000 Issue, although there can be no assurances that these
steps will be sufficient. In addition, there can be no assurances that the Year
2000 Issue will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies generally.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Scudder Shares class of the Fund.
The Fund, on behalf of the Scudder Shares class, may enter into arrangements
with banks and other institutions which are omnibus account holders of shares of
the Scudder Shares class providing for the payment of fees to the institution
for servicing and maintaining accounts of beneficial owners of the omnibus
account. Such payments are expenses of the Scudder Shares class only.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the principal
underwriter of the Scudder Shares class of the Fund. Scudder Investor Services,
Inc. confirms, as agent, all purchases of shares of the Scudder Shares class of
the Fund. Scudder Investor Relations is a telephone information service provided
by Scudder Investor Services, Inc.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Custodian
Brown Brothers Harriman & Co. is the Fund's custodian.
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<PAGE>
Transaction information
Scudder Shares are generally not available to new investors. Investors in the
Fund as of April 15, 1998, can continue to purchase Scudder Shares. Shareowners
of any fund or class of a fund in the Scudder Family of Funds as of April 15,
1998, and their immediate family members at the same address, may also purchase
Scudder Shares. Certain other parties may be eligible to purchase Scudder
Shares. Please see the Shares' Statement of Additional Information for more
details, or call Scudder Investor Relations at 1-800-225-2470.
Purchasing Scudder Shares
Purchases are executed at the next calculated net asset value per Share after
the Shares' transfer agent receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund and class in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.
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<PAGE>
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
By exchange. Scudder Shares may be exchanged for shares of other funds in the
Scudder Family of Funds unless otherwise determined by the Board of Directors.
Your new account will have the same registration and address as your existing
account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming Scudder Shares
The Fund allows you to redeem Shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
transfer agent for the Shares has received your completed and signed
application. Telephone redemption is not available for shares held in Scudder
IRA accounts and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, Shares will be
redeemed at the net asset value per Share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be
15
<PAGE>
redeemed at the net asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange Scudder Shares by
telephone and the right to redeem by telephone up to $100,000 to their address
of record. Shareholders also may, by telephone, request that redemption proceeds
be sent to a predesignated bank account. The Fund uses procedures designed to
give reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per Share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per Share is
calculated by dividing the value of total Fund assets attributable to the
Shares, less all liabilities of such Shares, by the total number of Shares
outstanding.
Trading in securities on European and Far Eastern securities exchanges is
normally completed before the close of regular trading on the Exchange. Trading
on these foreign exchanges may not take place on all days on which there is
regular trading on the Exchange, or may take place on days on which there is no
regular trading on the Exchange. If events materially affecting the value of the
Fund's portfolio securities occur between the time when these foreign exchanges
close and the time when the Fund's net asset value is calculated, such
securities may be valued at fair value as determined by the Corporation's Board
of Directors.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per Share calculated at the
close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of Shares recently purchased by check).
16
<PAGE>
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
Minimum balances
Holders of Scudder Shares should maintain a share balance worth at least $2,500,
which amount may be changed by the Board of Directors. Scudder retirement plans
and certain other accounts have similar or lower minimum balance requirements. A
holder of Scudder Shares may open an account with at least $1,000, if an
automatic investment plan of $100/month is established.
Holders of Scudder Shares who maintain a non-fiduciary account balance of less
than $2,500 in the Fund, without establishing an automatic investment plan, will
be assessed an annual $10.00 per fund charge with the fee to be paid to the
Fund. The $10.00 charge will not apply to shareholders with a combined household
account balance in any of the Scudder Funds of $25,000 or more. The Fund
reserves the right, following 60 days' written notice to shareholders, to redeem
all shares in accounts below $250, including accounts of new investors, where a
reduction in value has occurred due to a redemption or exchange out of the
account. The Fund will mail the proceeds of the redeemed account to the
shareholder. Reductions in value that result solely from market activity will
not trigger an involuntary redemption. Retirement accounts and certain other
accounts will not be assessed the $10.00 charge or be subject to automatic
liquidation. Please refer to "Exchanges and Redemptions--Other Information" in
the Shares' Statement of Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund 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 Fund
and valued as they are for purposes of computing the 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 to cash. The Corporation has
elected,
17
<PAGE>
however, to be governed by Rule 18f-1 under the 1940 Act, as a result of which
the Fund 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 a share at the beginning of the period.
Shareholder benefits
Experienced professional management
Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not have
the time or expertise to invest directly in individual securities.
A team approach to investing
Global Discovery Fund is managed by a team of investment professionals, each of
whom plays an important role in the Fund's investment process. Team members work
together to develop investment strategies and select securities for the Fund's
portfolio. They are supported by the Adviser's large staff of economists,
research analysts, traders, and other investment specialists who work in the
Adviser's offices across the United States and abroad. The Adviser believes its
team approach benefits Fund investors by bringing together many disciplines and
leveraging its extensive resources.
Lead Portfolio Manager Gerald J. Moran has set the Fund's investment strategy
and overseen its daily operation since the Fund was introduced in 1991. Mr.
Moran joined the Adviser's equity research and management area in 1968 as an
analyst, has focused on small company stocks since 1982 and has been a portfolio
manager since 1985.
Sewall Hodges, Portfolio Manager, joined Scudder in 1995 and the team in 1996.
Mr. Hodges, who has twelve years of experience in global analysis and portfolio
management, focuses on the Fund's stock selection and research.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of no-load mutual funds with ongoing portfolio monitoring
and individualized
18
<PAGE>
service, for an annual fee of generally 1.25% or less of assets. In addition, it
draws upon the Adviser's more than 75-year heritage of providing investment
counsel to large corporate and private clients. If you have $100,000 or more to
invest initially and would like more information about Personal Counsel, please
call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Scudder Shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Annual Report for the Scudder Shares, may be mailed to your
household (same surname, same address). Please call 1-800-225-5163 if you wish
to receive additional shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
19
<PAGE>
Purchases
<TABLE>
<CAPTION>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
<S> <C> <C> <C>
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
o By Wire Please see Transaction information--Purchasing Scudder
Shares--By wire for details, including the ABA wire transfer
number. Then call 1-800-225-5163 for instructions.
o In Person Visit one of our Investor Centers to complete your application with the
help of a Scudder representative. Investor Center locations are listed
under Shareholder benefits.
-----------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the complete
Scudder Funds." Fund and class name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing Scudder
Shares--By wire for details, including the ABA wire transfer
number.
o In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing Scudder
Shares--By QuickBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
</TABLE>
20
<PAGE>
Exchanges and redemptions
<TABLE>
<CAPTION>
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
<S> <C> <C> <C> <C> <C>
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
For information o By Mail Print or type your instructions and include:
on exchanging to or Fax - the name of the Fund and class and the account number you are
other Scudder exchanging from;
Funds, see - your name(s) and address as they appear on your account;
"Transaction - the dollar amount or number of shares you wish to exchange;
information--By - the name of the Fund and class you are exchanging into;
exchange." - your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA 02107-2291 Braintree, MA 02184
-----------------------------------------------------------------------------------------------------------------------
Redeeming o By Telephone
shares To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and class and account number you are redeeming from
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming Scudder Shares.
o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
</TABLE>
21
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even if only
one spouse has earned income). Many people can deduct all or part of their
contributions from their taxable income, and all investment earnings accrue
on a tax-deferred basis. The Scudder No-Fee IRA charges you no annual
custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500
or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
22
<PAGE>
Investment products and services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series--Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
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. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. +++ +++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 Kemper Investments, Inc., are traded on the New York
Stock Exchange and, in some cases, on various foreign stock exchanges.
23
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain
an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder Investor
Centers. Check for an Investor Center near you--they can be found in the
following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
<PAGE>
KEMPER GLOBAL DISCOVERY FUND
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Location in Statement of
Item Number Additional Information
of Form N-1A
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents............................... Table of Contents
12. General Information and History................. Inapplicable
13. Investment Objectives and Policies.............. Investment Restrictions; Investment Policies
and Techniques
14. Management of the Fund.......................... Investment Manager and Underwriter;
Officers and Directors
15. Control Persons and Principal Holders of
Securities...................................... Officers and Directors
16. Investment Advisory and Other Services.......... Investment Manager and Underwriter; Officers and
Trustees
17. Brokerage Allocation and Other Practices........ Portfolio Transactions
18. Capital Stock and Other Securities.............. Dividends, Distributions and Taxes;
Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered........................ Purchase and Redemption of Shares
20. Tax Status...................................... Dividends and Taxes
21. Underwriters.................................... Investment Manager and Underwriter
22. Calculation of Performance Data................. Performance
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 16, 1998
KEMPER GLOBAL DISCOVERY FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Kemper Global Discovery Fund Class A, B
and C Shares (the "Shares" or "Kemper Shares") of Global Discovery Fund (the
"Fund"), a diversified series of Scudder Global Fund, Inc., an open-end
management investment company (the "Corporation"). This Statement of Additional
Information should be read in conjunction with the prospectus of the Fund dated
April 16, 1998 regarding the Kemper Shares. The prospectus may be obtained
without charge from the Fund at the address or telephone number on this cover or
the firm from which this Statement of Additional Information was received.
---------------
TABLE OF CONTENTS
Page
Investment Restrictions...... ____
Investment Policies and
Techniques................... ____
Dividends, Distributions and
Taxes........................ ____
Investment Manager and
Underwriter.................. ____
Portfolio Transactions....... ____
Purchase and Redemption of
Shares....................... ____
Performance.................. ____
Officers and Directors....... ____
Shareholder Rights........... ____
Scudder Kemper Investments, Inc. (the "Adviser") serves as the Fund's investment
manager.
KEUF-13 4/97 (RECYCLED LOGO) printed on recycled paper
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which
cannot be changed without approval of a "majority" of its outstanding voting
shares. As defined in the Investment Company Act of 1940, as amended (the "1940
Act"), this means the lesser of (1) 67% of the Fund's shares present at a
meeting where more than 50% of the outstanding shares are present in person or
by proxy; or (2) more than 50% of the Fund's outstanding shares.
The Fund may not, as a fundamental policy:
1. borrow money, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
3. purchase physical commodities or contracts relating to physical
commodities;
4. concentrate its investments in a particular industry, as that term
is used in the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
5. engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
6. purchase or sell real estate, which term does not include securities
or companies which deal in real estate or interests therein, except
that the Fund reserves freedom of action to hold and to sell real
estate acquired as a result of the Fund's ownership of securities;
or
7. make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
As a matter of nonfundamental policy, the Fund may not:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements, dollar rolls, or other investments
or transactions described in the Fund's registration statement which
may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures
contracts, options or other permitted investments, (iv) that
transactions in futures contracts and options shall not be deemed to
constitute selling securities short, and (v) that the Fund may
obtain such short-term credits as may be necessary for the clearance
of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;
(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair
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market value 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;
(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and
(7) lend portfolio securities in an amount greater than 5% of its total
assets.
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 the Fund's assets will
not be considered a violation of the restriction.
Master/feeder fund structure. At special meetings of shareholders, a
majority of the shareholders of the Fund approved a proposal which gives the
Fund's Board of Directors the discretion to retain the current distribution
arrangement for the Fund while investing in a master fund in a master/feeder
fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
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INVESTMENT POLICIES AND TECHNIQUES
GENERAL. The Fund seeks above-average capital appreciation over the long term by
investing primarily in the equity securities of small companies located
throughout the world. The Fund is designed for investors looking for
above-average appreciation potential (when compared with the overall domestic
stock market as reflected by Standard & Poor's 500 Composite Price Index) and
the benefits of investing globally, but who are willing to accept above-average
stock market risk, the impact of currency fluctuation and little or no current
income.
In pursuit of its objective, the Fund generally invests in small, rapidly
growing companies which offer the potential for above-average returns relative
to larger companies, yet are frequently overlooked and thus undervalued by the
market. The Fund has the flexibility to invest in any region of the world. It
can invest in companies based in emerging markets, typically in the Far East,
Latin America and Eastern Europe, as well as in firms operating in developed
economies, such as those of the United States, Japan and Western Europe.
The Fund's investment adviser, Scudder Kemper Investments, Inc. (the
"Adviser"), invests the Fund's assets in companies it 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; 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.
While the Fund's Adviser believes that smaller, lesser-known companies can
offer greater growth potential than larger, more established firms, the former
also involve greater risk and price volatility. To help reduce risk, the Fund
expects, under usual market conditions, to diversify its portfolio widely by
company, industry and country. Under normal circumstances, the Fund invests at
least 65% of its total assets in the equity securities of small companies. The
Fund intends to allocate investments among at least three countries at all
times, one of which may be the United States.
The Fund invests primarily in companies whose individual equity market
capitalization would place them in the same size range as companies in
approximately the lowest 20% of world market capitalization as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small-, medium- and large-sized companies based in 22 markets
around the globe. Based on this policy, the companies represented in the Fund's
portfolio typically will have individual equity market capitalizations of
between approximately $50 million and $2 billion, although the Fund will be free
to invest in smaller capitalization issues. Furthermore, the median market
capitalization of the companies in which the Fund invests will not exceed $750
million.
The equity securities in which the Fund may invest consist of common
stocks, preferred stocks (either convertible or nonconvertible), rights and
warrants. These securities may be listed on the U.S. or foreign securities
exchanges or traded over-the-counter. For capital appreciation purposes, the
Fund may purchase notes, bonds, debentures, government securities and zero
coupon bonds (any of which may be convertible or nonconvertible). The Fund may
invest in foreign securities and American Depositary Receipts which may be
sponsored or unsponsored. The Fund may also invest in closed-end investment
companies holding foreign securities, enter into repurchase agreements and
engage in strategic transactions. For temporary defensive purposes, the Fund
may, during periods in which conditions in securities markets warrant, invest
without limit in cash and cash equivalents. It is impossible to accurately
predict for how long such alternative strategies will be utilized. More
information about investment techniques is provided under "Specialized
Investment Techniques of the Funds."
Small Company Risk. The Adviser believes that smaller 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
3
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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.
Foreign Securities. The 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. The Fund is designed for investors who can accept currency and
other forms of international investment risk. The Adviser believes that
allocation of the 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 the
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 the Fund are uninvested and no return 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 either could result 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. 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 the Fund's portfolio transactions. Further, the 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 the 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 the
Fund associated with the foregoing considerations through investment variation
and continuous 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 a 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
4
<PAGE>
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 the countries
of the former Soviet Union. The 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, the Fund may temporarily 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 the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values
each Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The 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 the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The 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 the 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. The 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 Fund invests 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 U.S.
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 a 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,
5
<PAGE>
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
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 Corporation's Board of
Directors.
Volume and liquidity in most foreign bond markets are less than in the
U.S. 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 U.S. Mail service between the
U.S. and foreign countries may be slower or 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 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 2/1/98
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)
Country Moody's Standard & Poor's
Chile Baa1 A-
Turkey Ba3 B+
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Baa3 BBB-
Colombia Baa3 BBB-
Venezuela Ba2 B
Morocco NR NR
Argentina B1 BB-
Brazil B1 B+
Poland Baa3 BBB-
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,
7
<PAGE>
nationalization, 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
8
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levels of inflation which can have a 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 a Fund at a higher rate than those imposed by
other foreign countries. This may reduce a 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 a 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
each 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,
Czech Republic, Slovak Republic, 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
to
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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.
Debt Securities. If the Adviser determines that the capital appreciation on debt
securities is likely to exceed that of common stocks, the 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. The 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. The 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.
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 the Fund may invest up to 5% 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 the 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 the
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 the 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. The 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.
The convertible securities in which the 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)). Zero coupon securities 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
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow 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 shorter maturities (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.
Illiquid Securities. The 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
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<PAGE>
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. The 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
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
Repurchase Agreements. The 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, 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.
A repurchase agreement provides a means for the Fund to earn income on
assets for periods as short as overnight. It is an arrangement under which the
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
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 the 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 the 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 the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. To protect against such
potential loss, if the market value (including interest) 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 (including interest) of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the 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.
When-Issued Securities. The Fund may from time to time 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
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
the 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
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<PAGE>
forward delivery securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the 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. At the time of settlement, the market value of
the when-issued or forward delivery securities may be more or less than the
purchase price. The 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. The 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. The 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, the 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
the 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.
Borrowing. As a matter of fundamental policy, each Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by a Fund will
involve special risk considerations. Although the principal of a Fund's
borrowings will be fixed, a Fund's assets may change in value during the time a
borrowing is outstanding, thus increasing exposure to capital risk.
STRATEGIC TRANSACTIONS AND DERIVATIVES. The 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 the 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, the 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 the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the 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 the 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 the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The 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,
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<PAGE>
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the 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 the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
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,
the 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, the 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. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the 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. The 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.
The 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
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liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
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. The
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 the 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. The 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 nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the 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 the 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.
The 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 the 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 the Fund will receive the option premium to help protect it against
loss, a call sold by the 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.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, 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
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futures contracts other than futures on individual corporate debt and individual
equity securities. The 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. The 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 the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The 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 the 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 the 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.
The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the 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. The 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. The 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
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agreement to exchange cash flows based on the notional difference among two or
more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The 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
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
The 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, the 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 the 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"),
the 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 the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the 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 the 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. The 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
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on the Adviser's judgment that the combined strategies will reduce risk or
otherwise more effectively achieve the desired portfolio management goal, it is
possible that the combination will instead increase such risks or hinder
achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The 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. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the 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.
The 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. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the 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. The 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. The 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 cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid
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securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid securities sufficient to purchase
and deliver the securities if the call is exercised. A call option sold by the
Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate cash or liquid assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate cash or liquid assets
equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Code for qualification as a regulated
investment company. (See "TAXES.")
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS. The 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.
The 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, the Fund may retain all or part of such gain for reinvestment, after
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paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
The Fund intends to distribute investment company taxable income,
exclusive of net short-term capital gains in excess of net long-term capital
losses, in March, June, September and December each year. Distributions of net
capital gains realized during each fiscal year will be made annually in
December. Additional distributions, including distributions of net short-term
capital gains in excess of net long-term capital losses, may be made, if
necessary.
The level of income dividends per share (as a percentage of net asset
value) will be lower for Class B and Class C shares than for Class A shares
primarily as a result of the distribution services fee applicable to Class B and
Class C shares. Distributions of capital gains, if any, will be paid in the same
amount for each class.
Dividends will be reinvested in Shares of the same class of the Fund
unless shareholders indicate in writing that they wish to receive them in cash
or in shares of other Kemper Funds as provided in the prospectus.
TAXES. The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, and has qualified as such since its inception.
The Fund intends to continue to qualify for such treatment. Such qualification
does not involve governmental supervision or management of investment practices
or policy.
A regulated investment company qualifying under Subchapter M of the Code
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. The Fund intends
to distribute at least annually all of its investment company taxable income and
net realized capital gains and therefore does 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.
The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires the
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.
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 taxable to individual shareholders at a maximum 20% or 28% capital gains
rate (depending on the Fund's holding period for the assets giving rise to the
gain), 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 on Fund
shares by the difference between a pro rata share of such gains owned and the
individual tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise some portion
of the Fund's gross income. To the extent that such dividends constitute any of
the Fund's gross income, a portion of the income distributions of the Fund will
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
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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.
Properly designated 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 individual shareholders at a maximum 20% or 28%
capital gains rate (depending on the Fund's holding period for the assets giving
rise to the gain), 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
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the 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 the 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.
The 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
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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.
Equity options (including options on stock and options on narrow-based
stock indices) and over-the-counter options on debt securities written or
purchased by the Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by the 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 the Fund's holding period for the
option and in the case of an exercise of the option on the 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 the
Fund's portfolio. If the 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 the Fund is not a taxable
transaction for the Fund.
Many futures contracts (including foreign currency futures contracts)
entered into by the Fund, certain forward foreign currency contracts, and all
listed nonequity options written or purchased by the 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 the 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 the 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 the Fund will be
treated as ordinary income or loss.
Subchapter M requires that the 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. The
Fund's 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 the 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 the 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." Mixed straddles are subject to the straddle rules of Section
1092 of the Code, and may result in the deferral of losses if the non-Section
1256 position is in an unrealized gain at the end of a reporting period.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the 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 the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
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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 the Fund each year, even though the 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 the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the level of the Fund. Shareholders will be subject to income tax
on such original issue discount, whether or not they elect to receive their
distributions in cash.
If the Fund invests in stock of certain passive foreign investment
companies, the 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 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 may allow the 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, the 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, the 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.
The 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 the 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 the 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 the 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 the 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
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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.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. (the "Adviser"), an
investment counsel firm, 345 Park Avenue, New York, New York, is the Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. The predecessor firm reorganized from a partnership to a
corporation on June 28, 1985. On June 26, 1997, Adviser's predecessor Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which the predecessor and Zurich agreed
to form an alliance.
On December 31, 1997, Zurich acquired a majority interest in Scudder and
Zurich made its subsidiary Zurich Kemper Investments, Inc., a part of the
predecessor organization. The predecessor's name has been changed to Scudder
Kemper Investments, Inc. Founded in 1872, Zurich is a multinational, public
corporation organized under the laws of Switzerland. Its home office is located
at Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The Adviser maintains a large research department, which conducts ongoing
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 the Fund and for clients of the Adviser,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward 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 the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
The Investment Management Agreement (the "Agreement") between the
Corporation, on behalf of the Fund, and the Adviser was last approved by the
Directors of the Corporation on _____________, 199_. The Agreement is dated
December 31, 1997 and will continue in effect until _____________, 199_ 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 such Agreement or
interested persons of the Adviser or the Fund, cast in person at a meeting
called for the purpose of voting on such approval, and by a majority vote either
of the Corporation's Directors or of the outstanding voting securities of the
Fund. The 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 the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, 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
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Incorporation and By-Laws, the 1940 Act and the Code and to the Fund's
investment objectives, policies and restrictions and subject, further, to such
policies and instructions as the Directors of the Corporation may from time to
time establish. The Adviser also advises and assists the officers of the
Corporation in taking such steps as are necessary or appropriate to carry out
the decisions of its Directors and the appropriate committees of the Directors
regarding the conduct of the business of the Fund.
The Adviser also 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.
The Adviser pays the compensation and expenses (except those for attending
Board and Committee meetings outside New York, New York; Boston, Massachusetts
and Chicago, Illinois) of all Directors, officers and executive employees of the
Corporation affiliated with the Adviser and makes available, without expense to
the Corporation, the services of such Directors, officers and employees of the
Adviser as may duly be elected officers or Directors of the Corporation, subject
to their individual consent to serve and to any limitations imposed by law, and
provides the 'Corporation's' office space and facilities.
Under the Agreement the Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; the calculation of Net Asset Value; taxes and
governmental fees; the fees and expenses of the transfer agent; the cost of
preparing stock 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
Directors, officers and employees of the Corporation 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. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for 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 Agreement expressly provides that the Adviser shall not be required to
pay a pricing agent of the Fund for portfolio pricing services, if any.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Corporation have been represented by independent
counsel at the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which 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 Fund's 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.
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<PAGE>
None of the officers or Directors of the Corporation may have dealings
with the Corporation as principals in the purchase or sale of securities, except
as individual subscribers or holders of shares of the Corporation.
Personal Investments by Employees of the Adviser
Employees of the Adviser and certain of its subsidiaries 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 Fund. 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.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc. ("KDI"), an
affiliate of the Adviser, is the principal underwriter and distributor for the
Class A, B and C shares of the Fund and acts as agent of the Fund in the
continuous offering of its shares. KDI bears all of its expenses of providing
services pursuant to the distribution agreement, including the payment of any
commissions. The Fund pays the cost for the prospectus and shareholder reports
to be set in type and printed for existing shareholders, and KDI, as principal
underwriter, pays for the printing and distribution of copies thereof used in
connection with the offering of Shares to prospective investors. KDI also pays
for supplementary sales literature and advertising costs.
The distribution agreement dated ___________, 19__ was initially approved
by the Directors on ___________, 19__ and continues in effect from year to year
so long as such continuance is approved for each class at least annually by a
vote of the Board of Directors of the Corporation, including the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the agreement. The distribution agreement automatically
terminates in the event of its assignment and may be terminated for a class at
any time without penalty by the Fund or by KDI upon 60 days' notice. Termination
by the Fund with respect to a class may be by vote of a majority of the Board of
Directors or a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the distribution
agreement or a "majority of the outstanding voting securities" of the class of
the Fund, as defined under the 1940 Act. The distribution agreement may not be
amended for a class to increase the fee to be paid by the Fund with respect to
such class without approval by a majority of the outstanding voting securities
of such class of the Fund, and all material amendments must in any event be
approved by the Board of Directors in the manner described above with respect to
the continuation of the distribution agreement.
ADMINISTRATIVE SERVICES. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. The
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to ___% of average daily net assets of Class A, B and C shares of the
Fund.
KDI enters into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms") that provide services and
facilities for their customers or clients who are investors in the Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A Shares, KDI pays each firm a service fee,
payable quarterly, at an annual rate of up to ___% of the net assets in Fund
accounts that it maintains and services attributable to Class A Shares,
commencing with the month after investment. With respect to Class B and Class C
Shares, KDI currently advances to firms the first-year service fee at a rate of
up to ___% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms a service fee at a rate of up to ___%
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<PAGE>
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C Shares maintained and serviced by the firm. After the first year,
a firm becomes eligible for the quarterly service fee and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid may
include affiliates of KDI.
KDI also may provide some of the above services and may retain any portion
of the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on the Fund's
records, and it is intended that KDI will pay all the administrative services
fee that it receives from the Fund to firms in the form of service fees. The
effective administrative services fee rate to be charged against all assets of
the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which a firm of record provides
administrative services. The Board of Directors of the Corporation, in its
discretion, may approve basing the fee to KDI on all Fund assets in the future.
Certain Directors or officers of the Corporation are also directors or
officers of the Adviser or KDI, as indicated under "Officers and Directors."
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, Two
International Place, Boston, Massachusetts, 02210-4103, a subsidiary of the
Adviser, computes net asset value for the Funds.
Information set forth below with respect to Global Discovery Fund is
provided at the Fund level since that Fund consisted of one class of shares
(which class was re-designated as "Scudder Global Discovery Shares") until April
16, 1998.
Global Discovery Fund pays Scudder Fund Accounting Corporation an annual
fee equal to 0.065% of the first $150 million of average daily net assets,
0.040% of such assets in excess of $150 million, 0.020% of such assets in excess
of $1 billion, plus holding and transaction charges for this service. Scudder
Fund Accounting Corporation charged Global Discovery Fund an aggregate fee of
$207,838, $189,560 and $63,829 for the fiscal years ended October 31, 1997, 1996
and 1995, respectively.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Brown Brothers Harriman
& Co. (the "Custodian"), as custodian, has custody of all securities and cash of
the Fund held outside the United States. The Custodian attends to the collection
of principal and income, and payment for and collection of proceeds of
securities bought and sold by the Fund. Kemper Service Company ("KSVC"), an
affiliate of the Adviser, is the Fund's transfer agent, dividend-paying agent
and shareholder service agent for the Fund's Class A, B and C shares. KSVC
receives as transfer agent, annual account fees of $__ per account plus account
set up, transaction and maintenance charges, annual fees associated with the
contingent deferred sales charge (Class B shares only) and out-of-pocket expense
reimbursement.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Coopers & Lybrand L.L.P., audit and report on the Fund's annual
financial statements, review certain regulatory reports and the Fund's federal
income tax return, and perform other professional accounting, auditing, tax and
advisory services when engaged to do so by the Fund. Shareholders will receive
annual audited financial statements and semi-annual unaudited financial
statements.
Brokerage Commissions
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
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<PAGE>
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 Scudder Fund Accounting Corp.
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, 1997, 1996 and 1995, Global
Discovery Fund paid brokerage commissions of $________, $759,086 and $587,657,
respectively. In the fiscal year ended October 31, 1997, the Fund paid brokerage
commissions of $________ (___% of the total brokerage commissions), resulting
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 $____________
(___% 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.
In the fiscal year ended October 31, 1995, Global Bond Fund paid brokerage
commissions of $155,497. In the fiscal year ended October 31, 1996, Global Bond
Fund paid brokerage commissions of $527,488. In the fiscal year ended October
31, 1997, Global Bond Fund paid brokerage commissions of $_______.
For the fiscal years ended October 31, 1997, 1996 and 1995, respectively,
Emerging Markets Income Fund paid no brokerage commissions.
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<PAGE>
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 (defined by the SEC as
the ratio of the lesser of sales or purchases to the monthly average value of
such securities owned during the year, excluding 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, 1997 and 1996
were ______% and 335.7%, respectively. Global Discovery Fund's portfolio
turnover rates for the fiscal years ended October 31, 1997 and 1996 were _____%
and 63.0%, respectively. Emerging Markets Income Fund's portfolio turnover rates
for the fiscal years ended October 31, 1997 and 1996 were _______% and 430.07%,
respectively.
Economic and market conditions may necessitate 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. Under normal investment conditions, Global
Bond Fund's portfolio turnover rate is expected to exceed 200%.
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, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share of Global Bond Fund and Emerging Markets Income Fund is determined by
dividing the value of the total assets of a Fund, less all liabilities, by the
total number of shares outstanding. The net asset value per share of each class
of Global Discovery Fund is computed by dividing the value of the total assets
attributable to a specific class, less all liabilities attributable to those
shares, by the total number of outstanding shares of that class.
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 Nasdaq
Stock Market ("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.
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.
30
<PAGE>
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.
PURCHASE AND REDEMPTION OF SHARES
As described in the prospectus, Fund shares are sold at their public
offering price, which is the net asset value per such shares next determined
after an order is received in proper form plus, with respect to Class A Shares,
an initial sales charge. The minimum initial investment for each of Class A, B
and C is $1,000 and the minimum subsequent investment is $100 but such minimum
amounts may be changed at any time. See the prospectus for certain exceptions to
these minimums. The Fund may waive the minimum for purchases by trustees,
directors, officers or employees of the Corporation or the Adviser and its
affiliates. An order for the purchase of shares that is accompanied by a check
drawn on a foreign bank (other than a check drawn on a Canadian bank in U.S.
Dollars) will not be considered in proper form and will not be processed unless
and until the Fund determines that it has received payment of the proceeds of
the check. The time required for such a determination will vary and cannot be
determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund as described in the Fund's Kemper Shares prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A Shares or the contingent deferred sales charge for
redemptions of Class B or Class C Shares by certain classes of persons or
through certain types of transactions as described in the prospectus are
provided because of anticipated economies of scale in sales and sales-related
efforts.
The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange ("Exchange")
is closed other than customary weekend and holiday closings or during any period
in which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board
of Directors determines that a material adverse effect would be experienced by
the remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Directors may deem fair and equitable. If such a distribution
occurred, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be so liquid as a redemption
entirely in cash.
The conversion of Class B Shares to Class A Shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B Shares and
not Class A Shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of
31
<PAGE>
Class B Shares to Class A Shares does not constitute a taxable event under the
Internal Revenue Code. The conversion of Class B Shares to Class A Shares may be
suspended if such assurance is not available. In that event, no further
conversions of Class B Shares would occur, and shares might continue to be
subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A Shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the 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, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
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 Nasdaq
Stock Market ("Nasdaq") is valued at its most recent sale price. Lacking any
sales, the security is valued at the most recent bid quotation. The value of an
equity security not quoted on Nasdaq, 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 are valued at prices supplied by the Fund's pricing
agent(s) which reflect broker/dealer supplied valuations and electronic data
processing techniques. Money market instruments purchased with an original
maturity of sixty days or less, maturing at par, shall be valued at amortized
cost, which the Board believes approximates market value. If it is not possible
to value a particular debt security pursuant to these valuation methods, the
value of such security is the most recent bid quotation supplied by a bona fide
marketmaker. If it is not possible to value a particular debt security pursuant
to the above methods, the Adviser may calculate the price of that debt security,
subject to limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Corporation'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 the fair market value of the property on the valuation date.
PERFORMANCE
As described in the Fund's Kemper Shares Prospectus, the Fund's historical
performance or return for a class of shares may be shown in the form of "average
annual total return" and "total return" figures. These measures of performance
are described below. Performance information will be computed separately for
each class.
32
<PAGE>
Average annual total return and total return measure both the net
investment income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio. The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for each class of the Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the shares of a class on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A Shares), and computing the
"redeemable value" of that investment at the end of the period. Average annual
return quotations will be determined to the nearest 1/100th of 1%. The
redeemable value in the case of Class B Shares or Class C Shares include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. Average annual return calculated in accordance
with this formula does not take into account any required payments for federal
of state income taxes. Such quotations for Class B shares for periods over six
years will reflect conversion of such shares to Class A Shares at the end of the
sixth year. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return may also be calculated in a
manner not consistent with the standard formula described above, without
deducting the maximum sales charge or contingent deferred sales charge.
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements and prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A Shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B Shares or Class C Shares may or may not
include the effect of the applicable contingent deferred sales charge that may
be imposed at the end of the period. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B and Class C Shares
would be reduced if such charges were included.
The Fund's performance figures are based upon historical results and are
not necessarily representative of future performance. The Fund's Class A Shares
are sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C Shares are sold at net asset value. Redemption of
Class B Shares may be subject to a contingent deferred sales charge that is 4%
in the first year following the purchase, declines by a specified percentage
each year thereafter and becomes zero after six years. Redemption of Class C
Shares may be subject to a 1% contingent deferred sales charge in the first year
following the purchase. Returns and net asset value will fluctuate. Factors
affecting the Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services firm would reduce returns described in this section.
Shares of the Fund are redeemable at the then current net asset value, which may
be more or less than original cost.
There are differences and similarities between the investments which the
Fund may purchase and the investments measured by the indices which are
described herein. The Consumer Price Index is generally considered to be a
measure of inflation. The Dow Jones Industrial Average and the Standard & Poor's
500 Stock Index are indices of common stocks which are considered to be
generally representative of the U.S. stock market. The Financial Times/Standard
& Poor's Actuaries World Index-Europe(TM) is a managed index that is generally
representative of the equity securities of European markets. The foregoing
indices are unmanaged. The net asset value and returns of the Fund will
fluctuate.
Investors may want to compare the performance of the Fund to certificates
of deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
33
<PAGE>
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of the Fund to that of
U.S. Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, Financial Data Inc.'s Money Fund
Averages(R) (All Taxable). As reported by Financial Data Inc., all investment
results represent total return (annualized results for the period net of
management fees and expenses) and one year investment results are effective
annual yields assuming reinvestment of dividends.
OFFICERS AND DIRECTORS
The officers and directors of the Corporation, their ages, their principal
occupations and their affiliations, if any, with the Adviser, and Kemper
Distributors, Inc. are as follows:
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Position with Scudder Investor
Name, Address and Age Corporation Principal Occupation** Services, Inc.
- --------------------- ----------- ---------------------- --------------
<S> <C> <C> <C>
Daniel Pierce*+ (63) Chairman of the Board Chairman of the Board Vice President,
and Director and Managing Director Assistant
of Scudder Kemper Treasurer and
Investments, Inc. Director
Nicholas Bratt*#@++ (49) President-Scudder Managing Director of --
Global Bond Fund, Scudder Kemper
Scudder International Investments, Inc.
Bond Fund, Scudder
Global Discovery Fund
and Scudder Emerging
Markets Income Fund
Paul Bancroft III (68) Director Venture Capitalist --
79 Pine Lane and Consultant;
Box 6639 Retired, President,
Snowmass Village, CO 81615 Chief Executive
Officer and Director,
Bessemer Securities
Corporation
Sheryle J. Bolton (51) Director Consultant --
560 White Plains Road
Tarrytown, NY 10591
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Position with Scudder Investor
Name, Address and Age Corporation Principal Occupation** Services, Inc.
- --------------------- ----------- ---------------------- --------------
<S> <C> <C> <C>
William T. Burgin (53) Director General Partner, --
83 Walnut Street Bessemer Venture
Wellesley, MA 02181-2101 Partners
Thomas J. Devine (71) Director Consultant --
149 East 73rd Street
New York, NY 10021
Keith R. Fox (43) Director President, Exeter --
641 Lexington Avenue Capital Management
New York, New York 10022 Corporation
William H. Gleysteen, Jr. (71) Director Consultant; Formerly --
4937 Crescent Street President, The Japan
Bethesda, MD 20816 Society, Inc.
William H. Luers (68) Director President, The --
993 Fifth Avenue Metropolitan Museum
New York, NY 10028 of Art
Kathryn L. Quirk++ (45) Director, Vice Managing Director of Director, Senior
President and Scudder Kemper Vice President
Assistant Secretary Investments, Inc. and Clerk
Robert W. Lear (80) Honorary Director Executive-in-Residence --
429 Silvermine Road Columbia University
New Canaan, CT 06840 Graduate School of
Business
Robert G. Stone, Jr. (74) Honorary Director Chairman of the Board --
405 Lexington Avenue & Director, Kirby
39th Floor Corporation (inland
New York, NY 10174 and offshore marine
transportation and
diesel repairs)
Susan E. Dahl+ (32) Vice President Principal of Scudder --
Kemper Investments,
Inc.
Jerard K. Hartman++ (65) Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
William E. Holzer++@ (47) President-Scudder Managing Director of --
Global Fund Scudder Kemper
Investments, Inc.
Gary P. Johnson (45) Vice President Principal of Scudder --
Kemper Investments,
Inc.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Position with Scudder Investor
Name, Address and Age Corporation Principal Occupation** Services, Inc.
- --------------------- ----------- ---------------------- --------------
<S> <C> <C> <C>
Thomas W. Joseph+ (57) Vice President Principal of Scudder Vice President,
Kemper Investments, Treasurer,
Inc. Assistant Clerk
and Director
Thomas F. McDonough+ (51) Vice President and Principal of Scudder Assistant Clerk
Secretary Kemper Investments,
Inc.
Gerald J. Moran++ (57) Vice President Principal of Scudder --
Kemper Investments,
Inc.
John R. Hebble+ (39) Assistant Treasurer Principal of Scudder --
Kemper Investments,
Inc.
Caroline Pearson + (35) Assistant Secretary Vice President of --
Scudder Kemper
Investments, Inc.
M. Isabel Saltzman+ (43) Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
</TABLE>
* Messrs. Bratt, Ladd 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. Bratt and Ladd 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
Certain accounts for which the Adviser acts as investment adviser owned
1,862,781 shares in the aggregate of Global Discovery Fund, or 11.18% of the
outstanding shares on January 31, 1998. The Adviser may be deemed to be the
beneficial owner of such shares of Global Discovery Fund, but disclaims any
beneficial ownership therein.
Certain accounts for which the Adviser acts as investment adviser owned
2,023,790 shares in the aggregate of Emerging Markets Income Fund, or 6.84% of
the outstanding shares on January 31, 1998. 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, 1998, 803,426 shares in the aggregate, 6.35% of the
outstanding shares of Global Bond Fund, were held in the name of Charles Schwab
& Co., Inc., 101 Montgomery Street, San Francisco, CA 94104-4122, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of January 31, 1998, 6,261,855 shares in the aggregate, 21.17% of the
outstanding shares of Emerging Markets Income Fund, were held in the name of
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104-
36
<PAGE>
4122, who may be deemed to be the beneficial owner of certain of these shares,
but disclaims any beneficial ownership therein.
As of January 31, 1998, 943,505 shares in the aggregate, 5.66% of the
outstanding shares of Scudder Global Discovery Fund were held in the name of
Charles Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104-4122, who
may be deemed to be the beneficial owner of certain of these shares, but
disclaims any beneficial ownership therein.
To the knowledge of the Trust, as of January 31, 1998 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) 438,333 shares, or 2.63% of the
shares of Global Discovery Fund outstanding on such date.
To the knowledge of the Trust, as of January 31, 1998 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.
To the knowledge of the Trust, as of January 31, 1998, 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) 661,834 shares or 2.24% of the
shares of Emerging Markets Income Fund outstanding on such date.
To the knowledge of the Trust, except as stated above, 'as of January 31,
1998, 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, or of the Distributor, the Transfer Agent, Scudder
Trust Company or Scudder Fund Accounting Corporation from whom they receive
compensation, as a result of which they may be deemed to participate in the fees
paid by the Corporation. The Corporation pays no direct remuneration to any
officer of the Corporation. However, each of the Directors who is not affiliated
with the Adviser will be compensated for all expenses relating to corporation
business (specifically including travel expenses relating to Corporation
business). Each of these unaffiliated Directors receives an annual Director's
fee of $4,000 from a Fund 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,
1997, Directors' fees and expenses amounted to $51,127 for Global Discovery
Fund, $50,590 for Global Bond Fund and $50,106 for Emerging Markets Income Fund.
The following table shows the aggregate compensation received by each
unaffiliated Director during 1997 from the Registrant and from all other Scudder
Funds as a group.
37
<PAGE>
Scudder Global
Name Fund, Inc. * All Scudder Funds
---- ------------ -----------------
Paul Bancroft III, $39,750 $156,922 (20 funds)
Trustee
Sheryle J. Bolton, $45,750 $86,213 (20 funds)
Trustee
William T. Burgin, $31,205 $85,950 (20 funds)
Director
Thomas J. Devine, Trustee $46,500 $187,348 (21 funds)
Keith R. Fox, Director $8,485 $134,390 (18 funds)
William H. Gleysteen, $45,000 $136,150 (14 funds)
Jr. Director
William H. Luers, $45,750 $117,729 (20 funds)
Director
* Scudder Global Fund, Inc. consists of five funds: Scudder Global Fund,
Scudder International Bond Fund, Scudder Global Bond Fund, Global
Discovery Fund and Scudder Emerging Markets Income Fund.
SHAREHOLDER RIGHTS
The Fund is a series of Scudder Global Fund, Inc., a Maryland corporation
established under Articles of Incorporation dated May 15, 1986.
The Fund generally is not required to hold meetings of its shareholders.
Under the Agreement and Articles of Incorporation of the Corporation ("Articles
of Incorporation"), however, shareholder meetings will be held in connection
with the following matters: (a) the election or removal of directors if a
meeting is called for such purpose; (b) the adoption of any contract for which
approval by shareholders is required by the 1940 Act; (c) any termination of the
Fund or a class to the extent and as provided in the Articles of Incorporation;
(d) any amendment of the Articles of Incorporation (other than amendments
changing the name of the Fund, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
thereof); and (e) such additional matters as may be required by law, the
Articles of Incorporation, the By-laws of the Fund, or any registration of the
Fund with the SEC or any state, or as the Directors may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental policies
or restrictions.
Any matter shall be deemed to have been effectively acted upon with
respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act,
or any successor rule, and in the Corporation's Articles of Incorporation. As
used in the Prospectuses and in this Statement of Additional Information, the
term "majority", when referring to the approvals to be obtained from
shareholders in connection with general matters affecting the Fund and all
additional portfolios (e.g., election of directors), means the vote of the
lesser of (i) 67% of the Corporation's shares represented at a meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy, or (ii) more than 50% of the Corporation's outstanding shares. The term
"majority", when referring to the approvals to be obtained from shareholders in
connection with matters affecting a single Fund or any other single portfolio
(e.g., annual approval of investment management contracts), means the vote of
the lesser of (i) 67% of the shares of the portfolio represented at a meeting if
the holders of more than 50% of the outstanding shares of the portfolio are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the portfolio.
Each director serves until the next meeting of shareholders, if any,
called for the purpose of electing directors and until the election and
qualification of a successor or until such director sooner dies, resigns,
retires or is removed by
38
<PAGE>
a majority vote of the shares entitled to vote (as described below) or a
majority of the trustees. In accordance with the 1940 Act (a) the Fund will hold
a shareholder meeting for the election of directors at such time as less than a
majority of the directors have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Directors, less than two-thirds of the
directors have been elected by the shareholders, that vacancy will be filled
only by a vote of the shareholders.
Any of the Directors may be removed (provided the aggregate number of
Directors after such removal shall not be less than one) with cause, by the
action of two-thirds of the remaining Directors. Any Director may be removed at
any meeting of shareholders by vote of two-thirds of the Outstanding Shares. The
Directors shall promptly call a meeting of the shareholders for the purpose of
voting upon the question of removal of any such Director or Directors when
requested in writing to do so by the holders of not less than ten percent of the
Outstanding Shares, and in that connection, the Directors will assist
shareholder communications to the extent provided for in Section 16(c) under the
1940 Act.
The Corporation's Articles of Incorporation specifically authorizes the
Board of Directors to terminate the Fund or class by notice to the shareholders
without shareholder approval.
The assets of the Corporation received for the issue or sale of the shares
of each series and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Corporation. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Further, the Fund's Board of Directors may determine, without prior
shareholder approval, in the future that the objectives of the Fund would be
achieved more effectively by investing in a master fund in a master/feeder fund
structure.
ADDITIONAL INFORMATION
Other Information
The CUSIP number of each class of the Fund is Class A, __________; Class
B, ____________; and Class C, __________.
The Fund has a fiscal year ending October 31.
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they 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 Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
Costs of $____________ incurred by the Fund, in conjunction with its
organization, are amortized over the five year period beginning _________.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the
39
<PAGE>
securities offered hereby. The Registration Statement and its amendments, are
available for inspection by the public at the SEC in Washington, D.C.
Financial Statements
The financial statements, including the investment portfolio of the Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Corporation dated ___________, 199_ are incorporated herein by reference and are
hereby deemed to be a part of this Statement of Additional Information.
Effective April 16, 1998, the Corporation's Board of Directors has
approved a name change of the Fund from Scudder Global Discover Fund to Global
Discovery Fund. In addition, the Board of Directors has subdivided the Fund into
classes. The financial statements incorporated herein reflect the investment
performance of the Fund prior to the aforementioned redesignation of shares.
40
<PAGE>
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
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to
41
<PAGE>
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.
<PAGE>
SCUDDER SHARES OF GLOBAL DISCOVERY FUND
A 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
April 16, 1998
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
March 1, 1998
As Revised April 16, 1998
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
March 1, 1998
As Revised April 16, 1998
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of the Scudder Shares of Global
Discovery Fund dated April 16, 1998, and the prospectuses of Scudder Global Bond
Fund and Scudder Emerging Markets Income Fund, each dated March 1, 1998, 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES........................................................................1
General Investment Objective and Policies of Global Discovery 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................................................................................................5
Special Investment Considerations of Scudder Emerging Markets Income Fund..................................12
Specialized Investment Techniques of the Funds.............................................................13
Investment Restrictions................................................................................... 29
PURCHASES...........................................................................................................31
Additional Information About Opening an Account............................................................31
Additional Information About Making Subsequent Investments................................................ 31
Additional Information About Making Subsequent Investments by QuickBuy....................................32
Checks.....................................................................................................32
Wire Transfer of Federal Funds............................................................................ 32
Share Price................................................................................................33
Share Certificates.........................................................................................33
Other Information..........................................................................................33
EXCHANGES AND REDEMPTIONS.......................................................................................... 33
Exchanges..................................................................................................34
Redemption by Telephone....................................................................................35
Redemption by QuickSell...................................................................................36
Redemption by Mail or Fax..................................................................................36
Redemption-in-Kind........................................................................................ 36
Other Information..........................................................................................37
FEATURES AND SERVICES OFFERED BY THE FUNDS..........................................................................38
The Pure No-Load(TM) Concept...............................................................................38
Internet Access............................................................................................39
Dividend and Capital Gain Distribution Options............................................................ 39
Diversification............................................................................................40
Scudder Investor Centers..................................................................................40
Reports to Shareholders....................................................................................40
Transaction Summaries......................................................................................40
THE SCUDDER FAMILY OF FUNDS.........................................................................................40
SPECIAL PLAN ACCOUNTS.............................................................................................. 45
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals.............................................................................45
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals........45
Scudder IRA: Individual Retirement Account................................................................45
Scudder Roth IRA: Individual Retirement Account...........................................................46
Scudder 403(b) Plan....................................................................................... 47
Automatic Withdrawal Plan................................................................................. 47
Group or Salary Deduction Plan............................................................................ 47
Automatic Investment Plan................................................................................. 48
Uniform Transfers/Gifts to Minors Act..................................................................... 48
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.......................................................................... 48
i
<PAGE>
PERFORMANCE INFORMATION............................................................................................ 49
Average Annual Total Return............................................................................... 49
Cumulative Total Return................................................................................... 50
Total Return.............................................................................................. 50
SEC Yields of Global Bond Fund and Emerging Markets Income Fund........................................... 50
Comparison of Portfolio Performance....................................................................... 51
ORGANIZATION OF THE FUNDS.......................................................................................... 55
INVESTMENT ADVISER................................................................................................. 56
Personal Investments by Employees of the Adviser.......................................................... 60
DIRECTORS AND OFFICERS............................................................................................. 60
REMUNERATION....................................................................................................... 63
DISTRIBUTOR........................................................................................................ 63
TAXES.............................................................................................................. 64
PORTFOLIO TRANSACTIONS............................................................................................. 69
Brokerage................................................................................................. 69
Portfolio Turnover........................................................................................ 70
NET ASSET VALUE.................................................................................................... 70
ADDITIONAL INFORMATION............................................................................................. 71
Experts................................................................................................... 71
Other Information......................................................................................... 71
FINANCIAL STATEMENTS............................................................................................... 73
APPENDIX
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objective and policies," "Special risk
considerations" and "Additional information about
policies and investments"
in the respective prospectuses for the Fund or Class of Shares.)
Scudder Global Fund, Inc., a Maryland corporation of which Global
Discovery Fund ("Global Discovery 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." Global Discovery Fund,
Scudder Global Bond Fund and Scudder Emerging Markets Income Fund are each a
series of an open-end management company. Scudder Global Discovery Fund changed
its name to Global Discovery Fund on April 16, 1998. With respect to Global
Discovery Fund only Scudder Global Discovery Shares ("Scudder Shares" or
"Shares") are offered herein. The Scudder Shares of Global Discovery Fund and
Global Bond Fund and Emerging Markets Income Fund continuously offer and redeem
shares on a pure no-load(TM) basis at net asset value. Each Fund is a company of
the type commonly known as a mutual fund. Global Discovery 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."
Global Discovery Fund offers the following classes of shares: Scudder
Global Discovery Shares (the "Scudder Shares"), and Global Discovery Class A, B
and C Shares (the "Kemper Shares"). This Statement of Additional Information
applies only to Scudder Shares of Global Discovery Fund and Scudder Global Bond
Fund and Scudder Emerging Markets Income Fund.
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 Global Discovery Fund
Global Discovery Fund seeks above-average capital appreciation over the
long term by investing primarily in the equity securities of small companies
located throughout the world. The Fund is designed for investors looking for
above-average appreciation potential (when compared with the overall domestic
stock market as reflected by Standard & Poor's 500 Corporation Composite Price
Index) and the benefits of investing globally, but who are willing to accept
above-average stock market risk, the impact of currency fluctuation and little
or no current income.
In pursuit of its objective, the Fund generally invests in small,
rapidly growing companies which offer the potential for above-average returns
relative to larger companies, yet are frequently overlooked and thus undervalued
by the market. The Fund has the flexibility to invest in any region of the
world. It can invest in companies based in emerging markets, typically in the
Far East, Latin America and Eastern Europe, as well as in firms operating in
developed economies, such as those of the United States, Japan and Western
Europe.
The Fund's investment adviser, Scudder Kemper Investments, Inc. (the
"Adviser"), invests the Fund's assets in companies it 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
<PAGE>
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; 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.
While the Fund's Adviser believes that smaller, lesser-known companies
can offer greater growth potential than larger, more established firms, the
former also involve greater risk and price volatility. To help reduce risk, the
Fund expects, under usual market conditions, to diversify its portfolio widely
by company, industry and country. Under normal circumstances, the Fund invests
at least 65% of its total assets in the equity securities of small companies.
The Fund intends to allocate investments among at least three countries at all
times, one of which may be the United States.
The Fund invests primarily in companies whose individual equity market
capitalization would place them in the same size range as companies in
approximately the lowest 20% of world market capitalization as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small-, medium- and large-sized companies based in 22 markets
around the globe. Based on this policy, the companies represented in the Fund's
portfolio typically will have individual equity market capitalizations of
between approximately $50 million and $2 billion, although the Fund will be free
to invest in smaller capitalization issues. Furthermore, the median market
capitalization of the companies in which the Fund invests will not exceed $750
million.
The equity securities in which the Fund may invest consist of common
stocks, preferred stocks (either convertible or nonconvertible), rights and
warrants. These securities may be listed on the U.S. or foreign securities
exchanges or traded over-the-counter. For capital appreciation purposes, the
Fund may purchase notes, bonds, debentures, government securities and zero
coupon bonds (any of which may be convertible or nonconvertible). The Fund may
invest in foreign securities and American Depositary Receipts which may be
sponsored or unsponsored. The Fund may also invest in closed-end investment
companies holding foreign securities, enter into repurchase agreements and
engage in strategic transactions. For temporary defensive purposes, the Fund
may, during periods in which conditions in securities markets warrant, invest
without limit in cash and cash equivalents. It is impossible to accurately
predict for how long such alternative strategies will be utilized. More
information about investment techniques is provided under "Specialized
Investment Techniques of the Funds."
Small Company Risk. The Adviser believes that smaller 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
2
<PAGE>
account the ability to hedge a degree of currency or local bond price risk.
At least 65% of the Fund's total assets 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 Corporation ("S&P") or
Aaa, Aa, or A by Moody's Investor Services, Inc. ("Moody's").
The Fund may also invest up to 15% of its net assets in debt securities
rated BBB by S&P or Baa by Moody's and lower, or 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 of the
Funds.")
The Fund's investments may include:
o Debt securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities
o Debt securities issued or guaranteed by a foreign national
government, its agencies, instrumentalities or political
subdivisions
o Debt securities issued or guaranteed by supranational
organizations (e.g., European Investment Bank, Inter-American
o Development Bank or the World Bank)
o Corporate debt securities
o Bank or bank holding company debt securities
o Other debt securities, including those convertible into common
stock
The Fund may invest in zero coupon securities, indexed 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. 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 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 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,
the Fund 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.
3
<PAGE>
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 currently weights 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 the past few years. 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
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 total 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. 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 (the "1940 Act"), it intends to invest in a minimum of three
countries at any one time and will not commit more than 40% of its total 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 S&P or
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
4
<PAGE>
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. In addition, the Fund may engage
in strategic transactions for hedging purposes and to enhance potential gain.
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.
Master/feeder Fund Structure. At special meetings of shareholders, a majority of
the shareholders of each Fund approved a proposal which gives the Corporation's
Board of Directors the discretion to retain the current distribution arrangement
for a Fund while investing in a master fund in a master/feeder fund structure as
described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Risk Factors
Foreign Securities. Global Discovery 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 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
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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 Fund managers seek 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 a 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
the countries of the former Soviet Union. Global Discovery 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, a 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 a Fund's shareholders.
Foreign Currencies. Investments in foreign securities usually will involve
currencies of foreign countries. Moreover, a Fund may temporarily 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
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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 U.S.
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 a
Fund is uninvested and no cash 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 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 a 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
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. A 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, a 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 a
Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.
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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 a 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 a 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 a
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 Corporation's Board of
Directors.
Volume and liquidity in most foreign bond markets are less than in the
U.S. 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 each 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 U.S. Mail service
between the U.S. and foreign countries may be slower or 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 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.
Sovereign Risk Ratings for Selected Emerging Market Countries as of 2/1/98
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)
Country Moody's Standard & Poor's
- -------- ------- -----------------
Chile Baa1 A-
Turkey Ba3 B+
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Baa3 BBB-
Colombia Baa3 BBB-
Venezuela Ba2 B
Morocco NR NR
Argentina B1 BB-
Brazil B1 B+
Poland Baa3 BBB-
Ivory Coast NR NR
A 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 a 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. A 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.
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Income from securities held by a 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. A 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 a Fund's
portfolio. Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments have occurred
frequently over the history of certain emerging markets and could adversely
affect a 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, a 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
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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.
Each 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 a 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
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 a Fund
at a higher rate than those imposed by other foreign countries. This may reduce
a 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 a 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
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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 each 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.
Investing in Europe. Most Eastern European nations, including Hungary, Poland,
Czech Republic, Slovak Republic, 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
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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
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, Dominican Republic, Ecuador, Jordan, Mexico, Morocco, Nigeria, the
Philippines, Poland, and Uruguay.
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 U.S.
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 many 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
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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.
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
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 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, it 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.
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 Discovery 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
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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. The Funds 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 Discovery 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 invest up to 15% of its net assets in securities
rated below BBB or below Baa, but may not invest in securities rated B or lower
by Moody's and S&P or in equivalent unrated securities.
Emerging Markets Income Fund may also invest in securities rated lower
than Baa/BBB and in unrated securities judged to be of equivalent quality as
determined by the Adviser. The 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, commonly
referred to as "junk bonds" (rated Ba and lower by Moody's and BB and lower by
S&P), or unrated securities of equivalent quality, in which Global Discovery
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
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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.
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)). Zero coupon securities 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 convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow 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 shorter maturities (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.
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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
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 compensation
from the counterparty as consideration for entering into the commitment to
repurchase. The compensation is paid in the form of a fee or alternatively, a
lower price for the security upon its repurchase. Dollar rolls may be renewed
over a period of several months with a different repurchase and 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 or other liquid assets 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 either a fee or alternatively, a lower
price for the security upon its repurchase 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.
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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 Discovery 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
the 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
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. To protect against such potential
loss, if the market value (including interest) 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 (including interest) 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 Funds 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
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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 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
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. At the time of settlement,
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. A Fund will establish a segregated
account with the Funds' custodian in which it will maintain cash or liquid
assets equal in value to commitments for when-issued or forward delivery
securities. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date. A Fund will not enter into such
transactions for leverage purposes.
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 or liquid
assets 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 5% 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.
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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 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
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. When interest rates rise, mortgage prepayment rates tend to decline,
thus lengthening the life of mortgage-related securities and increasing their
price volatility, affecting the price volatility of the Fund's shares.
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. Because principal may be prepaid at any
time, mortgage-backed securities may involve significantly greater price and
yield volatility than traditional debt securities. 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.
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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
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). Global Bond Fund may invest in
CMOs. 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. The prices of certain CMOs,
depending on their structure and the rate of prepayments, can be volatile. Some
CMOs may not be as liquid as other securities.
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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.
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 objective, 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
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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
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 1933 Act 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.
Reverse Repurchase Agreements. Scudder Emerging Markets Income Fund may enter
into "reverse repurchase agreements," which are repurchase agreements in which
the Fund, as the seller of the securities, agrees to repurchase them at an
agreed time and price. The Fund maintains a segregated account in connection
with outstanding reverse repurchase agreements. The Fund will enter into reverse
repurchase agreements only when the Adviser believes that the interest income to
be earned from the investment of the proceeds of the transaction will be greater
than the interest expense of the transaction.
Borrowing. As a matter of fundamental policy, each Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by a Fund will
involve special risk considerations. Although the principal of a Fund's
borrowings will be fixed, a Fund's assets may change in value during the time a
borrowing is outstanding, thus increasing exposure to capital risk.
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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 to create leveraged exposure in a Fund.
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
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."
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A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, 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
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
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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 Funds' limitation on investing no
more than 15% 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
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.
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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 currency transactions such as futures, options,
options on futures and swaps will be limited to hedging involving either
specific transactions or portfolio positions except as described below.
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 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 forward currency contracts entered into for
non-hedging purposes, or 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"),
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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
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
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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.
Warrants. Each Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Depository Receipts. The Scudder Large Company Value Fund may also invest in
Standard and Poor's Depository Receipts ("SPDRs"). SPDRs should typically trade
like a share of common stock and provide investment results that generally
correspond to the price and yield performance of the component common stocks of
the S&P 500. There can be no assurance, however, that this can be accomplished
as it may not be possible for the SPDRs portfolio to replicate the composition
and relative weightings of the securities of the S&P 500. SPDRs are subject to
the risks of an investment in a broadly based portfolio of large-capitalization
common stocks, including the risk that the general level of stock prices may
decline, thereby adversely affecting the value of such investment. SPDRs are
also subject to risks other than those associated with an investment in such a
broadly based portfolio in that the selection of the stocks included in the
SPDRs portfolio may affect trading in SPDRs, as compared with trading in a
broadly based portfolio of common stocks. In addition, there can be no assurance
that that SPDRs will experience similar trading patterns.
Investment Company Securities. Securities of other investment companies may be
acquired by the Fund to the extent permitted under the 1940 Act. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or 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 assets 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 cash or liquid
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assets -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 cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by a Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
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 assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by 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 cash or liquid
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 cash or liquid 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 cash or liquid 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 liquid 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 assets 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 cash or liquid 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, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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% or more of the
voting securities of such Fund present at such meeting, if the holders of more
than 50% of the outstanding voting securities of such Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
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.
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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.
Global Discovery Fund has elected to be a classified series of an
open-end investment company. Scudder Global Bond Fund and Scudder Emerging
Markets Income Fund have elected to be classified as a non-diversified series of
an open-end investment company.
In addition, as a matter of fundamental policy, each Fund may not:
1. borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified
by regulatory authority having jurisdiction, from time to time;
3. purchase physical commodities or contracts relating to physical
commodities;
4. concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
5. engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities ;
6. purchase or sell real estate, which term does not include
securities or companies which deal in real estate or interests
therein, except that a Fund reserves freedom of action to hold
and to sell real estate acquired as a result of a Fund's
ownership of securities; or
7. make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Funds' investment objective
and policies may be deemed to be loans.
As a matter of nonfundamental policy, each Fund may not:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or other
investments or transactions described in the Fund's registration
statement which may be deemed to be borrowings;
(2) For Global Discovery Fund only, enter into either of reverse
repurchase agreements or dollar rolls in an amount greater than
5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments, (iv)
that transactions in futures contracts and options shall not be
deemed to constitute selling securities short, and (v) that the
Fund may obtain such short-term credits as may be necessary for
the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its
total assets; or sell put options , if as a result, the aggregate
value of the obligations underlying such put options would exceed
50% of its total assets;
(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate
initial margin with respect to such futures contracts entered
into on behalf of the Fund and the premiums paid for such options
on futures contracts does not exceed 5% of the fair market value
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;
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(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of
the value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to
have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" 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 a Fund's prospectus.)
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 $2,500 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 ($2,500 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,
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 $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
With respect to Global Discovery Fund Shares 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, and 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 cancellation. In the event of such cancellation or cancellation at
the purchaser's request, the purchaser will be responsible for any loss incurred
by the 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 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.
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Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a Member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickBuy program, may purchase shares of each Fund by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares at the net asset value per share calculated on the day of your
call by QuickBuy, shareholders should call before the close of regular trading
on the Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your
purchase will be transferred from your bank checking account in two or three
business days following your call. For requests received by the close of regular
trading on the Exchange, shares will be purchased at the net asset value per
share calculated at the close of trading on the day of your call. QuickBuy
requests received after the close of regular trading on the Exchange will begin
their processing the following business day and will be purchased at the net
asset value per share calculated at the close of trading on the business day
following your call. If you purchase shares by QuickBuy and redeem them within
seven days of the purchase, a Fund may hold the redemption proceeds for a period
of up to seven business days. If you purchase shares and there are insufficient
funds in your bank account the purchase will be canceled and you will be subject
to any losses or fees incurred in the transaction. QuickBuy transactions are not
available for most retirement plan accounts. However, QuickBuy transactions are
available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Funds employ 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 a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
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 the Corporation 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 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).
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The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company of "wired funds," but 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 Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because State Street Bank and Trust Company 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
(per Share for Global Discovery Fund) 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 each day during which the Exchange is open for
trading. Orders received after the close of regular trading on the Exchange will
receive the next business day's net asset value. 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
Fund's Transfer Agent 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 and the Distributor each has the right to limit
the amount of purchases by and to refuse to sell to any person, and each may
suspend or terminate the offering of shares of a Fund at any time for any
reason.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g., from exempt organizations, certification of exempt status)
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 a Fund's prospectus.)
Scudder Shares of Global Discovery Fund are available only on a limited
basis. All shares of the Fund purchased before April 16, 1998, are considered
Scudder Shares. Purchases of Scudder Shares of the Fund are now closed to new
investors with the following exceptions:
Existing shareholders of any Scudder Fund as of April 16, 1998, and
their immediate family members residing at the same address, may purchase
Scudder Shares. Holders of Scudder Shares who redeem any or all of those shares
may reinvest the proceeds in Scudder Shares. Shareholders who owned shares of
any Scudder Fund through a broker-dealer or service agent omnibus account as of
April 16, 1998, also may purchase Scudder Shares of the Fund.
Retirement, employer stock, bonus, pension and profit sharing plans
offering Scudder Shares as of April 17, 1998, may add new participants and
accounts. Scudder Shares are also available to prospective Scudder plan
sponsors, as well as to existing plans which had not previously offered the Fund
as an investment option. An employee who owns Scudder Shares through an
employer-sponsored retirement plan as of April 16, 1998 may complete a direct
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rollover to an IRA holding Scudder Shares. An employee who owns Scudder Shares
through an employer-sponsored retirement plan as of April 16, 1998, may, at a
later date, open a new individual account to purchase Scudder Shares.
Scudder Shares are available to the Scudder Kemper Investments, Inc.
Retirement Plan. Officers, Corporation Directors, and full-time employees of
Scudder Kemper Investments, Inc. and its subsidiaries and their family members
may purchase Scudder Shares. Scudder Shares are available to any accounts
managed by Scudder Kemper Investments, Inc., any advisory products offered by
Scudder Kemper Investments, Inc., and to the portfolios of Scudder Pathway
Series.
Registered investment advisors ("RIAs") and registered certified
financial planners ("CFPs") with clients invested in the Scudder Funds as of
April 16, 1998, may purchase additional Scudder Shares or open new individual
client or omnibus accounts purchasing Scudder Shares. RIAs and CFPs who do not
have clients invested in the Funds as of April 16, 1998, and broker-dealers,
RIAs and CFPs who have clients participating in comprehensive fee programs, may
enter into an agreement with the Adviser in order to purchase Scudder Shares.
Call Scudder Financial Intermediary Services at 1-800-xxx-xxxx for more
information.
Partnership shareholders who have an account as of April 16, 1998, may
open new accounts to purchase Scudder Shares, whether or not they are listed on
the account registration. Corporate shareholders invested in one of the Funds as
of April 16, 1998, may open new accounts using the same registration, or if the
corporation is reorganized, the new companies may purchase Scudder Shares.
For more information, please call Scudder Investor Relations at
1-800-225-5163.
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either 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 $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, 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 an original signature
guarantee as described under "Transaction Information--Redeeming
shares--Signature guarantees" in a 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.
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 at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone 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,
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<PAGE>
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, the Funds, 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 the Distributor 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 by telephone up to $100,000 and have proceeds mailed to
their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
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. An
original signature and an original 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.
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.
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<PAGE>
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 QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program, may redeem shares of a Fund by telephone. Redemptions
must be for at least $250. Redemption proceeds will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, normally 4:00 p.m.
eastern time, shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. QuickSell requests
after the close of regular trading on the Exchange will begin their processing
and be redeemed at the net asset value calculated as of the close of regular
trading on the Exchange the following business day. QuickSell transactions are
not available for Scudder IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing an QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Funds employ 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 a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
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/executrix, 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 five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days 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 for
regular accounts. For more information please 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 each Fund 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.
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<PAGE>
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 a Fund
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 repurchase
request. A written request in good order with a proper original signature
guarantee, as described in each Fund's prospectus under "Transaction
information--Signature guarantees," should be sent with a copy of the invoice to
Scudder Funds, c/o Scudder Confirmed Processing, Two International Place,
Boston, Massachusetts 02110-4103. Failure to deliver shares or required
documents (see above) by the settlement 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. 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 after the record
date of a dividend, 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 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, trustees 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 to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by a Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) a governmental body
having jurisdiction over a Fund may by order of the SEC 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.
Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Directors. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an UGMA, UTMA,
IRA and other retirement accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for an UGMA, UTMA, IRA and other retirement accounts) is
established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in a Fund, without establishing an AIP, will be assessed an annual $10.00
per fund charge with the fee to be reinvested in the Fund. The $10.00 charge
will not apply to shareholders with a combined household account balance in any
of the Scudder Funds of $25,000 or more. Each Fund reserves the right, following
60 days' written notice to shareholders, to redeem all shares in accounts below
$250, including accounts of new investors, where a reduction in value has
occurred due to a redemption or exchange out of the account. Each Fund will mail
the proceeds of the redeemed account to the shareholder at the address of
record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.
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<PAGE>
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in a Fund's
prospectus.)
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 funds in its
Scudder Family of 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
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 NASD
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 and classes in the Scudder Family of Funds do not
pay any asset-based sales charges or service fees, Scudder developed and
trademarked the phrase pure no-load(TM) to distinguish funds and classes in the
Scudder Family of 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 Scudder
Family of Funds consists of those Funds or classes of Funds advised by Scudder
which are offered without commissions to purchase or redeem shares or to
exchange from one Fund to another.
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>
<S> <C> <C> <C> <C>
YEARS Scudder Family of 8.50% Load Fund Load Fund with 0.75%
FundsPure No-Load(TM) 12b-1 Fee No-Load Fund with
Fund 0.25% 12b-1 Fee
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>
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<PAGE>
Investors are encouraged to review the fee tables on page 2 of each
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Internet Access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividend and Capital Gain Distribution Options
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. Shareholders may change their dividend option
either by calling 1-800-225-5163 or by sending written instructions to the
Transfer Agent. Please include your account number with your written request.
See "How to contact Scudder" in a Fund's Prospectus for the address.
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.
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<PAGE>
Investors may also have dividends and distributions automatically
deposited in 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 gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
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 Discovery 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 sector.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by the
Distributor listed in each Fund's prospectus. The Investor Centers are designed
to provide individuals with services during any business day. Investors may pick
up literature or obtain 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 Investor 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 semiannual and
annual financial statements audited by independent accountants, including a list
of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights.
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 Funds'
prospectuses.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. The Scudder Family of
Funds consists of those Funds or classes of Funds advised by Scudder which are
offered without commissions to purchase or redeem shares or to exchange from one
Fund to another. To assist investors in choosing a Scudder fund, descriptions of
the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income . The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
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 . SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
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<PAGE>
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
TAX FREE
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.
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 . The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities .
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
- ---------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
41
<PAGE>
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks 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.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. 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 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 by
governments and corporations in emerging markets.
- ---------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
42
<PAGE>
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio , under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund seeks to provide long-term growth of
capital and to keep the value of its shares more stable than other
growth mutual funds.
Scudder Large Company 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.
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<PAGE>
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
GLOBAL GROWTH
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity
securities.
Scudder Global Discovery 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 Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by
investing primarily in equity securities (including American
Depository Receipts) 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
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. For more information, please call
1-800-225-5163.
44
<PAGE>
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. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans 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 each Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Funds'
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 as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
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 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 the 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.
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<PAGE>
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 $2,000 per individual for married couples if only one spouse has
earned income). 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.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
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.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
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 Roth IRA: Individual Retirement Account
Shares of the Fund(s) may be purchased as the underlying investment for
a Roth individual Retirement Account which meets the requirements of Section
408A of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
46
<PAGE>
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the 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 may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. 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 and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the 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 ten days prior to the date of the first automatic
withdrawal. 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.
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 trustees 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.
47
<PAGE>
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.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See"Distribution and performance
information--Dividends and capital gains
distributions" in a Fund's prospectus.)
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
paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. 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 Code, the Fund may be subject to
that excise tax. In certain circumstances, a Fund may determine that it is in
the interest of shareholders to distribute less than the required amount. (See
"TAXES.")
Global Discovery 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 (excluding short-term capital
gains) resulting from Fund investment activity. Distributions, if any, of net
realized capital gains (short-term and long-term) 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 March, June, September and December each
year. Distributions, if any, of net realized capital gain during each fiscal
year will normally be made in December. Additional distributions may be made if
necessary.
48
<PAGE>
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 a Fund's prospectus.)
From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be calculated separately for each class
of Global Discovery Fund's shares. 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):
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, 1997
One Year Five Years Life of the Fund
Global Discovery Fund * 11.14% 15.29% 12.38%(1)
Global Bond Fund** 0.66%# 3.35%# 4.67%(2)#
Emerging Markets Income Fund 12.34% N/A 12.43%(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 April 16, 1998, Global Discovery Fund adopted its present name.
Prior to that date, the Fund was known as Scudder Global Small
Company Fund until it changed its name to Scudder Global Discovery
Fund on March 6, 1996. Performance information provided is for the
Fund's Scudder Shares class.
** On December 27, 1995, the Fund adopted its present name and
objective. 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, 1995 should
not be considered representative of the present Fund under its
current objectives.
# If the Adviser had imposed Global Bond Fund's full management fee,
the average annual return for the one and five year periods, and
life of the Fund would have been lower.
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<PAGE>
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, 1997
[THE FOLLOWING PERFORMANCE INFORMATION IS TO BE UPDATED]
One Year Five Years Life of the Fund
Global Discovery Fund * 11.14% 103.67% 104.87%(1)
Global Bond Fund** 0.66%# 17.92%# 35.60%(2) #
Emerging Markets Income Fund 12.34% N/A 56.72%(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 April 16, 1998, Global Discovery Fund adopted its present name.
Prior to that date, the Fund was known as Scudder Global Small
Company Fund until it changed its name to Scudder Global Discovery
Fund on March 6, 1996. Performance information provided is for the
Fund's Scudder Shares class.
** On December 27, 1995, the Fund adopted its present name and
objective. 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, 1995 should
not be considered representative of the present Fund under its
current objectives.
# If the Adviser had imposed Global Bond Fund's full management fee,
the cumulative total return for the one and five year periods, and
life of the Fund would have been lower.
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
SEC Yields 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:
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<PAGE>
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 a Fund's SEC yield does not take into account
"Section 988 Transactions." (See "TAXES.")
The SEC net annualized yield for the 30-day period ended October 31,
1997 was ____% for Global Bond Fund. On December 27, 1995, the Fund adopted its
present name and objective. 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, 1995 should not be
considered representative of the present Fund under its current objectives.
The SEC net annualized yield for the 30-day period ended October 31,
1997 was ____% 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
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
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 the 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
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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.
Unmanaged 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
International Finance Corporation's Latin America Investable Total Return 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
From time to time, in marketing and other Fund literature, Directors
and officers of the Corporation, 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.
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
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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 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.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
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.
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Investor's Business 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.
SmartMoney, 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 news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
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.
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Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because
they assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity,
due partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global
stock markets do not move in lock step. When the valuations in one market rise,
there are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S.
investments strike the best balance between risk and reward.
Scudder's 30% Solution
The 30 Percent Solution -- A Global Guide for Investors Seeking Better
Performance With Reduced Portfolio Risk is a booklet, created by Scudder, to
convey its vision about the new global investment dynamic. This dynamic is a
result of the profound and ongoing changes in the global economy and the
financial markets. The booklet explains how Scudder believes an equity
investment portfolio with up to 30% in international holdings and 70% in
domestic holdings can improve long-term performance while simultaneously helping
to reduce overall risk.
ORGANIZATION OF THE FUNDS
(See "Fund organization" in a Fund's prospectus.)
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. On March 5, 1996, directors of
Scudder Global Small Company Fund approved the change in name to Scudder Global
Discovery Fund, and on April 17, 1998 the Fund changed its name to Global
Discovery Fund.
The Board of Directors has subdivided the shares of Global Discovery
Fund into four classes, namely, the Scudder Shares , Kemper Global Discovery
Fund Class A, B and C shares.
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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
Discovery 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.
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
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 a Fund's prospectus.)
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Funds. Scudder, Stevens & Clark, Inc.
("Scudder"), the predecessor organization to the Adviser, 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, the Adviser introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The firm
reorganized from a partnership to a corporation on June 28, 1985. On June 26,
1997, Scudder entered into an agreement with Zurich Insurance Company ("Zurich")
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pursuant to which Scudder and Zurich agreed to form an alliance. On December 31,
1997, Zurich acquired a majority interest in Scudder, and Zurich Kemper
Investments, Inc., a Zurich subsidiary, became part of Scudder. Scudder's name
has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world. Zurich Insurance Group is particularly strong in the
insurance of international companies and organizations. Over the past few years,
Zurich's global presence, particularly in the United States, has been
strengthened by means of selective acquisitions.
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 Pathway Series, 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,
The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., The Japan
Fund, Inc. , Scudder Global High Income Fund, Inc. and Scudder Spain and
Portugal 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 $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between Scudder Kemper Investments, Inc. and
AMA Solutions, Inc., a subsidiary of the American Medical Association (the
"AMA"), dated May 9, 1997, the Adviser has agreed, subject to applicable state
regulations, to pay AMA Solutions, Inc. royalties in an amount equal to 5% of
the management fee received by the Adviser with respect to assets invested by
AMA members in Scudder funds in connection with the AMA InvestmentLinkSM
Program. The Adviser will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal securities laws. Any person
who participates in the AMA InvestmentLinkSM Program will be a customer of the
Adviser (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLinkSM is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
continuous 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 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 the Adviser's 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 toward 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
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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. 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.
Investment management agreements (the "Agreements") for Global
Discovery Fund, Global Bond Fund and Emerging Markets Income Fund are dated
September 3, 1991, September 7, 1993 and December 29, 1993, respectively.
Because the transaction between Scudder and Zurich resulted in the assignment of
each Fund's investment management agreement with Scudder, that agreement was
deemed to be automatically terminated at the consummation of the transaction. In
anticipation of the transaction, however, new investment management agreements
between each Fund and the Adviser were approved by the Corporation's Directors .
At the special meeting of the Funds' shareholders held on October 27, 1997, the
shareholders also approved proposed new investment management agreements. The
new investment management agreements (the "Agreements") became effective as of
December 31, 1997 and will be in effect for an initial term ending on September
30, 1998. The Agreements are in all material respects on the same terms as the
previous investment management agreements which they supersede. Each Agreement
will continue in effect until September 30, 1998 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 each 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 either by a vote of the
Directors or of a majority 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, held or sold, 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 Board of Directors may from time to time establish.
Under each Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for a 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.
The Adviser pays the compensation and expenses except those for
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
the Funds, the services of such directors, officers and employees of the Adviser
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.
For these services, Global Discovery Fund pays the Adviser an annual
fee equal to 1.10% of the average daily net assets of such Fund. For the fiscal
year ended October 31, 1995, the management fee amounted to $2,573,030. For the
fiscal year ended October 31, 1996, the management fee amounted to $3,201,957.
For the fiscal year ended October 31, 1997, the management fee amounted to
$3,960,949, of which $357,145 was unpaid at October 31, 1997.
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. For the fiscal year ended
October 31, 1995, the Adviser did not impose a portion of its management fee
amounting to $844,364 and the portion imposed amounted to $2,392,536. For the
fiscal year ended October 31, 1996, the Adviser did not impose a portion of its
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management fee amounting to $775,310 and the portion imposed amounted to
$1,292,288. For the fiscal year ended October 31, 1997, the Adviser did not
impose a portion of its management fee amounting to $664,865 and the portion
imposed amounted to $604,704.
Emerging Markets Income Fund pays the Adviser a fee equal to an annual
rate of 1.00% of the Fund's average daily net assets. For the fiscal year ended
October 31, 1995, the Adviser did not impose a portion of its management fee
amounting $223,375, and the portion imposed amounted to $1,037,443. For the
fiscal year ended October 31, 1996, the Adviser did not impose a portion of its
management fee amounting to $31,566, and the portion imposed amounted to
$2,396,267. For the fiscal year ended October 31, 1997, the management fee
amounted to $3,563,175, of which $322,723 was unpaid at October 31, 1997.
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. Until February 29,
1996, with respect to Emerging Markets Income Fund, the Adviser waived a portion
of its Investment Management fee to the extent necessary so that the total
annualized expenses of the Fund did not exceed 1.50% of average daily net
assets. The Adviser has agreed, with respect to Global Bond 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% of average daily net assets of each Fund
until February 28, 1998. 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.
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; the calculation of net
asset value; taxes and governmental fees; the fees and expenses of the Transfer
Agent; the cost of preparing share certificates and any other expenses,
including expenses of issuance, 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
expenses of shareholders' meetings, the cost of responding to shareholders'
inquiries, and 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 Agreements identified the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Funds, has the
non-exclusive right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Corporation's investment products
and services.""
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.
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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>
<S> <C> <C> <C>
DIRECTORS AND OFFICERS
Name, Address and Age Position with Corporation Principal Occupation** Position
withUnderwriter,Scudder
InvestorServices,
Inc.
Daniel Pierce*+ (63) Chairman of the Board and Chairman of the Board and Vice President,
Director Managing Director of Assistant Treasurer
Scudder Kemper and Director
Investments, Inc.
Nicholas Bratt*#@++ (49) President-Scudder Global Managing Director of --
Bond Fund, Scudder Scudder Kemper
International Bond Fund, Investments, Inc.
Scudder Global Discovery
Fund and Scudder Emerging
Markets Income Fund
Paul Bancroft III (68)79 Pine Director Venture Capitalist and --
LaneBox 6639Snowmass Village, CO Consultant; Retired,
81615 President, Chief Executive
Officer and Director,
Bessemer Securities
Corporation
Sheryle J. Bolton (51)560 White Director Consultant --
Plains RoadTarrytown, NY 10591
William T. Burgin (53) Director General Partner, Bessemer --
83 Walnut Street Venture Partners
Wellesley, MA 02181-2101
Thomas J. Devine (71)149 East Director Consultant --
73rd StreetNew York, NY 10021
Keith R. Fox (43) Director President, Exeter Capital --
641 Lexington AvenueNew York, Management Corporation
New York 10022
60
<PAGE>
William H. Gleysteen, Jr. Director Consultant; Formerly --
(71)4937 Crescent StreetBethesda, President, The Japan
MD 20816 Society, Inc.
William H. Luers (68)993 Fifth Director President, The --
AvenueNew York, NY 10028 Metropolitan Museum of Art
Kathryn L. Quirk++ (45) Director, Vice President and Managing Director of Director, Senior Vice
Assistant Secretary Scudder Kemper President and Clerk
Investments, Inc.
Robert W. Lear (80)429 Honorary Director Executive-in-Residence --
Silvermine RoadNew Canaan, CT 06840 Columbia University
Graduate School of Business
Robert G. Stone, Jr. (74)405 Honorary Director Chairman of the Board & --
Lexington Avenue 39th FloorNew Director, Kirby
York, NY 10174 Corporation (inland and
offshore marine
transportation and diesel
repairs)
Susan E. Dahl+ (32) Vice President Principal of Scudder --
Kemper Investments, Inc.
Jerard K. Hartman++ (65) Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
William E. Holzer++@ (47) President-Scudder Global Fund Managing Director of --
Scudder Kemper
Investments, Inc.
Gary P. Johnson (45) Vice President Principal of Scudder --
Kemper Investments, Inc.
Thomas W. Joseph+ (57) Vice President Principal of Scudder Vice President,
Kemper Investments, Inc. Treasurer, Assistant
Clerk and Director
Thomas F. McDonough+ (51) Vice President and Secretary Principal of Scudder Assistant Clerk
Kemper Investments, Inc.
Gerald J. Moran++ (57) Vice President Principal of Scudder --
Kemper Investments, Inc.
John R. Hebble+ (39) Assistant Treasurer Principal of Scudder --
Kemper Investments, Inc.
61
<PAGE>
Caroline Pearson + (35) Assistant Secretary Vice President of Scudder --
Kemper Investments, Inc.
M. Isabel Saltzman+ (43) Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
* Messrs. Bratt, Ladd 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. Bratt and Ladd 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
</TABLE>
Certain accounts for which the Adviser acts as investment adviser owned
1,846,848 shares in the aggregate of Global Discovery Fund, or 10.91% of the
outstanding shares on March 31, 1998. The Adviser may be deemed to be the
beneficial owner of such shares of Global Discovery Fund, but disclaims any
beneficial ownership therein.
Certain accounts for which the Adviser acts as investment adviser owned
2,023,790 shares in the aggregate of Emerging Markets Income Fund, or 6.84% of
the outstanding shares on January 31, 1998. 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, 1998, 803,426 shares in the aggregate, 6.35% of the
outstanding shares of Global Bond Fund, were held in the name of Charles Schwab
& Co., Inc., 101 Montgomery Street, San Francisco, CA 94104-4122, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of January 31, 1998, 6,261,855 shares in the aggregate, 21.17% of
the outstanding shares of Emerging Markets Income Fund, were held in the name of
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104-4122,
who may be deemed to be the beneficial owner of certain of these shares, but
disclaims any beneficial ownership therein.
As of March 31, 1998, 1,252,364 shares in the aggregate, 7.40% of the
outstanding shares of Scudder Global Discovery Fund were held in the name of
Charles Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104-4122, who
may be deemed to be the beneficial owner of certain of these shares, but
disclaims any beneficial ownership therein.
To the knowledge of the Trust, as of March 31, 1998 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) 440,313 shares, or 2.60% of the
shares of Global Discovery Fund outstanding on such date.
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<PAGE>
To the knowledge of the Trust, as of January 31, 1998 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) 661,834 shares or 2.24% of the shares
of Emerging Markets Income Fund on such date.
To the knowledge of the Trust, as of January 31, 1998, 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) 661,834 shares or 2.24%
of the shares of Emerging Markets Income Fund outstanding on such date.
To the knowledge of the Trust, except as stated above, 'as of January
31, 1998, no person owned beneficially more than 5% of any Fund's or class
outstanding shares.
The Directors and officers of the Corporation also serve in similar
capacities with respect to other Scudder Funds.
REMUNERATION
Several of the officers and Directors of the Corporation may be
officers or employees of the Adviser, or of the Distributor, the Transfer Agent,
Scudder Trust Company or Scudder Fund Accounting Corporation from whom they
receive compensation, as a result of which they may be deemed to participate in
the fees paid by the Corporation. The Corporation pays no direct remuneration to
any officer of the Corporation. However, each of the Directors who is not
affiliated with the Adviser will be compensated for all expenses relating to
corporation business (specifically including travel expenses relating to
Corporation business). Each of these unaffiliated Directors receives an annual
Director's fee of $4,000 from a Fund 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, 1997, Directors' fees and expenses amounted to $51,127 for Global
Discovery Fund, $50,590 for Global Bond Fund and $50,106 for Emerging Markets
Income Fund.
The following table shows the aggregate compensation received by each
unaffiliated Director during 1997 from the Registrant and from all other Scudder
Funds as a group.
<TABLE>
<CAPTION>
<S> <C> <C>
Scudder Global Fund,
Name Inc. * All Scudder Funds
Paul Bancroft III,Trustee $39,750 $156,922 (20 funds)
Sheryle J. Bolton,Trustee $45,750 $86,213 (20 funds)
William T. Burgin , $31,205 $85,950 (20 funds)
Director
Thomas J. Devine,Trustee $46,500 $187,348 (21 funds)
Keith R. Fox , Director $8,485 $134,390 (18 funds)
William H. Gleysteen, $45,000 $136,150 (14 funds)
Jr.Director
William H. Luers,Director $45,750 $117,729 (20 funds)
</TABLE>
* Scudder Global Fund, Inc. consists of five funds: Scudder Global Fund,
Scudder International Bond Fund, Scudder Global Bond Fund, Global Discovery
Fund and Scudder Emerging Markets Income Fund.
DISTRIBUTOR
The Corporation, on behalf of each Fund, has an underwriting agreement
with Scudder Investor Services, Inc. (the "Distributor"), a Massachusetts
corporation, which is a subsidiary of the Adviser, a Delaware corporation. The
Corporation's underwriting agreement dated July 24, 1986 will remain in effect
63
<PAGE>
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 either by vote 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 10, 1997.
Under the 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.
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 a Fund's
prospectus.)
Each of the Funds has elected to be treated as a regulated investment
company under Subchapter M of 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.
A regulated investment company qualifying under Subchapter M of the
Code 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
Discovery Fund, Global Bond Fund and Emerging Markets Income Fund 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
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<PAGE>
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, 1997, Global Bond Fund had a net tax basis capital
loss carryforward of approximately $8,121,000 which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until October 31, 2002 ($2,376,000), and October 31, 2003 ($5,009,000) and
October 31, 2004 ($736,000), the respective expiration dates, 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 taxable to shareholders at a maximum 20% or 28% capital gains rate
(depending on the Fund's holding period for the assets giving rise to the gain),
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 on Fund shares by the
difference between a pro rata share of such gains owned and the individual tax
credit.
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 Discovery Fund's gross income. To the extent that such
dividends constitute any of the Fund's gross income, a portion of the income
distributions of the Fund will 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 either those
shares or shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
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.
Properly designated distributions of the excess of net long-term
capital gains over net short-term capital losses are taxable to shareholders at
a maximum 20% or 28% capital gains rate (depending on the Fund's holding period
for the assets giving rise to the gain), regardless of the length of time the
shares of a Fund have been held by such individual 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.
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<PAGE>
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
$2,000 per individual for married couples if only one spouse has earned income)
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.
Global Discovery 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 except in the
case of certain electing individual shareholders who have limited creditable
foreign taxes and no foreign source income other than passive investment-type
income. Furthermore, the foreign tax credit is eliminated with respect to
foreign taxes withheld on dividends if the dividend-paying shares or the shares
of the Fund are held by the Fund or the shareholder, as the case may be, for
less than 16 days (46 days in the case of preferred shares) during the 30-day
period (90-day period for preferred shares) beginning 15 days (45 days for
preferred shares) before the shares become ex-dividend.
Equity options (including options on stock and options on narrow-based
stock indices) written or purchased by Global Discovery Fund and
over-the-counter options on debt securities written or purchased by each 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.
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<PAGE>
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.
Positions of Global Discovery 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." Mixed straddles are subject to the straddle rules of Section
1092 of the Code, and may result in the deferral of losses if the non-Section
1256 position is in an unrealized gain at the end of a reporting period.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
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.
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.
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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.
Each Fund may make an election 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, each 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; any
mark-to-market losses and any loss from an actual disposition of stock would be
deductible as ordinary losses to the extent of any net mark-to-market gains
previously included in income in prior years. The effect of this election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to a Fund-level tax when distributed to shareholders as a
dividend. Alternatively, the Funds may elect to include as income and gain their
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 a Fund's prospectus.)
Brokerage
Allocation of brokerage may be placed by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results taking into account such factors as price, commission where
applicable, 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
familiarity with commissions charged on comparable transactions, as well as by
comparing commissions paid by the Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's 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 the Fund. Trading does,
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.
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 research, market and statistical information to the
Fund. 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 analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction solely on account of the receipt of research,
market or statistical information. 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 elsewhere.
In selecting among firms believed to meet the criteria for handling a
particular transaction, the Adviser may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Adviser.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements 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 Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Trustees of the Fund review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.
The Fund's average portfolio turnover rate is the ratio of the lesser
of sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
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<PAGE>
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. Under normal
investment conditions, it is anticipated that the portfolio turnover rate in the
Fund's initial fiscal year will not exceed 100%.
In the fiscal years ended October 31, 1997, 1996 and 1995 , Global
Discovery Fund paid brokerage commissions of $________, $759,086 and $587,657 ,
respectively. In the fiscal year ended October 31, 1997, the Fund paid brokerage
commissions of $________ (___% of the total brokerage commissions), resulting
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 $____________
(___% 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.
In the fiscal year ended October 31, 1995, Global Bond Fund paid
brokerage commissions of $155,497. In the fiscal year ended October 31, 1996,
Global Bond Fund paid brokerage commissions of $527,488. In the fiscal year
ended October 31, 1997, Global Bond Fund paid brokerage commissions of $_______.
For the fiscal years ended October 31, 1997, 1996 and 1995,
respectively, Emerging Markets Income Fund paid no brokerage commissions.
Portfolio Turnover
Each Fund's average annual portfolio turnover rate (defined by the SEC
as the ratio of the lesser of sales or purchases to the monthly average value of
such securities owned during the year, excluding 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, 1997 and 1996
were 256.5% and 335.7% , respectively. Global Discovery Fund's portfolio
turnover rates for the fiscal years ended October 31, 1997 and 1996 were 60.5%
and 63.0% , respectively. Emerging Markets Income Fund's portfolio turnover
rates for the fiscal years ended October 31, 1997 and 1996 were 409.5% and
430.07% , respectively.
Economic and market conditions may necessitate 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. Under normal investment conditions, Global
Bond Fund's portfolio turnover rate is expected to exceed 200%.
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, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share of Global Bond Fund and Emerging Markets Income Fund is determined by
dividing the value of the total assets of a Fund, less all liabilities, by the
total number of shares outstanding. The net asset value per share of each class
of Global Discovery Fund is computed by dividing the value of the total assets
attributable to a specific class, less all liabilities attributable to that
class those shares, by the total number of outstanding shares of that class.
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 Nasdaq
Stock Market ("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.
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<PAGE>
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.
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 and given on the authority of
that firm as experts in accounting and auditing. Coopers & Lybrand L.L.P. is
responsible for performing annual (semi-annual) audits of the financial
statements and financial highlights of the funds in accordance with Generally
Accepted Auditing Standards, and the preparation of federal tax returns.
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 each class of Global Discovery Fund is as follows:
811150-40-8 (Scudder Shares); ____________ (Class A); ____________
(Class B); ____________ (Class C).
The CUSIP number for Global Bond Fund is 811150-30-9.
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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 $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 Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02210-4103, a subsidiary of the Adviser, computes net asset value
for the Funds.
Information set forth below with respect to Global Discovery Fund is
provided at the Fund level since that Fund consisted of one class of shares
(which class was re-designated as "Scudder Global Discovery Shares") until April
16, 1998.
Global Discovery Fund pays Scudder Fund Accounting Corporation an
annual fee equal to 0.065% of the first $150 million of average daily net
assets, 0.040% of such assets in excess of $150 million, 0.020% of such assets
in excess of $1 billion, plus holding and transaction charges for this service.
Scudder Fund Accounting Corporation charged Global Discovery Fund an aggregate
fee of $207,838, $189,560 and $63,829 for the fiscal years ended October 31,
1997, 1996 and 1995, respectively.
Global Bond Fund and Emerging Markets Income Fund each pays Scudder
Fund Accounting Corporation an annual fee equal to 0.08% of the first $150
million of average net assets, 0.06% of such assets in excess of $150 million
and 0.04% of such assets in excess of $1 billion. Scudder Fund Accounting
Corporation charged Global Bond Fund an aggregate fee of $156,250 and $233,988
and Emerging Markets Income Fund an aggregate fee of $258,022 and $150,781 for
the fiscal years ended October 31, 1997 and 1996, respectively.
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts
02107-2291, a 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. Each Fund
pays Scudder Service Corporation an annual fee for each account maintained as a
participant. The fee incurred by Global Discovery Fund, Global Bond Fund and
Emerging Markets Income Fund for the year ended October 31, 1995 amounted to
$516,797, $705,759 and $251,205, respectively. A portion of the fee for each
Fund was unpaid at October 31, 1995. The fee incurred by Global Discovery Fund,
Global Bond Fund and Emerging Markets Income Fund for the year ended October 31,
1996 amounted to $514,910, $478,160 and $308,543, respectively, of which
$45,204, $34,371 and $29,059 were unpaid at October 31, 1996. The fee incurred
by Global Discovery Fund, Global Bond Fund and Emerging Markets Income Fund for
the year ended October 31, 1997 amounted to $851,578, $375,659 and $606,320,
respectively, of which $64,821, $25,549 and $52,262 was unpaid at October 31,
1997.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Funds
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103 for such accounts. Each Fund pays Scudder Trust company an annual fee
of $26.00 per shareholder account. Global Discovery Fund incurred fees of
$92,508, of which $16,738 is unpaid at October 31, 1996. Global Bond Fund
incurred fees of $14,129, of which $2,398 was unpaid at October 31, 1996.
Emerging Markets Income Fund incurred fees of $15,749, of which $3,011 was
unpaid at October 31, 1996. The fee incurred by Global Discovery Fund, Global
Bond Fund and Emerging Markets Income Fund for the year ended October 31, 1995
amounted to $77,281, $15,235 and $8,976, respectively. The fee incurred by
Global Discovery Fund, Global Bond Fund and Emerging Markets Income Fund for the
year ended October 31, 1997 amounted to $186,872, $156,250 and $33,703,
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<PAGE>
respectively, of which $15,665, $21,641 and $3,039 was unpaid at October 31,
1997.
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 1933 Act 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 Discovery
The financial statements, including the Investment Portfolio of Global
Discovery Fund -- Scudder Global Discovery Shares, together with the Report of
Independent Accountants, and Financial Highlights, are incorporated by reference
and attached hereto in the Annual Report to Shareholders of the Fund dated
October 31, 1997, and are deemed to be a part of this Statement of Additional
Information.
Scudder Global Bond Fund
The financial statements, including the Investment Portfolio of Global
Bond Fund, together with the Report of Independent Accountants, and Financial
Highlights, are incorporated by reference and attached hereto in the Annual
Report to Shareholders of the Fund dated October 31, 1997, and are deemed to be
a part of this Statement of Additional Information.
Scudder 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 in the Annual Report to Shareholders of the Fund dated October
31, 1997, 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
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
<PAGE>
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.
<PAGE>
Scudder
Global
Discovery Fund
Annual Report
October 31, 1997
Pure No-Load(TM) Funds
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.
SCUDDER (logo)
<PAGE>
In Brief
o For the twelve-month period ended October 31, 1997, Scudder Global Discovery
Fund returned 11.14%, exceeding the 10.07% average return of global small-cap
funds for the same period, according to Lipper Analytical Services.
o Morningstar assigned the Fund a 4-star rating for its risk-adjusted
performance among 637 international funds as of October 31, 1997^1
o The Fund benefited from a steadily increasing emphasis on U.S. small-cap
stocks, one of the strongest performing global small-cap markets.
o A limited exposure in Asia and the Pacific Rim helped the Fund avoid some of
the fallout from currency devaluations in Southeast Asia.
^1 Morningstar's proprietary ratings reflect historical, risk-adjusted
performance. Ratings are subject to change monthly and are calculated from
the Fund's three-, five-, and ten-year average annual returns in excess of
90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects Fund performance below 90-day T-bill returns. In an
investment category, the top 10% of funds receive 5 stars and the next
22.5% receive 4 stars. In the international category, the Fund received a
4-star rating for the three- and five-year periods among 637 and 261 funds,
respectively. The Fund was not rated for the ten-year period because it
commenced operations on September 10, 1991. Past performance is no
guarantee of future results.
Table of Contents
3 Letter from the Fund's Chairman 21 Notes to Financial Statements
4 Performance Update 25 Report of Independent Accountants
5 Portfolio Summary 26 Tax Information
6 Portfolio Management Discussion 26 Officers and Directors
11 Glossary of Investment Terms 27 Shareholder Meeting Results
12 Investment Portfolio 29 Investment Products and Services
17 Financial Statements 30 Scudder Solutions
20 Financial Highlights
2 - Scudder Global Discovery Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
We are pleased to present the annual report for Scudder Global Discovery
Fund for the twelve-month period ended October 31, 1997.
The period proved to be an ideal environment to test the Fund's
diversified, global approach, as the Fund's U.S. and foreign small-cap stock
holdings took turns leading performance during the twelve months. In the end,
U.S. small-caps, an area that Fund management had been increasing throughout the
year, provided the majority of the Fund's positive performance. The Fund also
benefited from only token exposure to the emerging markets of Southeast Asia,
which experienced significantly increased volatility in the wake of several
currency devaluations. A detailed discussion of the Fund's activities begins on
page 6.
In this environment, we believe a sound investment approach is based on
careful diversification. This can be accomplished with exposure to small-cap,
foreign, emerging market, and fixed income securities, in addition to large-cap
U.S. stocks. Scudder Global Discovery Fund can serve as an important holding in
this type of diversified portfolio, which, when combined with a habit of
investing regularly and a long-term perspective, can help many investors meet
their investing goals.
For those of you who are interested in new Scudder products, we recently
introduced Scudder International Growth and Income Fund, which pursues a
yield-oriented approach to investing in international equities. The Fund seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but wish to take a more conservative approach may
appreciate the Fund's emphasis on dividend-paying stocks of established
companies listed on foreign exchanges. For further information on this new fund,
please turn to page 31.
Thank you for your investment in Scudder Global Discovery Fund. If you have
any questions about your investment, please call Scudder Investor Relations at
1-800-225-2470, or visit our web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder Global Discovery Fund
3 - Scudder Global Discovery Fund
<PAGE>
PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER GLOBAL DISCOVERY FUND
TICKER SYMBOL: SGSCX
- --------------------------------------------
1 Year $ 11,114 11.14% 11.14%
5 Year $ 20,367 103.67% 15.29%
Life of Fund* $ 20,487 104.87% 12.38%
- --------------------------------------------
SALOMON BROTHERS WORLD EQUITY EMI
- --------------------------------------------
1 Year $ 11,334 13.34% 13.34%
5 Year $ 19,351 93.51% 14.11%
Life of Fund* $ 18,778 87.78% 10.91%
- --------------------------------------------
MSCI WORLD INDEX
- --------------------------------------------
1 Year $ 11,676 16.76% 16.76%
5 Year $ 20,326 103.26% 15.23%
Life of Fund* $ 19,569 95.69% 11.65%
- --------------------------------------------
* The Fund commenced operations on September 10, 1991.
Index comparisons begin September 30, 1991.
- ----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER PACIFIC OPPORTUNITIES FUND
Year Amount
- ----------------------
9/91* $10,000
'91 $ 9,770
'92 $ 9,894
'93 $13,459
'94 $13,837
'95 $14,988
'96 $18,131
'97 $20,151
MSCI WORLD INDEX
Year Amount
- ----------------------
9/91* $10,000
'91 $10,159
'92 $ 9,627
'93 $12,229
'94 $13,164
'95 $14,410
'96 $16,760
'97 $19,569
SALOMON BROTHERS WORLD EQUITY EMI
Year Amount
- ----------------------
9/91* $10,000
'91 $10,148
'92 $10,245
'93 $13,422
'94 $14,245
'95 $15,225
'96 $17,492
'97 $19,825
YEARLY PERIODS ENDED OCTOBER 31
The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization stock universe of 22 countries. Index returns assume dividends
reinvested net of withholding tax and, unlike Fund returns, do not reflect
any fees or expenses.
With this report, the Fund has adopted the Salomon Brothers World Equity
Extended Market Index (EMI) as its primary securities market index over the
Morgan Stanley Capital International World Index. The Salomon EMI comprises the
smallest 20% of global small-cap stocks and better represents the securities
and markets in which the Fund typically invests.
- ----------------------------------------------------------------
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>
<CAPTION>
1991* 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
NET ASSET VALUE... $ 11.92 $ 12.05 $ 16.14 $ 16.27 $ 17.54 $ 20.45 $ 21.64
INCOME DIVIDENDS.. $ -- $ .02 $ .07 $ .18 $ -- $ .20 $ .13
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .12 $ .15 $ .08 $ .44 $ .86
FUND TOTAL
RETURN (%)........ -.67 1.26 36.04 2.80 8.32 20.97 11.14
INDEX TOTAL
RETURN (%)........ 1.48 -4.37 31.01 6.13 6.88 14.89 13.34
</TABLE>
On March 6, 1996, the Fund adopted its current name. Prior to that date,
the Fund was known as the Scudder Global Small Company Fund. 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
total returns for the five year and life of Fund periods would have been lower.
4 - Scudder Global Discovery Fund
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
GEOGRAPHICAL
(Excludes 5% Cash Equivalents)
- ---------------------------------------------------------------------------
U.S. & Canada 49%
Europe 42%
Japan 7%
Other 2%
- --------------------------------------
100%
- --------------------------------------
Increases in holdings of U.S. stocks
benefited the portfolio, as the U.S.
market led the performance of global
small-cap stocks.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS
(Excludes 5% Cash Equivalents)
- --------------------------------------------------------------------------
Financial 17%
Service Industries 16%
Technology 16%
Consumer Staples 9%
Consumer Discretionary 8%
Health 7%
Energy 6%
Media 5%
Manufacturing 5%
Other 11%
- --------------------------------------
100%
- --------------------------------------
The Fund's individual stock selection
approach resulted in an increased
presence in U.S. technology stocks,
one of the strongest performing
sectors during the period.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(27% of Portfolio)
- --------------------------------------------------------------------------
1. BANK OF IRELAND PLC
Bank in Ireland
2. BILLING CONCEPTS
Billing and information management services
in the United States
3. NETWORK APPLIANCE, INC.
Designer and manufacturer of network data
storage devices in the United States
9. STERLING COMMERCE, INC.
Producer of electronic data interchange
products and services in the United State
5. SERCO GROUP PLC
Facilities management company in the United
Kingdom
6. SHOHKOH FUND & CO., LTD.
Finance company for small- and
medium-sized firms in Japan
7. VITESSE SEMICONDUCTOR CORP.
Manufacturers of digital integrated circuits
in the United State
8. IHC CALAND NV
Dredging and offshore services in the
Netherlands
9. JERONIMO MARTINS SA
Food producer and retailer in Portugal
10. CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
Owner and operator of national and regional
private commercial television stations in
Central Europe and Germany
Reflecting the significance of the Fund's
"bottom-up" approach, about 85% of the
Fund's return is attributed to 10 stock
holdings.
For more complete details about the Fund's investment portfolio, see page 12.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 - Scudder Global Discovery Fund
<PAGE>
Portfolio Management Discussion
We asked Gerald J. Moran, lead portfolio manager of Scudder Global Discovery
Fund, to discuss the market environment and the Fund's current investment
strategy.
Q: How did the global markets perform over the twelve months ended October 31,
1997?
A: Within the small-cap sector, U.S. stocks led the performance of the global
markets by a significant margin. Domestic small-caps came from behind to nearly
match the returns of large-cap U.S. stocks, as solid economic growth, relatively
low interest rates, and benign inflation provided a favorable background. After
the summer, investors reacted to global economic anxiety by selling large-cap
stocks, which had been favored for over a year. As a consequence, the relative
performance of U.S. small-cap stocks accelerated in the last three months of the
period.
Overseas, European stocks fared reasonably well, despite the Socialist victory
in the French elections and worries over German policy toward EMU (European
Monetary Union). Restructuring momentum helped propel German stocks, and all
other major European markets participated in the rally. Within the portfolio,
companies in Ireland and the U.K. were the second and third best-performing
after U.S. holdings. Nevertheless, the performance of foreign small-cap stocks
failed to overtake the returns of their larger cap counterparts for the period.
In Asia and the Pacific Rim, the markets experienced a significant correction
triggered by currency devaluations in Southeast Asia beginning in July. As a
result, interest rates soared, growth expectations were lowered and stocks fell
across the region, including in Japan, where we continued to trim our already
small exposure (7% of assets on October 31, 1997). Elsewhere in the Pacific, the
Fund had little exposure as we exited our lone Southeast Asian holding (Arab
Malaysian Bank). The currency crisis in Southeast Asia was brought on largely by
poor macroeconomic policies. Banks became over-extended as the risks inherent in
profligate lending materialized. In addition, overcapacity intensified, as
countries in the region engaged in competitive currency devaluations in an
attempt to sustain exports. We expect that bargains may emerge but, at this
point, we need to see more transparency; that is, the interests of management,
local owners, and large local investors must be aligned with the interests of
foreign stockholders. The custom of governments bailing out favored local
stockholders to the detriment of all others has tainted the markets and has to
stop before meaningful foreign investment returns. The IMF (International
Monetary Fund) bailout of Korea might mark a turning point for investor
sentiment, but we remain cautious on stocks in this part of the world.
We have had a very small portion of the portfolio invested in developing markets
but, looking forward, we expect to favor companies in both Latin America and
Eastern Europe.
Q: Japan's market and economy have continued to struggle. What is your
assessment?
A: The well-publicized banking and real estate problems have been overhanging
the Japanese market for years. Denial has been the official order of the day.
For a market to function efficiently, the risk of failure must be present.
Without that risk, banks have been encouraged to make questionable loans and,
6 - Scudder Global Discovery Fund
<PAGE>
over time, the foundation of the system has become suspect. Now, the environment
in Japan may be changing. We are encouraged by the recent announcement that
Hokkaido Takushoku Bank (one of Japan's "top ten") was allowed to fail. Also,
the bankruptcy of one of the country's leading brokerage houses, Yamaichi, may
potentially also prove beneficial in the long run, marking a significant turn
toward a genuine open market system. Despite poor market performance in Japan,
especially among small-cap stocks, two of our holdings -- Nichei and Shohkoh
Fund -- were among the top contributors to the Fund's performance. For the
period, Nichei was up 65% and Shohkoh was up 54%.
Q: How did global small-cap stocks perform?
A: We saw a shift over the period: during the first six months, foreign
small-caps led the markets; over the second half, U.S. small-caps led. This was
an environment in which a global investment approach was particularly valuable.
We were able to take advantage of this environment by shifting into some U.S.
securities at reasonable valuations in the spring of 1997. For the twelve months
ended October 31, 1997, U.S. small-cap stocks captured the lion's share of
global small-cap gains, returning 29.34%, as measured by the unmanaged Russell
2000 Index. Foreign small-cap stocks had more modest returns, detracting from
the performance of the Salomon Brothers Extended Market Index (representing the
smallest 20% of the global small-cap universe), which returned 13.34% for the
same period. Within the U.S. small-cap universe, value stocks outperformed
growth stocks.
THE PRINTED DOCUMENT HAS A HORIZONTAL BAR CHART HERE
BAR CHART TITLE:
Stock Market and Currency Performance
Twelve Months Ended October 31, 1997
Currency Return Stock Return
--------------- ------------
Italy -10% 39.3%
Mexico -6.5% 38.3%
Netherlands -10.5% 32.6%
Germany -11% 29.0%
Brazil -5.8% 27.6%
U.S. 0% 23.5%
France -10.4% 18.3%
U.K. -2.3% 17.6%
Argentina 0% 10.4%
Taiwan -11.1% 5.5%
Japan -3.5% -13.2%
Hong Kong 0.1% -21.0%
Indonesia -33% -21.5%
Korea -12.4% -27.7%
Singapore -11% -28.5%
Philippines -25.7% -42.7%
Thailand -37.5% -46.2%
Malaysia -25.1% -46.3%
Source: Factset
7 - Scudder Global Discovery Fund
<PAGE>
Q: And the Fund?
A: The Fund returned 11.14% for the twelve months, exceeding the 10.07% average
return of global small-cap funds for the same period, according to Lipper
Analytical Services. The Fund maintained its 4-star rating from Morningstar,
which ranked the Fund's risk-adjusted performance among the top third of 637
funds in the international category.
Q: What were the major factors that contributed to performance?
A: Individual stock selection remained a major factor in the overall results.
About 85% of the Fund's total return for the fiscal year can be attributed to
ten stocks. This concentration reflects our emphasis on individual stock
selection over "top down" country or regional decisions. We mitigate individual
security risk by making sure that major stock weightings are not all highly
correlated to one event. Thus, the volatility of individual stocks is not
translated to the portfolio as a whole.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART TITLE:
Performance of Foreign v. U.S. Small-Cap
Markets
Foreign Small-Caps^1 U.S. Small-Caps^2
-------------------- -----------------
12/89 100.0 % 100.0 %
85.7 96.7
94.4 100.0
12/90 73.9 79.8
77.5 88.1
84.3 108.8
79.7 108.9
12/91 84.2 117.5
82.5 128.1
74.5 130.6
77.5 127.5
12/92 73.4 131.9
70.0 148.7
80.5 156.7
89.0 159.7
12/93 94.5 171.0
91.8 173.1
100.0 166.9
103.7 161.4
12/94 103.0 172.2
99.6 168.6
99.0 180.7
98.9 197.0
12/95 102.9 216.9
104.8 222.3
110.9 233.7
115.7 242.5
12/96 113.1 248.3
112.4 262.6
110.4 252.0
118.3 290.3
9/97 113.4 334.9
U.S. small-caps outperformed foreign small-caps during the period
and over the longer term.
^1 Salomon Extended Market Index (excluding U.S.)
^2 Salomon Extended Market Index (U.S. only)
In addition, our increased weighting in U.S. small-caps was an important
contributor to performance. At the end of the period, U.S. small-caps
constituted 47% of Fund assets, a historically high weighting.
Q: Do you have some specific names?
A: We have several holdings that worked well for us over the period, including
top Fund holding Bank of Ireland, a consistent workhorse with a below-average
price earnings ratio and an above-average dividend. The stock increased in value
by 54% for the period. Billing Concepts and Vitesse Semiconductor are two
U.S.-based companies in the top ten that also increased in value by 50% or more,
as did Jeronimo Martins (Portugal) and Serco (UK).
Q: U.S.-based high tech, high growth stocks were important contributors to the
Fund's performance over the period. What was the story in tech?
A: We don't have many technology companies in the portfolio, but the few we have
we watch very closely, such as Vitesse Semiconductor. This U.S. company is the
largest manufacturer of gallium arsenide semiconductors and is a leader in
producing high speed semiconductors for telecommunications and PC applications.
Vitesse has mastered the efficient and low cost production of "GaAs," as they
are called. The company fits in well with our principal criteria for stock
selection: unique product, market leader, and fast growing. We believe the
company is positioned to grow at a well above-average rate, as the demand for
8 - Scudder Global Discovery Fund
<PAGE>
faster speeds in telecommunications appears almost limitless. Vitesse was up 74%
from our initial purchase in November of 1996.
Octel Communications (up 78%) was another big winner in the U.S. technology
area. The company is a leader in the voice messaging business. We picked up the
stock after the company announced a bad quarter in November of 1996. In
September of 1997, we sold this position to Lucent Technologies, which made a
public offering for all of Octel's shares. We think Lucent shared our view that
Octel has a solid market position plus excellent technology and should fare well
over the long term.
Another strong performer was Billing Concepts, up 50%. The company operates in
the fast growing outsourcing and telecommunications areas. The company is an
innovator, providing billing services for small regional and long distance
telephone companies (many of which came into existence within the last ten
years). With contractual agreements to collect and bill customers, it is able to
perform this service at a lower cost than if their corporate clients were to do
it themselves. As the stock price declined at certain points during the year, we
continued to add shares to our position to the point where it is now the second
largest in the portfolio. As a small, niche player in a huge, fast-growing
industry, we think this company continues to have considerable promise.
Q: Were there any stocks that didn't work out the way you expected?
A: There always seem to be a few, but the important thing is to recognize them,
and then act quickly. We had stuck our toe in the water in Malaysia with Arab
Malaysian Bank, where the fundamentals looked very strong given the "old rules,"
that is, before the currency crisis in Southeast Asia. We liked the fact that
the bank's management was aligned with the interests of foreign investors and
the attractive valuation of the stock. After the devaluations, the firm's solid
fundamentals didn't matter. We sold the stock in the summer of 1997. Fresenius,
the German manufacturer of kidney dialysis equipment, was another
disappointment. The company had been a strong performer in previous years, and
we simply held the stock too long. However, we still exited the holding with
significant gains. In the case of Sitel, a U.S. telemarketing company (inbound
and outbound calls), the stock declined substantially, as the company decided to
forgo earnings for market share in the short term. We continued to hold the
stock because we think the market has overreacted to the absence of current
earnings and that the company has a bright future.
Q: What was your approach to managing currencies?
A: The strength of the dollar offset some of the advances in stock prices
overseas; however, hedging currencies provided meaningful gains for the Fund
during the twelve months. We hedged both the yen and the major European
currencies during the year, profiting the portfolio on all positions. We unwound
all currency hedges toward the end of the period and are currently willing to
sit on the sidelines. We are still inclined to think that the new Euro currency
will be weak relative to the dollar over the long term, but we anticipate
continuing volatility in the near-term with no clear direction. We have little
9 - Scudder Global Discovery Fund
<PAGE>
confidence in our ability to evaluate the direction of the yen over the next
year, as policy decisions will probably be the prime determinant of the
direction of the currency. Therefore, the portfolio remained unhedged at the end
of the period. As noted above, we have not had meaningful stock holdings in
those countries experiencing significant currency devaluations. We expect to
hedge defensively only in attempting to protect our stock selections.
Q: What is your strategy going forward?
A: Over the next few months, we expect our stock selection efforts to focus on
Europe, and to a much lesser extent, the Pacific region where we have less than
7% of assets. With the Fund's U.S. holdings at the highest level of
concentration since the Fund's inception, we intend to selectively sell stocks
we believe are overpriced. Elsewhere in the developed world, the critical issue
continues to be the acceptance of U.S./U.K.-style restructuring and shareholder
orientation. The restructuring process has acquired momentum in Europe and
appears sustainable at this point. We think that investor interest in small
stocks abroad will increase in the months ahead, as the relative attractiveness
of small-caps, which have not kept pace with larger cap issues, begins to be
recognized. We will continue to emphasize stock selection, stressing niche
leadership among the companies we purchase, while seeking changing business
environments conducive to corporate growth in shareholder earnings. As we
perceive greater value among smaller issues, the portfolio's average market
capitalization should decrease.
Scudder Global Discovery Fund: A Team Approach to Investing
Scudder Global Discovery 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 Discovery 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 and has been a portfolio manager since 1985. Sewall Hodges, Portfolio
Manager, joined Scudder in 1995 and the team in 1996. Sewall, who has 11
years' experience in global analysis and portfolio management, focuses on
stock selection and research. Portfolio Manager Elizabeth Allan, who joined
the team in 1994, concentrates on the Fund's Pacific Basin investments.
Elizabeth has been a portfolio manager at Scudder since 1991 and joined the
firm in 1987. 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. Joan has been selecting global and international stocks since 1989.
10 - Scudder Global Discovery Fund
<PAGE>
Glossary of Investment Terms
CURRENCY DEVALUATION A significant decline of a currency's value
relative to other currencies, such as the U.S.
dollar. This may be prompted by trading or central
bank intervention (or the lack of intervention) in
the currency markets. For U.S. investors who are
investing overseas, a devaluation of a foreign
currency can have the effect of reducing the total
return of their investment.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and
earnings on balance sheets and income statements.
Distinct from technical analysis, which evaluates
the attractiveness of a stock based on historical
price and trading volume movements, rather than
the financial results of the underlying company.
LIQUIDITY A stock that is liquid has enough shares
outstanding and a substantial enough market
capitalization to allow large purchases and sales
to occur without causing a significant change in
its market price.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, calculated by multiplying the number
of shares outstanding by the share price (Shares x
Price = Market Capitalization). The universe of
publicly traded companies is frequently divided
into large-, mid-, and small-capitalizations. In
general, "large-cap" stocks tend to be more liquid
than "small-cap" stocks.
PRICE-EARNINGS RATIO (P-E) A widely used gauge of a stock's valuation that
(ALSO "EARNINGS MULTIPLE") indicates what investors are paying for a
company's earnings on a per share basis. Typically
based on a company's projected earnings for the
next 12 months, a higher "earnings multiple"
indicates a higher expected growth rate and the
potential for greater price fluctuations.
TRANSPARENCY The degree to which investors can evaluate if a
company is managed in the interests of
shareholders. Transparency is often an issue in
developing markets where disclosure requirements
may be less stringent, and protectionism,
subsidies, and cronyism may distort the business
environment.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
11 - Scudder Global Discovery Fund
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 5.1%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/31/97 at 5.7%,
to be repurchased at $17,784,443 on 11/3/97, collateralized by a $17,549,000 -----------
U.S. Treasury Note, 6.75%, 4/30/00 (Cost $17,776,000) ................................. 17,776,000 17,776,000
-----------
U.S. Treasury Obligations 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 1/8/98 (Cost $99,070) ............................................... 100,000 99,070
-----------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 94.9%
- ------------------------------------------------------------------------------------------------------------------------------
Argentina 0.8%
Banco Rio de la Plata S.A. (Private bank) ............................................... 60,000 630,000
Dalmine Siderca (Steel producer) ........................................................ 832,653 2,041,235
-----------
2,671,235
-----------
Austria 0.9%
Schoeller Bleckmann Oilfield Equipment AG (Manufacturer of components for oil
and gas drilling equipment) ........................................................... 12,800 1,513,825
VAE Eisenbahnsysteme AG (Manufacturer of electronic railroad control systems) ........... 18,000 1,765,360
-----------
3,279,185
-----------
Canada 0.6%
Canadian 88 Energy Corp.* (Oil and natural gas exploration and production) .............. 384,500 1,596,002
StressGen Biotechnologies Corp. "A"* (Developer of products for treatment of
cancer and certain infectious diseases) ............................................... 205,000 530,919
-----------
2,126,921
-----------
Czech Republic 2.1%
Central European Media Enterprises Ltd. "A"* (Owner and operator of national
and regional private commercial television stations in Central Europe
and Germany) .......................................................................... 257,700 7,537,725
-----------
France 1.3%
Dassault Systemes S.A.* (Computer aided design, manufacturing and engineering
software products) .................................................................... 113,600 3,407,065
Group AB S.A.* (ADR) (Producer and distributor of television programming) ............... 150,000 1,115,625
-----------
4,522,690
-----------
Germany 3.6%
Beta Systems Software AG* (Developer of processing automation software) ................. 17,270 1,652,584
Marschollek Lautenschlaeger und Partner AG (pfd.) (Leading independent life
insurance company) .................................................................... 31,100 7,124,340
Moebel Walther AG (pfd.) (Furniture retailer) (b) ....................................... 45,500 1,847,126
Pfeifer Vacuum Technology AG* (Manufacturer of various pumps and vacuum systems) ........ 58,000 1,885,000
-----------
12,509,050
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Global Discovery Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hungary 0.5%
Richter Gedeon Rt (Pharmaceutical company) .............................................. 19,800 1,841,400
-----------
Indonesia 0.0%
Steady Safe Transportation Service (Operator of taxis and buses in Jakarta) ............. 443 120
-----------
Ireland 6.9%
Bank of Ireland PLC (Bank) .............................................................. 922,568 11,678,445
Irish Continental Group PLC (Transport of passengers, freight and containers
between Ireland, the U.K. and the continent) .......................................... 184,505 2,246,817
Irish Life PLC (Provider of life and disability insurance and pensions) ................. 814,550 4,286,080
Irish Permanent PLC (Retail financial services group) ................................... 182,152 1,738,930
Jury's Hotel Group PLC (Hotel operator) ................................................. 501,255 3,052,026
Ryan Hotels PLC (Owner and operator of hotel chain) ..................................... 1,213,200 1,094,355
-----------
24,096,653
-----------
Italy 3.1%
Aeroporti di Roma SpA* (Management of Fiumicino and Ciampino airports) .................. 239,000 2,167,018
Bulgari SpA (Manufacturer and retailer of fine jewelry, luxury watches and perfumes) .... 444,800 2,416,392
Saes Getters SpA di Risparmio (Manufacturer of getters, refined chemicals used
in cathode-ray tubes and other monitors) .............................................. 208,300 2,189,395
Saipem SpA (International contractor in oil and gas exploration and drilling,
construction of refineries and pipelines) ............................................. 748,000 4,198,252
-----------
10,971,057
-----------
Japan 6.8%
Albis Co Limited (Food wholesaler) ...................................................... 78,000 417,313
FCC Co., Ltd. (Manufacturer of motorcycle and automobile clutches) ...................... 41,000 647,171
Nichiei Co., Ltd. (Finance company for small and medium-sized firms) .................... 63,000 6,908,698
Riso Kagaku Corp. (Manufacturer of copying machines) .................................... 50,900 2,998,098
Shohkoh Fund & Co., Ltd. (Finance company for small and medium-sized firms) ............. 28,000 9,072,028
Square Co., Ltd. (Producer of software for video games) ................................. 108,200 3,928,171
-----------
23,971,479
-----------
Luxembourg 2.0%
Millicom International Cellular S.A.* (Developer and operator of cellular
telephone networks) ................................................................... 168,100 7,060,200
-----------
Mexico 0.9%
TV Azteca, S.A. de C.V. (ADR) (Owner and operator of national television networks) ...... 174,200 3,331,575
-----------
Netherlands 3.8%
De Telegraaf Holding NV (Leading publisher of newspapers, magazines and books) .......... 69,600 1,431,510
IHC Caland NV (Dredging and offshore services) .......................................... 129,000 7,919,889
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Global Discovery Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Koninklijke Nedlloyd Groep NV (Container shipping and transportation) ................... 138,100 4,097,270
-----------
13,448,669
-----------
Poland 0.7%
Debica S.A. "A" (Tire manufacturer) ..................................................... 44,900 1,185,308
Pioneer Poland Fund (Closed-end investment company) (b) (c) ............................. 3 1,381,993
-----------
2,567,301
-----------
Portugal 3.3%
Jeronimo Martins S.A. (Food producer and retailer) ...................................... 117,470 7,682,144
Telecel-Comunicacoes Pessoais, S.A.* (Cellular communication services) .................. 44,366 4,011,484
-----------
11,693,628
-----------
Spain 0.9%
Aldeasa S.A. (Operator of airport duty-free shops) ...................................... 49,500 1,025,933
Tele Pizza, S.A.* (Operator of fast-food pizza restaurants in Spain, Portugal,
Poland, Mexico and Chile) ............................................................. 29,000 1,991,545
-----------
3,017,478
-----------
Sweden 1.0%
OM Gruppen AB (Free) (Operator of financial exchanges and clearing organizations) ....... 57,400 1,851,292
TV 4 AB (Broadcaster of news, sports, documentaries, entertainment; program producer) ... 92,500 1,491,677
-----------
3,342,969
-----------
Switzerland 0.5%
Phoenix Mecano AG (Bearer) (Manufacturer of housings and components for computers) ...... 3,537 1,830,615
-----------
United Kingdom 9.1%
Avis Europe PLC (Car rental services) ................................................... 1,171,100 2,927,480
Corporate Services Group PLC (Employment services and training) ......................... 1,106,100 4,156,778
Expro International Group PLC (Provider of oilfield services) ........................... 438,900 4,381,239
Games Workshop Group PLC (Manufacturer of table top war game systems and miniatures) .... 110,600 1,271,043
Logica PLC (Producer of custom-build software and associated hardware systems for
government and industry) .............................................................. 137,600 1,962,238
Provident Financial PLC (Personal finance group) ........................................ 581,600 6,722,921
RM PLC (Information technology solutions for educational markets) ....................... 47,400 733,600
Serco Group PLC (Facilities management company) ......................................... 703,700 9,769,446
-----------
31,924,745
-----------
United States 46.1%
Aptargroup, Inc. (Manufacturer of packaging equipment components) ....................... 97,100 5,334,431
Autoliv Inc. (Manufacturer of automobile safety bags) ................................... 61,200 2,413,575
Axogen Ltd. Units* (Future development of therapeutic products for treatment
of neurological disorders) ............................................................ 106,100 4,137,900
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Global Discovery Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BE Aerospace* (Airline audio/video control systems) ..................................... 84,400 2,373,750
Barrett Resources Corp.* (Oil and gas exploration and production) ....................... 74,000 2,603,875
Benton Oil & Gas Co.* (Oil and gas exploration, development and production) ............. 200,000 4,025,000
Billing Concepts* (Billing and information management services) ......................... 275,500 10,813,375
CapMAC Holdings Inc. (Provider of financial guaranty insurance) ......................... 133,300 3,999,000
Cintas Corp. (Uniform rentals) .......................................................... 45,000 3,251,250
Cognex Corp.* (Manufacturer of machine vision systems) .................................. 179,400 4,798,950
Concentra Managed Care, Inc.* (Provider of integrated nonrisk-bearing workers'
compensation managed care) ............................................................ 148,100 4,831,763
Consolidated Freightways Corp.* (Less-than-truckload shipping services) ................. 235,700 3,329,263
Corporate Express, Inc.* (Retailer of office supply products through telephone
ordering system, fax and electronic data interchange) ................................. 424,500 6,234,844
CytoTherapeutics, Inc.* (Developer of therapeutic products for treatment of
certain chronic and disabling diseases) ............................................... 2,200 11,550
DuPont Photomasks, Inc.* (Manufacturer of photomasks used in
semiconductor production) ............................................................. 57,600 2,476,800
Fiserv Inc.* (Data processing services) ................................................. 120,775 5,404,681
G & K Services Inc. "A" (Uniform rentals) ............................................... 52,100 1,875,600
General Communication, Inc. "A"* (Telecommunication services) ........................... 332,200 2,491,500
Hain Food Group, Inc.* (Provider of specialty food products) ............................ 115,700 1,243,775
Healthcare Recoveries, Inc.* (Provider of recovery services for private
healthcare payors) .................................................................... 500 9,250
IDX Systems Corp.* (Provider of health care information systems to physician
groups and academic medical centers) .................................................. 109,500 3,695,625
JLK Direct Distribution Inc. "A"* (Manufacturer of metalworking tools) .................. 500 14,938
Kelly Services, Inc. "A" (Temporary help services) ...................................... 18,400 653,200
La Quinta Inns, Inc. (Owner and operator of motel chain) ................................ 81,600 1,458,600
Midwest Express Holding, Inc.* (Operator of passenger airline catering
to business travelers) ................................................................ 66,500 2,136,313
Network Appliance, Inc.* (Designer and manufacturer of network data storage devices) .... 209,400 10,522,350
Parametric Technology Corp.* (Mechanical design software producer) ...................... 84,600 3,732,975
Samsonite Corp.* (Luggage manufacturer) ................................................. 130,100 6,033,388
Security Dynamics Technologies, Inc.* (Designer, developer and supporter
of a family of security products used to manage access to computer-based
information resources) ................................................................ 24,400 826,550
Sepracor, Inc.* (Developer of enhanced forms of existing pharmaceuticals) ............... 64,700 2,321,113
Sitel Corp.* (Nebraska based telemarketing company for major credit card and
insurance companies) .................................................................. 397,300 3,526,038
Sola International, Inc.* (Manufacturer of plastic eyeglass lenses) ..................... 220,100 7,510,913
Sterling Commerce, Inc.* (Producer of electronic data interchange products
and services) ......................................................................... 307,934 10,219,560
Suiza Foods Corp.* (Food distributor) ................................................... 71,400 3,596,775
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Global Discovery Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI Satellite Entertainment, Inc.* (Television programming via digital satellite) ....... 190,200 1,378,950
Tech Data Corp.* (Distributor of microcomputers, hardware and software) ................. 100,000 4,450,000
Tiffany & Co. (Retailer of jewelry and gift items) ...................................... 125,400 4,953,300
Total Renal Care Holdings, Inc.* (Provides dialysis services for sufferers
of chronic kidney failure) ............................................................ 156,900 4,834,481
Tower Realty Trust, Inc. (REIT) (Developer and manager of office properties) ............ 55,200 1,393,800
Triton Energy Ltd.* (Independent oil and gas exploration and production company) ........ 101,200 3,959,450
Vincam Group Inc.* (Provider of solutions to complexities and costs
of employment and personnel) .......................................................... 20,000 627,500
Vitesse Semiconductor Corp. (Manufacturer of digital integrated circuits) ............... 200,200 8,683,675
Wackenhut Corrections Corp.* (Manager of privatized correctional and
detention facilities) ................................................................. 65,700 1,888,875
Wesley Jessen VisionCare, Inc.* (Manufacturer of soft contact lenses) ................... 65,300 1,910,025
-----------
161,988,526
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $246,232,018) 333,733,221
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $264,107,088) (a) 351,608,291
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $274,053,512. At October 31,
1997, net unrealized appreciation for all securities based on tax cost was
$77,554,779. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $93,497,418 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$15,942,639.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $3,229,119 (0.92% of net assets).
Their values have been estimated by the Valuation Committee in the absence
of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at October 31, 1997 aggregated $4,003,900.
(c) Market value and cost reflect full payment. The remaining installments
which total $738,750 will be payable upon thirty days prior notice from
Pioneering Management Limited.
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
16 - Scudder Global Discovery Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $264,107,088) ............... $ 351,608,291
Cash ................................................................ 519
Receivable for investments sold ..................................... 3,080,937
Receivable for Fund shares sold ..................................... 2,533,568
Dividends and interest receivable ................................... 211,318
Foreign taxes recoverable ........................................... 49,330
Other assets ........................................................ 5,262
----------------
Total assets ........................................................ 357,489,225
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................... 6,603,238
Payable for Fund shares redeemed .................................... 387,698
Accrued management fee .............................................. 357,145
Other payables and accrued expenses ................................. 1,019,190
----------------
Total liabilities ................................................... 8,367,271
--------------------------------------------------------------------------------------------
Net assets, at market value $ 349,121,954
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income ........ (113,840)
Unrealized appreciation (depreciation) on:
Investments ...................................................... 87,501,203
Foreign currency related transactions ............................ (13,155)
Accumulated net realized gain ....................................... 21,747,987
Paid-in capital ..................................................... 239,999,759
--------------------------------------------------------------------------------------------
Net assets, at market value $ 349,121,954
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($349,121,954 / 16,134,908 shares of capital stock outstanding, ----------------
$.01 par value, 100,000,000 shares authorized) ................... $21.64
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Global Discovery Fund
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $226,485) ............... $ 2,304,339
Interest ............................................................ 1,467,465
-----------------
3,771,804
Expenses:
Management fee ...................................................... 3,960,949
Services to shareholders ............................................ 1,170,313
Custodian and accounting fees ....................................... 434,085
Directors' fees and expenses ........................................ 51,127
Reports to shareholders ............................................. 111,148
Auditing ............................................................ 52,949
Legal ............................................................... 20,130
Registration fees ................................................... 25,731
Other ............................................................... 36,138
-----------------
5,862,570
---------------------------------------------------------------------------------------------
Net investment loss (2,090,766)
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................................... 22,558,007
Futures contracts ................................................... (80,095)
Foreign currency related transactions ............................... 4,396,378
-----------------
26,874,290
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... 12,677,607
Foreign currency related transactions ............................... (430,248)
-----------------
12,247,359
---------------------------------------------------------------------------------------------
Net gain on investment transactions 39,121,649
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 37,030,883
---------------------------------------------------------------------------------------------
</TABLE>
18 - Scudder Global Discovery Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment loss ......................................... $ (2,090,766) $ (573,365)
Net realized gain from investment transactions .............. 26,874,290 16,936,926
Net unrealized appreciation (depreciation) on investment
transactions during the period ........................... 12,247,359 37,065,126
-------------- --------------
Net increase (decrease) in net assets resulting from
operations ............................................... 37,030,883 53,428,687
-------------- --------------
Distributions to shareholders from:
Net investment income .................................... (2,252,537) (2,817,790)
-------------- --------------
Net realized gains ....................................... (14,901,393) (6,128,748)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................... 129,503,033 140,375,546
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 16,335,810 8,373,037
Cost of shares redeemed ..................................... (167,423,822) (97,489,394)
-------------- --------------
Net increase (decrease) in net assets from Fund share
transactions ............................................. (21,584,979) 51,259,189
-------------- --------------
Increase (decrease) in net assets ........................... (1,708,026) 95,741,338
Net assets at beginning of period ........................... 350,829,980 255,088,642
-------------- --------------
Net assets at end of period (including accumulated
distributions in excess of net investment -------------- --------------
income of $113,840 and $747,671, respectively) ........... $349,121,954 $350,829,980
-------------- --------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 17,152,364 14,547,124
-------------- --------------
Shares sold ................................................. 6,176,506 7,361,025
Shares issued to shareholders in reinvestment of ............ 829,650 487,939
distributions
Shares redeemed ............................................. (8,023,612) (5,243,724)
-------------- --------------
Net increase (decrease) in Fund shares ...................... (1,017,456) 2,605,240
-------------- --------------
Shares outstanding at end of period ......................... 16,134,908 17,152,364
-------------- --------------
</TABLE>
19 - Scudder Global Discovery Fund
<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>
<CAPTION>
For the Period
September 10,
1991
(commencement
of operations)
Years Ended October 31, to October 31,
1997 (a) 1996 (a) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------
Net asset value, beginning of period ............ $20.45 $17.54 $16.27 $16.14 $12.05 $11.92 $12.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .................... (.12) (.04) (.03) (.02) .04 .07 .01
Net realized and unrealized gain (loss)
on investment transactions ................... 2.30 3.59 1.38 .48 4.24 .08 (.09)
------------------------------------------------------------------------
Total from investment operations ................ 2.18 3.55 1.35 .46 4.28 .15 (.08)
------------------------------------------------------------------------
Less distributions:
From net investment income ...................... (.13) (.20) -- -- (.07) (.02) --
In excess of net investment income .............. -- -- -- (.18) -- -- --
From net realized gains on investment
transactions ................................. (.86) (.44) (.08) (.15) (.12) -- --
------------------------------------------------------------------------
Total distributions ............................. (.99) (.64) (.08) (.33) (.19) (.02) --
------------------------------------------------------------------------
------------------------------------------------------------------------
Net asset value, end of period .................. $21.64 $20.45 $17.54 $16.27 $16.14 $12.05 $11.92
- --------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................ 11.14 20.97 8.32 2.80 36.04 1.26 (.67)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......... 349 351 255 256 198 55 9
Ratio of operating expenses, net to
average daily net assets (%) ................. 1.63 1.60 1.69 1.70 1.50 1.50 1.50*
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) ......................... 1.63 1.60 1.69 1.76 2.01 2.53 15.34*
Ratio of net investment income (loss)
to average daily net assets (%) .............. (.58) (.20) (.12) (.28) .53 .78 2.47*
Portfolio turnover rate (%) ..................... 60.5 63.0 43.7 45.8 54.6 23.4 --
Average commission rate paid (b) ................ $.0019 $.0026 $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 31, 1996.
* Annualized
** Not annualized
20 - Scudder Global Discovery Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Global Discovery Fund (the "Fund"), formerly Scudder Global Small
Company 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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
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 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 most recent 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 other than money market securities 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. Money market
instruments purchased with an original 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.
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 repurchase price.
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.
21 - Scudder Global Discovery Fund
<PAGE>
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased securities index futures as a temporary substitute for purchasing
selected investments.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
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 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 including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies and as a
hedge against changes in exchange rates relating to foreign currency denominated
assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, 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
22 - Scudder Global Discovery Fund
<PAGE>
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.
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
During the year ended October 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $198,157,026 and
$207,984,186, respectively. The aggregate face value of futures contracts opened
and closed during the year ended October 31, 1997 was $2,837,457.
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. For the year ended October 31, 1997, the fee pursuant to the
Agreement amounted to $3,960,949, of which $357,145 is unpaid at October 31,
1997.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Fund. Included
in services to shareholders is $851,578 charged to the Fund by SSC for the year
ended October 31, 1997, of which $64,821 is unpaid at October 31, 1997.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended October 31,
1997, the amount charged to the Fund by STC aggregated $186,872, of which
$15,665 is unpaid at October 31, 1997.
23 - Scudder Global Discovery Fund
<PAGE>
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1997, the amount charged to the Fund by SFAC aggregated $207,838, of
which $35,323 is unpaid at October 31, 1997.
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, 1997, Directors' fees and expenses aggregated $51,127.
D. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
24 - Scudder Global Discovery Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder Global Fund, Inc. and to the Shareholders
of Scudder Global Discovery Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Global Discovery Fund (formerly Scudder Global Small Company Fund) including the
investment portfolio, as of October 31, 1997, 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 six years in the period ended October 31, 1997, 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, 1997 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 Discovery Fund as of October 31, 1997, 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 six years in the period ended October 31, 1997, 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, 1997
25- Scudder Global Discovery Fund
<PAGE>
Tax Information
The Fund will mail shareholders IRS Form 1099-Div in late January, summarizing
all taxable distributions paid for 1997.
The Fund paid distributions of $.75 per share from net long-term capital gains
during its fiscal year ended October 31, 1997. Pursuant to Section 852 of the
Internal Revenue Code, the Fund designates $21,887,011 as capital gain dividends
for its fiscal year ended October 31, 1997.
The Fund paid foreign taxes of $226,485 and the Fund recognized $1,484,744 of
foreign source income during the fiscal year ended October 31, 1997. Pursuant to
section 853 of the Internal Revenue Code, the Fund designates $.01 per share of
foreign taxes and $.09 of income from foreign sources as having been paid in the
fiscal year ended October 31, 1997.
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 Investor Relations
Representative at 1-800-225-5163.
Officers and Directors
Daniel Pierce*
Chairman of the Board,
Director, and Vice President
Nicholas Bratt*
President
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; Consultant
William T. Burgin
Director; General Partner,
Bessemer Venture Partners
Thomas J. Devine
Director; Consultant
Keith R. Fox
Director; Private Equity
Investor, Exeter Capital
Management Corporation
William H. Gleysteen, Jr.
Director; Consultant
William H. Luers
Director; President, The
Metropolitan Museum of Art
Kathryn L. Quirk*
Director; Vice President and
Assistant Secretary
Robert W. Lear
Honorary Director;
Executive-in-Residence, Visiting
Professor, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Susan E. Gray*
Vice President
Jerard K. Hartman*
Vice President
Gary P. Johnson*
Vice President
Thomas W. Joseph*
Vice President
Gerald J. Moran*
Vice President
M. Isabel Saltzman*
Vice President
David S. Lee*
Vice President and Assistant
Treasurer
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant
Treasurer
*Scudder, Stevens & Clark, Inc.
26 - Scudder Global Discovery Fund
<PAGE>
Stockholder Meeting Results
A Special Meeting of Stockholders (the "Meeting") of Scudder Global Discovery
Fund (the "Fund") was held on October 27, 1997, at the offices of Scudder,
Stevens & Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street), New York,
New York 10154. At the Meeting, as adjourned and reconvened, the following
matters were voted upon by the stockholders (the resulting votes for each matter
are presented below). With regard to certain proposals, it was recommended that
the Meeting be reconvened in order to provide stockholders with an additional
opportunity to return their proxies. The date of the reconvened meeting at which
the matters were decided is noted after the proposed matter.
1. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Paul Bancroft III 8,607,700 463,245
Sheryle J. Bolton 8,599,774 471,171
William T. Burgin 8,612,240 458,705
Thomas J. Devine 8,599,452 471,493
Keith R. Fox 8,600,721 470,224
William H. Gleysteen, Jr. 8,607,221 463,724
William H. Luers 8,597,647 473,298
Daniel Pierce 8,613,949 456,996
Kathryn L. Quirk 8,581,204 489,741
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
8,394,813 429,470 246,662 203,961
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
8,397,029 752,157 417,172 186,292
27 - Scudder Global Discovery Fund
<PAGE>
4. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
<S> <C> <C> <C> <C>
4.1 diversification 7,911,548 585,998 369,438 203,961
4.2 borrowing 7,869,198 640,453 357,333 203,961
4.3 senior securities 7,899,167 602,779 365,038 203,961
4.4 commodities 7,879,634 626,028 361,322 203,961
4.5 concentration 7,901,015 597,924 368,045 203,961
4.6 underwriting of securities 7,916,486 587,751 362,747 203,961
4.7 investment in real estate 7,918,867 466,441 481,676 203,961
4.8 lending 7,894,547 484,822 487,615 203,961
</TABLE>
5. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
8,564,639 173,363 332,943
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
28 - Scudder Global Discovery Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
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. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **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.
29 - Scudder Global Discovery Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Global Discovery Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
31 - Scudder Global Discovery Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 over 40 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 us 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 long-standing
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.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
[LOGO]
<PAGE>
Scudder
Emerging Markets
Income Fund
Annual Report
October 31, 1997
Pure No-Load(TM) Funds
For investors seeking high current income and, secondarily, long-term capital
appreciation through investment primarily in high-yielding debt securities
issued in emerging markets.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
In Brief
o Scudder Emerging Markets Income Fund posted a 12.34% total return for its most
recent fiscal year ended October 31, 1997. The J.P. Morgan Composite Emerging
Markets Bond/Latin Eurobond Index returned 13.01% over the same time period. The
Fund closed its fiscal year with a 30-day net annualized yield of 8.31%.
o Emerging markets from Thailand to Brazil weathered a series of currency crises
over the second half of the Fund's fiscal year as these countries struggled to
deal with current account deficits and rising interest rates.
o The Fund continues to maintain a liquid, diversified portfolio -- with bonds
issued in Latin America, eastern Europe, the Middle East, and northern Africa --
that we believe is well positioned to benefit from improving economic
fundamentals while earning a high level of current income.
Table of Contents
3 Letter from the Fund's Chairman 17 Notes to Financial Statements
4 Performance Update 21 Report of Independent Accountants
5 Portfolio Summary 22 Tax Information
6 Portfolio Management Discussion 22 Officers and Directors
9 Glossary of Investment Terms 23 Stockholder Meeting Results
10 Investment Portfolio 25 Investment Products and Services
13 Financial Statements 26 Scudder Solutions
16 Financial Highlights
2 - Scudder Emerging Markets Income Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
We are pleased to report on Scudder Emerging Markets Income Fund's
performance over its most recent annual period. Despite market uncertainties
arising from assaults on currency valuations in several emerging countries, the
Fund posted a solid 12.34% total return for the 12-month period ended October
31, 1997. During this period, the Fund took a cautious approach, and the
management team is currently emphasizing countries such as Mexico, Panama, Peru,
and Venezuela that continue to display positive credit fundamentals and strong
hard currency reserve positions. Please see the Portfolio Management Discussion
beginning on page 6 for more information about the Fund's strategy.
For those interested in other offerings from Scudder, we would like to take
this opportunity to tell you about a recent addition to Scudder's family of
funds -- Scudder International Growth and Income Fund. The Fund employs a
yield-oriented approach to international investing and seeks to provide
long-term growth of capital plus current income. Investors who desire
international exposure but who wish to take a more conservative approach to
international equity investing may appreciate the Fund's emphasis on the
dividend-paying stocks of established companies listed on foreign exchanges.
Please see pages 25 through 27 for more information on Scudder products and
services. As always, please call a Scudder Investor Information representative
at 1-800-225-2470 if you have questions about your account or any Scudder fund.
Thank you for investing with Scudder.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder Emerging Markets Income Fund
3 - Scudder Emerging Markets Income Fund
<PAGE>
PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- ------------------------------------------------
SCUDDER EMERGING MARKETS INCOME FUND
TICKER SYMBOL: SCEMX
- ------------------------------------------------
1 Year $ 11,234 12.34% 12.34%
Life of Fund* $ 15,672 56.72% 12.43%
- ------------------------------------------------
JP MORGAN COMPOSITE EMERGING MARKETS
BOND/LATIN EUROBOND INDEX
- ------------------------------------------------
1 Year $ 11,301 13.01% 13.01%
Life of Fund* $ 14,605 46.05% 10.38%
- ------------------------------------------------
*The Fund commenced operations on December 31, 1993.
Index comparisons begin December 31, 1993.
- ---------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER EMERGING MARKETS INCOME FUND
Year Amount
- ----------------------
12/93* $10,000
4/94 $ 8,962
10/94 $ 9,646
4/95 $ 8,858
10/95 $ 9,980
4/96 $12,131
10/96 $13,951
4/97 $15,567
10/97 $15,672
JP MORGAN COMPOSITE EMERGING MARKETS BOND/
LATIN EUROBOND INDEX
Year Amount
- ----------------------
12/93* $10,000
4/94 $ 8,314
10/94 $ 8,771
4/95 $ 8,149
10/95 $ 9,460
4/96 $11,351
10/96 $12,923
4/97 $14,408
10/97 $14,605
The unmanaged 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 five countries in Latin America, plus
Bulgaria, Nigeria, the Philippines and Poland. Index returns assume reinvested
dividends and, unlike Fund returns, do not reflect 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
1994* 1995 1996 1997
----------------------------------------------
NET ASSET VALUE......... $ 11.05 $ 10.26 $ 12.98 $ 12.22
INCOME DIVIDENDS........ $ .51 $ 1.11 $ 1.19 $ 1.10
CAPITAL GAINS
DIVIDENDS............... $ -- -- -- 1.18
FUND TOTAL RETURN (%)... -3.54 3.46 39.78 12.34
INDEX TOTAL RETURN (%).. -12.23 7.85 36.46 13.01
Performance is historical and 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 for the life of Fund period would have been
lower.
4 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Debt Obligations 97%
Cash Equivalents 3%
- --------------------------------------
100%
- --------------------------------------
The Fund is largely
invested in the fixed
income markets of
emerging economies, with
a cash position of less
than 5%.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
GEOGRAPHICAL EXPOSURE
(Excludes 3% Cash Equivalents)
- --------------------------------------------------------------------------
Mexico 26%
Panama 13%
Venezuela 12%
Argentina 12%
Brazil 10%
Bulgaria 10%
Jamaica 4%
Peru 3%
Turkey 3%
Other 7%
- --------------------------------------
100%
- --------------------------------------
Latin America markets continue
to make up the highest percentage
of fund assets.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
CURRENCY EXPOSURE
(Excludes 3% Cash Equivalents)
- --------------------------------------------------------------------------
United States 92%
Turkey 3%
South Africa 2%
Chile 2%
Germany 1%
- --------------------------------------
100%
- --------------------------------------
As part of a conservative strategy,
we reduced the Fund's local currency
assets to approximately 6% by the
close of the period.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
AVERAGE LIFE
(Excludes 3% Cash Equivalents)
- --------------------------------------------------------------------------
0 - 3 years 8%
3 - 5 years 8%
5 - 10 years 25%
Greater than 10 years 59%
- --------------------------------------
100%
- --------------------------------------
Fund assets are invested
in instruments with a
range of maturities.
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 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
During a period of economic uncertainty for emerging countries, Scudder Emerging
Markets Income Fund pursued a conservative strategy, posting a 12.34% total
return for its most recent fiscal year ended October 31, 1997. The J.P. Morgan
Composite Emerging Markets Bond/Latin Eurobond Index returned 13.01% over the
same time period. The Fund also closed its fiscal year with a 30-day net
annualized yield of 8.31%.
Asian Currency Turmoil
Spills Over
In July, Thailand, attempting to deal with a large current account deficit,
devalued its currency. This event sparked pressure on currencies in several
other Southeast Asia markets, including Malaysia, Indonesia, and the
Philippines. The crisis proceeded to spread to large Asian economies such as
Korea, Hong Kong, and Japan, where currency and property exposure in the banking
systems began to worry investors. Having no holdings in emerging Asia, Scudder
Emerging Markets Income Fund was well positioned to withstand the currency
turmoil.
As the Asian crisis proceeded, concerns over countries posting significant
current account deficits and overvalued currencies -- in combination with a
general move toward global risk reduction by investors -- began to put pressure
on other markets and countries. Brazil's currency soon came under pressure:
Heavy selling of the Brazilian real began in late October, and the country's
central bank spent an estimated $8 billion in reserves to defend the currency.
In addition, Brazil raised interest rates to an annual rate of 45% to encourage
investors to hold the real. President Cardoso also renewed his efforts to push
additional reforms through Congress, targeting tight fiscal policy and increased
government revenues. The real held firm through this initial assault, relieving
some pressure on other Latin American countries. The speed with which Brazil
passed legislation aimed at reducing the fiscal deficit also served to calm
investors and renew confidence locally.
A Conservative Strategy
Scudder Emerging Markets Income Fund had adopted a more conservative stance
prior to the outbreak of the Asian turmoil and was thus well positioned as the
yield differential (or "spread") between emerging market bonds and Treasury
bonds of similar maturity widened from approximately 3.3 percentage points to 6
percentage points by the close of the period. This conservative strategy
included reducing the Fund's average effective maturity, underweighting Brazil
and Argentina, and overweighting Mexico, Panama, Peru, and Venezuela. We also
reduced the Fund's local currency assets to approximately 6% by the close of the
period.
During the most recent fiscal year, the Fund increased its position in Mexico
through additional holdings of dollar-denominated debt. With strong credit
fundamentals, we expect Mexico to outperform other emerging countries in the
coming months and exhibit less volatility due to its strong ties with the U.S.
and a relatively flexible currency regime that frees Mexico from having to dip
into reserves to defend its currency. Inflation appears to be declining in
6 - Scudder Emerging Markets Income Fund
<PAGE>
Mexico, and retail sales have been strong. Preliminary budget discussions also
point towards a relatively low budget deficit for the coming fiscal year.
We took advantage of opportunities to add back substantial Panamanian sovereign
bond holdings during the period based on our continued optimism concerning the
country's economic outlook and improving relative value. In addition, Panama's
economy is largely dollarized and thus is relatively isolated from
currency-related volatility.
Our Outlook
Emerging market bonds currently represent attractive relative value, especially
in the context of the recent sell-off. As a comparison, yields on U.S. high
yield bonds with an average credit rating of B were less than two percentage
points higher than comparable maturity Treasuries at the close of the period.
Emerging market bonds, which on average have a higher credit rating than the
B-rated U.S. High Yield Index, yielded 6 percentage points more than Treasuries
of similar maturity. That said, we do expect continued volatility, especially in
light of the continued vulnerability of the Brazilian, Korean, and other
currencies.
We will continue to pursue a cautious strategy, confining our focus to countries
with strong credit fundamentals and banking systems, as well as limited current
account deficits, flexible exchange rates, and positive capital flows. Several
Latin American countries in particular have made great strides in structural
reform and have already undergone adjustments to alleviate potential currency
and current account pressures. We believe that investors worldwide will return
7 - Scudder Emerging Markets Income Fund
<PAGE>
to the market as those emerging countries with solid fundamentals and growing
domestic economies once again begin to distinguish themselves.
Over the coming months, we will continue to search for opportunities to provide
high current income and long-term capital appreciation to our shareholders.
Thank you for investing in Scudder Emerging Markets Income Fund.
Sincerely,
Your Portfolio Management Team
/s/Susan E. Gray /s/M. Isabel Saltzman
Susan E. Gray M. Isabel Saltzman
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. Scudder believes its team approach benefits Fund investors by
bringing together many disciplines and leveraging Scudder's extensive
resources.
Lead Portfolio Manager Susan E. Gray assumed responsibility for the Fund's
investment strategies and day-to-day management in 1996. Susan, who has over
seven years of investment experience in emerging markets, joined the Fund's
team in 1994 and has worked at Scudder since 1987. M. Isabel Saltzman,
Portfolio Manager, assists with the development and execution of investment
strategy. Isabel, who joined Scudder in 1990, has been involved in foreign
finance and investing since 1979 and contributes special expertise in Latin
America.
8 - Scudder Emerging Markets Income Fund
<PAGE>
Glossary of Investment Terms
BOND An interest-bearing security issued by a
government or a corporation that obligates the
issuer to pay the bondholder a specified amount of
interest for a stated period -- usually a number
of years -- and to repay the face amount of the
bond at its maturity date.
CAPITAL FLOWS The movement of money from one country to another
in search of investment opportunities and to
accommodate trade.
COUPON The interest rate on a bond the issuer (in the
case of sovereign emerging market bonds, a
country) promises to pay to the holder of the bond
until maturity, expressed as an annual percentage
of face value. As an example, a bond with a 10%
coupon will pay $100 of the $1,000 face amount
each year.
INFLATION An overall increase in the prices of goods and
services, as happens when business and consumer
spending increases relative to the supply of goods
available in the marketplace -- in other words,
when too much money is chasing too few goods. High
inflation has a negative impact on the prices of
fixed-income securities.
30-DAY SEC YIELD The standard yield reference for bond funds based
on a formula prescribed by the SEC. This yield
calculation reflects the 30-day average of the net
annualized income earnings capability of every
holding in a given fund's portfolio, assuming each
is held to maturity.
TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return -- annualized
or cumulative -- is based on share price changes
plus income and capital gain distributions, if
any, expressed as a percentage gain or loss in
value.
YIELD SPREAD The difference in yield between various types of
bonds. An emerging market bond's yield is
generally measured against the yield of a Treasury
bond of similar maturity as a market yardstick. If
yield spreads are "narrow," for example, it often
means that emerging market bond yields have been
declining, and prices rising, compared with
Treasury bonds of similar maturity.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
9 - Scudder Emerging Markets Income Fund
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 2.8%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/31/97 at 5.7%,
to be repurchased at $8,010,803 on 11/3/97, collateralized by a $6,141,000 -----------
U.S. Treasury Note, 10.75%, 8/15/05 (Cost $8,007,000) ........................ 8,007,000 8,007,000
-----------
Short-Term Debt 4.8%
- ------------------------------------------------------------------------------------------------------------------------------
Chile 1.6%
Citibank Time Deposit linked to Chilean Peso, 9.5%, 11/24/97 ................... CLP 806,722,705 1,913,066
Citibank Time Deposit linked to Chilean Peso, 10.7%, 4/2/98 .................... CLP 1,140,700,000 2,704,350
-----------
4,617,416
-----------
Turkey 3.2%
J.P. Morgan & Co. Time Deposit linked to Turkish Lira, 79.5%, 12/30/97 ......... TRL 1,702,269,000,000 9,381,878
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Debt (Cost $14,477,275) 13,999,294
- ------------------------------------------------------------------------------------------------------------------------------
Debt Obligations 92.4%
- ------------------------------------------------------------------------------------------------------------------------------
Argentina 11.5%
Argentine Republic, Bonos de Consolidacion de Deudas Previsionales Pre 2
(BOCON), 5.65625%, 4/1/01 (c) ................................................ 10,578,092 9,787,547
Argentine Republic, Floating Rate Bond, Series L, LIBOR plus .8125% (6.688%),
3/31/05 (c) .................................................................. 3,600,000 3,127,500
Argentine Republic, Collateralized Par Bond, Series L, Step-up Coupon, 5.5%,
3/31/23 (c) .................................................................. 29,500,000 20,244,375
-----------
33,159,422
-----------
Brazil 9.6%
Federative Republic of Brazil, Debt Conversion Bond, Series L, LIBOR plus .875%
(6.75%), 4/15/12 ............................................................. 2,000,000 1,395,000
Federative Republic of Brazil, Debt Conversion Bond, Series L, LIBOR plus .875%
(6.75%), 4/15/12 (c) ......................................................... 11,000,000 7,672,500
Federative Republic of Brazil, Collateralized Discount Bond, Floating Rate Bond,
LIBOR plus .8125% (6.688%), 4/15/24 (c) ...................................... 24,500,000 18,742,500
-----------
27,810,000
-----------
Bulgaria 9.5%
Republic of Bulgaria, Interest Arrears Bond, LIBOR plus .8125%
(6.688%), 7/28/11 ............................................................ 19,750,000 13,035,000
Republic of Bulgaria, Floating Rate Interest Reduction Bond, "A", Step-up
Coupon, 2.25%, 7/28/12 ....................................................... 13,500,000 7,290,000
Republic of Bulgaria, Collateralized Discount Bond, Tranche A, LIBOR
plus .8125% (6.688%), 7/28/24 ................................................ 10,250,000 7,072,500
-----------
27,397,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Costa Rica 0.0%
Banco Central de Costa Rica Principal Bond, Series B, 6.25%, 5/21/15 ........... 200,000 144,000
-----------
Ecuador 0.1%
Republic of Ecuador, Collateralized Global Par Bond, Step-up Coupon,
3.5%, 2/28/25 ................................................................ 750,000 378,750
-----------
Jamaica 3.9%
Government of Jamaica, 9.625%, 7/2/02 .......................................... 12,000,000 11,220,000
-----------
Mexico 25.4%
AXA S.A. de C.V., 9%, 8/4/04 ................................................... 2,500,000 2,425,000
Petroleos Mexicanos, 9.5%, 9/15/27 ............................................. 11,750,000 10,751,250
United Mexican States, Collateralized Par Bond, (Detachable Oil Priced
Indexed Value Recovery Rights), 6.25%, Series A, 12/31/19 .................... 4,500,000 3,600,000
United Mexican States Collateralized Par Bond, (Detachable Oil Priced
Indexed Value Recovery Rights), 6.25%, Series B, 12/31/19 .................... 9,000,000 7,200,000
United Mexican States, Collateralized Par Bond, (Detachable Oil Priced
Indexed Value Recovery Rights), Series B, 6.25%, 12/31/19 .................... 10,250,000 8,200,000
United Mexican States, Collateralized Par Bond, (Detachable Oil Priced
Indexed Value Recovery Rights), Series A, 6.25%, 12/31/19 .................... 45,000,000 36,000,000
United Mexican States, Global Bond, 11.5%, 5/15/26 ............................. 4,750,000 5,165,626
-----------
73,341,876
-----------
Morocco 1.8%
Kingdom of Morocco, Restructuring and Consolidation Agreement, Tranche A,
Floating Rate Bond, LIBOR plus .8125% (6.813%), 1/1/09 ....................... 4,350,000 3,523,500
SNAP Limited, Morocco Repackaged Euro Note, Kingdom of Morocco, Morocco Loan
Tranche A, 11.5%, 1/29/09 .................................................... DEM 2,750,000 1,626,370
-----------
5,149,870
-----------
Panama 12.4%
Republic of Panama, Interest Reduction Bond, Step-up Coupon, 3.75%, 7/17/14 (c) 43,000,000 30,315,000
Republic of Panama, Past Due Interest Bond, LIBOR plus .8125% (6.688%), 4% with
2.5% Interest Capitalization, 7/17/16 ........................................ 5,423,579 3,954,362
Republic of Panama, 8.875%, 9/30/27 ............................................ 1,835,000 1,559,750
-----------
35,829,112
-----------
Peru 3.2%
Republic of Peru Floating Rate Interest Reduction Bond, 3.25%, 3/7/17 .......... 15,250,000 7,625,000
Republic of Peru Past Due Interest Bond, 4%, 3/7/17 ............................ 2,750,000 1,567,500
-----------
9,192,500
Russia 1.6%
Russian Federation Principal Loans (When issued), 12/15/20 (d) ................. 7,750,000 4,630,625
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
South Africa 1.7%
Republic of South Africa, 12%, 2/28/05 ......................................... ZAR 26,213,000 4,792,239
-----------
Venezuela 11.7%
Republic of Venezuela, Collateralized Front Loaded Interest Reduction Bond,
Series A, LIBOR plus .875% (6.75%), 3/31/07 .................................. 4,976,190 4,304,405
Republic of Venezuela, Collateralized Front Loaded Interest Reduction Bond,
Series B, LIBOR plus .875% (6.75%), 3/31/07 (c) .............................. 4,071,429 3,521,786
Republic of Venezuela, Debt Conversion Bond, Floating Rate Bond, Series DL, LIBOR
plus .8125%, (6.75%), 12/18/07 (c) ........................................... 21,750,000 18,868,125
Republic of Venezuela, Collateralized Discount Bond, Floating Rate Note,
Series B, LIBOR plus .8125% (6.8125%), 3/31/20 ............................... 1,750,000 1,548,750
Republic of Venezuela, Discount Floating Rate Note, Series A, LIBOR plus .8125%
(6.75%), 3/31/20 ............................................................. 500,000 442,500
Republic of Venezuela Global, 9.25%, 9/15/27 ................................... 6,283,000 5,246,305
-----------
33,931,871
- ------------------------------------------------------------------------------------------------------------------------------
Total Debt Obligations (Cost $284,398,089) 266,977,765
- ------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
Argentina -----------
Nortel Inversora "A" (ADR) (Telecommunication services) (Cost $75,709) (e) ..... 7,805 99,280
-----------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $306,958,073) (a) 289,083,339
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $308,499,006. At October 31,
1997, net unrealized depreciation for all securities based on tax cost was
$19,415,667. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,876,247 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$21,291,914.
(b) Principal amount is stated in U.S. dollars unless otherwise noted.
(c) At October 31, 1997, these securities, in whole or in part, have been
segregated to cover when-issued securities.
(d) When-issued or forward delivery securities.
(e) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $99,280 (.03% of net assets) and have
been noted in the investment portfolio as of October 31, 1997. Their
values have been estimated by the Board of Directors in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at October 31, 1997 aggregated $75,709.
Currency Abbreviations
CLP Chilean Peso
DEM Deutsche Mark
TRL Turkish Lira
ZAR South African Rands
The accompanying notes are an integral part of the financial statements.
12 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $306,958,073) ................ $ 289,083,339
Cash ................................................................. 936
Receivable for investments sold ...................................... 38,462,913
Receivable for when-issued and forward delivery securities ........... 139,229,819
Interest receivable .................................................. 5,361,480
Receivable for Fund shares sold ...................................... 295,962
Deferred organization expenses ....................................... 17,957
Unrealized appreciation on forward foreign currency exchange
contracts .......................................................... 106,286
Other assets ......................................................... 4,703
----------------
Total assets ......................................................... 472,563,395
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................... 7,626,461
Payable for when-issued and forward delivery securities .............. 138,777,139
Payable for Fund shares redeemed ..................................... 1,287,576
Unrealized depreciation on forward foreign currency exchange
contracts .......................................................... 608,778
Accrued management fee ............................................... 322,723
Other payables and accrued expenses .................................. 312,636
----------------
Total liabilities .................................................... 148,935,313
--------------------------------------------------------------------------------------------
Net assets, at market value $ 323,628,082
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................. 1,595,671
Unrealized depreciation on:
Investments ....................................................... (17,874,734)
Foreign currency related transactions ............................. (563,638)
Accumulated net realized gain ........................................ 39,692,157
Paid-in capital ...................................................... 300,778,626
--------------------------------------------------------------------------------------------
Net assets, at market value $ 323,628,082
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($323,628,082 / 26,485,043 shares of capital stock outstanding, ----------------
$.01 par value, 100,000,000 shares authorized) .................... $12.22
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................. $ 33,888,113
Dividends ............................................................ 5,572
-----------------
...................................................................................... 33,893,685
Expenses:
Management fee ....................................................... 3,563,175
Services to shareholders ............................................. 919,850
Directors' fees and expenses ......................................... 50,106
Custodian and accounting fees ........................................ 461,155
Auditing ............................................................. 82,410
Reports to shareholders .............................................. 103,690
Legal ................................................................ 23,670
Registration fees .................................................... 32,242
Amortization of organization expense ................................. 15,309
Other ................................................................ 43,924
-----------------
5,295,531
---------------------------------------------------------------------------------------------
Net investment income 28,598,154
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .......................................................... 40,227,622
Foreign currency related transactions ................................ (735,683)
-----------------
39,491,939
Net unrealized depreciation during the period on:
Investments .......................................................... (31,603,230)
Foreign currency related transactions ................................ (396,696)
-----------------
(31,999,926)
---------------------------------------------------------------------------------------------
Net gain on investment transactions 7,492,013
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 36,090,167
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................................... $ 28,598,154 $ 24,405,811
Net realized gain (loss) from investment transactions ....... 39,491,939 35,677,374
Net unrealized appreciation (depreciation) on investment
transactions during the period ........................... (31,999,926) 15,111,903
-------------- --------------
Net increase in net assets resulting from operations ........ 36,090,167 75,195,088
-------------- --------------
Distributions to shareholders from:
Net investment income ....................................... (29,393,701) (23,976,386)
-------------- --------------
Net realized gains .......................................... (27,924,210) --
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................... 316,479,213 265,528,712
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 49,926,221 20,013,011
Cost of shares redeemed ..................................... (326,157,592) (201,555,242)
-------------- --------------
Net increase in net assets from Fund share transactions ..... 40,247,842 83,986,481
-------------- --------------
Increase in net assets ...................................... 19,020,098 135,205,183
Net assets at beginning of period ........................... 304,607,984 169,402,801
Net assets at end of period (including undistributed net
investment income of $1,595,671 and $226,767, -------------- --------------
respectively) ............................................ $323,628,082 $304,607,984
-------------- --------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 23,465,219 16,511,433
-------------- --------------
Shares sold ................................................. 24,276,198 22,121,034
Shares issued to shareholders in reinvestment of
distributions ............................................ 3,969,587 1,684,014
Shares redeemed ............................................. (25,225,961) (16,851,262)
-------------- --------------
Net increase in Fund shares ................................. 3,019,824 6,953,786
-------------- --------------
Shares outstanding at end of period ......................... 26,485,043 23,465,219
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 -- SCUDDER EMERGING MARKETS INCOME FUND
<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>
<CAPTION>
For the Period
December 31,
1993
(commencement
of operations) to
Years Ended October 31, October 31,
1997 (a) 1996 (a) 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------
Net asset value, beginning of period ......................... $12.98 $10.26 $11.05 $12.00
----------------------------------------------
Income from investment operations:
Net investment income ........................................ 1.06 1.20 1.14 0.60
Net realized and unrealized gain (loss) on
investments ............................................... .46 2.71 (.82) (1.04)
----------------------------------------------
Total from investment operations ............................. 1.52 3.91 .32 (.44)
----------------------------------------------
Less distributions from:
Net investment income ..................................... (1.10) (1.19) (1.11) (.51)
Net realized gain on investment transactions .............. (1.18) -- -- --
----------------------------------------------
Total distributions .......................................... (2.28) (1.19) (1.11) (.51)
----------------------------------------------
----------------------------------------------
Net asset value, end of period ............................... $12.22 $12.98 $10.26 $11.05
- -------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ......................................... 12.34 39.78 3.46 (3.54)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................... 324 305 169 95
Ratio of operating expenses, net to average daily
net assets (%) ............................................ 1.49 1.44 1.50 1.50*
Ratio of operating expense before expense
reductions, to average daily net assets (%) ............... 1.49 1.45 1.68 2.23*
Ratio of net investment income to average daily
net assets (%) ............................................ 8.03 10.05 12.83 9.17*
Portfolio turnover rate (%) .................................. 409.5 430.0(c) 302.2 180.6*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns are higher due to maintenance of Fund expenses.
(c) Economic and market conditions necessitated more active trading, resulting
in a higher portfolio turnover rate.
* Annualized
** Not annualized
16 -- SCUDDER EMERGING MARKETS INCOME FUND
<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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with original 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. Money market investments having an original 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.
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 repurchase price.
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.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies and as a
hedge against changes in exchange rates relating to foreign currency denominated
assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
17 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
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, as amended, 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 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.
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 of net realized gains 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.
18 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
B. Purchases and Sales of Securities
For the year ended October 31, 1997, purchases and sales (including maturities)
of investment securities (excluding short-term investments) aggregated
$1,241,332,306 and $1,257,588,346, respectively.
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 net assets, computed and accrued daily and payable monthly. For
the year ended October 31, 1997, the fee pursuant to the Management Agreement
amounted to $3,563,175, of which $322,723 is unpaid at October 31, 1997.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended October 31, 1997, the amount charged to the Fund by SSC aggregated
$606,320, of which $52,262 is unpaid at October 31, 1997.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended October 31,
1997, the amount charged to the Fund by STC aggregated $33,703, of which $3,039
is unpaid at October 31, 1997.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1997, the amount charged to the Fund by SFAC aggregated $258,022, of
which $42,235 is unpaid at October 31, 1997.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At October 31, 1997, the
Special Servicing Agreement expense charged to the Fund amounted to $93,146.
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, 1997, Directors' fees and expenses aggregated $50,106.
19 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
D. Credit Risk
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in these markets may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
E. Commitments
As of October 31, 1997, the Fund had entered into the following forward currency
exchange contracts resulting in net unrealized depreciation of $502,492.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
----------------------- ----------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
USD 13,775,000 DEM 23,844,525 11/17/97 60,791
ZAR 14,547,173 USD 3,065,790 11/6/97 45,495
DEM 27,678,465 USD 15,592,271 11/17/97 (468,164)
DEM 2,758,718 USD 1,554,085 11/17/97 (46,662)
DEM 8,584,898 USD 4,900,000 12/30/97 (93,952)
-------------
(502,492)
=============
</TABLE>
F. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 25 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
20 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder Emerging Markets Income 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, 1997, 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 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
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, 1997 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 Emerging Markets Income Fund as of October 31, 1997, 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 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 19, 1997
21 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
Tax Information
The Fund paid distributions of $0.06 per share from net long-term capital gains
during its year ended October 31, 1997. Pursuant to section 852 of the Internal
Revenue Code, the Fund designates $716,250 as capital gain dividends for the
year ended October 31, 1997.
Officers and Directors
Daniel Pierce*
Chairman of the Board, Director and Vice President
Nicholas Bratt*
President
Paul Bancroft III
Director; Venture Capitalist and Consultant
Sheryle J. Bolton
Director; Chief Executive Officer, Scientific Learning Corporation
William T. Burgin
Director; General Partner, Bessemer Venture Partners
Thomas J. Devine
Director; Consultant
William H. Gleysteen, Jr.
Director; Consultant; Guest Scholar, Brookings Institute
William H. Luers
Director; President, The Metropolitan Museum of Art
Kathryn L. Quirk*
Director, Vice President and Assistant Secretary
Robert W. Lear
Honorary Director; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman Emeritus and Director, Kirby Corporation
Susan E. Gray*
Vice President
Jerard K. Hartman*
Vice President
Gary P. Johnson*
Vice President
Thomas W. Joseph*
Vice President
Gerald J. Moran*
Vice President
M. Isabel Saltzman*
Vice President
David S. Lee*
Vice President and Assistant Treasurer
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
*Scudder, Stevens & Clark, Inc.
22 -- SCUDDER EMERGING MARKETS INCOME FUND
<PAGE>
Tax Information
The Fund paid distributions of $0.06 per share from net long-term capital gains
during its year ended October 31, 1997. Pursuant to section 852 of the Internal
Revenue Code, the Fund designates $716,250 as capital gain dividends for the
year ended October 31, 1997.
Officers and Directors
Daniel Pierce*
Chairman of the Board, Director
and Vice President
Nicholas Bratt*
President
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; Chief Executive
Officer, Scientific Learning
Corporation
William T. Burgin
Director; General Partner,
Bessemer Venture Partners
Thomas J. Devine
Director; Consultant
William H. Gleysteen, Jr.
Director; Consultant; Guest
Scholar, Brookings Institute
William H. Luers
Director; President, The
Metropolitan Museum of Art
Kathryn L. Quirk*
Director, Vice President and
Assistant Secretary
Robert W. Lear
Honorary Director;
Executive-in-Residence, Visiting
Professor, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Susan E. Gray*
Vice President
Jerard K. Hartman*
Vice President
Gary P. Johnson*
Vice President
Thomas W. Joseph*
Vice President
Gerald J. Moran*
Vice President
M. Isabel Saltzman*
Vice President
David S. Lee*
Vice President and Assistant
Treasurer
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant
Treasurer
*Scudder, Stevens & Clark, Inc.
22 - Scudder Emerging Markets Income Fund
<PAGE>
Stockholder Meeting Results
A Special Meeting of Stockholders (the "Meeting") of Scudder Emerging Markets
Income Fund (the "Fund") was held on October 27, 1997, at the offices of
Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street),
New York, New York 10154. At the Meeting, as adjourned and reconvened, the
following matters were voted upon by the stockholders (the resulting votes for
each matter are presented below.) With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide stockholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Paul Bancroft III 15,187,359 556,275
Sheryle J. Bolton 15,196,206 547,428
William T. Burgin 15,194,729 548,905
Thomas J. Devine 15,184,869 558,765
Keith R. Fox 15,196,072 547,562
William H. Gleysteen, Jr. 15,181,641 561,993
William H. Luers 15,195,388 548,246
Daniel Pierce 15,187,144 556,490
Kathryn L. Quirk 15,178,045 565,589
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
14,778,702 597,149 367,783 1,615,312
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
14,373,422 1,270,547 605,086 1,338,396
23 - Scudder Emerging Markets Income Fund
<PAGE>
4. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
<S> <C> <C> <C> <C>
4.1 Diversification 12,717,114 806,588 604,620 1,615,312
4.2 Borrowing 12,465,778 1,049,976 612,568 1,615,312
4.3 Senior securities 12,560,524 954,444 613,354 1,615,312
4.4 Purchase of physical 12,544,496 975,249 608,577 1,615,312
commodities
4.5 Concentration 12,675,222 853,949 599,151 1,615,312
4.6 Underwriting of securities 12,654,763 875,666 597,893 1,615,312
4.7 Investment in real estate 12,709,894 720,515 697,913 1,615,312
4.8 Lending 12,650,114 768,864 709,344 1,615,312
</TABLE>
5. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
15,063,361 224,355 455,918
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
24 - Scudder Emerging Markets Income Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
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. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **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.
25 - Scudder Emerging Markets Income Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
26 - Scudder Emerging Markets Income Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
27 - Scudder Emerging Markets Income Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 over 40 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 us 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 long-standing
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.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
[LOGO]
<PAGE>
Scudder
Global Bond
Fund
Annual Report
October 31, 1997
Pure No-Load(TM) Funds
A fund which seeks total return with an emphasis on current income by investing
primarily in high-grade bonds denominated in foreign currencies and the U.S.
dollar. Capital appreciation is a secondary objective.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
In Brief
o Scudder Global Bond Fund provided a 0.66% total return for the 12-month period
ended October 31, 1997, reflecting a challenging environment for U.S. investors
in foreign fixed-income securities.
o A strongly rising U.S. dollar dominated the global currency markets for most
of the year, diminishing returns for U.S. investors in foreign markets. The Fund
increased its dollar exposure during the period.
o Several countries in Southeast Asia devalued their currencies late in the
period. The effect was generally negative for emerging market bonds as a whole.
Table of Contents
3 Letter from the Fund's Chairman 18 Financial Highlights
4 Performance Update 19 Notes to Financial Statements
5 Portfolio Summary 25 Report of Independent Accountants
6 Portfolio Management Discussion 26 Shareholder Meeting Results
10 Glossary of Investment Terms 28 Officers and Directors
11 Investment Portfolio 29 Investment Products and Services
15 Financial Statements 30 Scudder Solutions
2 - Scudder Global Bond Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
We are pleased to present the annual report for Scudder Global Bond Fund
for the year ended October 31, 1997. The 12-month period presented a number of
hurdles for U.S. investors in overseas fixed-income securities, including
fluctuating U.S. interest rates, a stronger U.S. dollar, and heightened
volatility in the emerging markets.
The world's bond markets have become increasingly challenging for U.S.
investors, with markets now more closely aligned in terms of the yields they
offer, their appreciation potential and risk, and the way in which they respond
to events in other parts of the world. Through rigorous fundamental research,
Scudder Global Bond Fund diversifies portfolio assets among developed and
developing markets, seeking total return with an emphasis on current income
while also actively managing the portfolio's currency and interest-rate
exposure.
We would like to take this opportunity to introduce a newcomer to Scudder's
mutual fund lineup: Scudder International Growth and Income Fund. The Fund
employs a yield-oriented approach to international investing and seeks to
provide long-term growth of capital plus current income. Investors who desire
international equity exposure but who wish to take a more conservative approach
may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States. For a complete listing of
Scudder's mutual fund offerings, see page 29.
Thank you for your continued investment in Scudder Global Bond Fund. We
believe the Fund remains an appropriate vehicle for investors seeking exposure
to the opportunities for income and capital appreciation to be found in the
world's fixed-income markets. If you have questions about your account, please
call our Investor Relations representatives at 1-800-225-2470; they will be
happy to assist you. You can also obtain information by visiting our Internet
web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman
Scudder Global Bond Fund
3 - Scudder Global Bond Fund
<PAGE>
PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER EMERGING MARKETS GROWTH FUND
TICKER SYMBOL: SSTGX
- --------------------------------------------
1 Year $ 10,066 0.66% 0.66%
5 Year $ 11,792 17.92% 3.35%
Life of Fund* $ 13,560 35.60% 4.67%
- --------------------------------------------
SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX
- --------------------------------------------
1 Year $ 10,262 2.62% 2.62%
5 Year $ 14,456 44.56% 7.65%
Life of Fund* $ 18,061 80.61% 9.38%
- --------------------------------------------
*The Fund commenced operations on March 1, 1991.
Index comparisons begin March 31, 1991.
- ----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED OCTOBER 31
SALOMON BROTHERS WORLD
GOVERNMENT BOND INDEX
Year Amount
- ----------------------
3/91* $10,000
'91 $10,970
'92 $12,493
'93 $13,992
'94 $14,498
'95 $16,704
'96 $17,600
'97 $18,061
SCUDDER GLOBAL BOND FUND
Year Amount
- ----------------------
3/91* $10,000
'91 $10,653
'92 $11,487
'93 $12,307
'94 $12,277
'95 $12,944
'96 $13,458
'97 $13,546
SALOMON BROTHERS CURRENCY-
HEDGED WORLD GOVERNMENT
BOND INDEX (1-3 YEARS)**
Year Amount
- ----------------------
3/91* $10,000
'91 $10,075
'92 $10,896
'93 $11,702
'94 $12,058
'95 $12,748
12/95 $13,625
The unmanaged Salomon Brothers World Government Bond Index consists of
worldwide fixed-rate government bonds with remaining maturities greater than
one year. Index returns assume reinvestment of 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.
<TABLE>
<CAPTION>
1991* 1992 1993 1994 1995 || 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE........... $12.01 $11.84 $11.68 $10.78 $10.53 || $10.25 $ 9.71
INCOME DIVIDENDS.......... $ .76 $ 1.08 $ .95 $ .87 $ .80 || $ .67 $ .59
CAPITAL GAINS ||
DISTRIBUTIONS............. $ -- $ -- $ .02 $ -- $ -- || $ -- $ --
FUND TOTAL RETURN (%)**... 6.65 7.83 7.14 -.25 5.43 || 3.97 .66
INDEX TOTAL RETURN (%).... 5.56 7.56 6.08 1.87 9.68 || 5.36 2.62
</TABLE>
On December 27, 1995, the Fund adopted its current name and objectives.
Prior to that date, the Fund was known as the Scudder Short Term Global Income
Fund and its investment objective was to provide high current income through
short-term instruments. Since adopting its current objectives, the cumulative
return is 3.13.
** Prior to December 27, 1995, the Salomon Brothers Currency-Hedged World
Government Bond Index (1-3 years) was used as a comparative index.
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
expenses, the total returns for the Fund for the one year, five year, and
life of Fund periods would have been lower.
4 - Scudder Global Bond Fund
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
GEOGRAPHICAL EXPOSURE
- ---------------------------------------------------------------------------
U.S. 22.7%
Italy 11.5%
Germany 6.9%
U.K. 6.6%
Spain 6.3%
Ireland 5.8%
France 5.4%
Australia 4.3%
Norway 4.1%
Supranational 3.9%
Japan 3.6%
Canada 3.2%
Denmark 1.8%
Venezuela 1.8%
Sweden 1.7%
Egypt 1.6%
South Africa 1.3%
New Zealand 1.2%
Panama 1.2%
Morocco 1.2%
Poland 1.1%
Hungary 1.1%
Other 1.7%
- ------------------------------------
100%
- ------------------------------------
The Fund has broad exposure to
more than 20 overseas bond markets
in addition to the U.S.
- --------------------------------------------------------------------------
INTEREST RATE EXPOSURE
- --------------------------------------------------------------------------
U.S. 23.9%
Italy 11.4%
Japan 8.5%
New Zealand 7.0%
Germany 6.9%
Ireland 5.8%
France 5.4%
U.K. 5.4%
Spain 4.2%
Australia 4.2%
Norway 4.1%
Denmark 1.8%
Sweden 1.7%
Canada 1.6%
Egypt 1.6%
South Africa 1.3%
Morocco 1.2%
Hungary 1.1%
Poland 1.1%
Indonesia 1.0%
Other 0.8%
- ------------------------------------
100%
- ------------------------------------
The Fund has taken a cautious
approach to interest rate risk.
- --------------------------------------------------------------------------
CURRENCY EXPOSURE (a)
- --------------------------------------------------------------------------
Australia 0.4%
Canada 1.7%
Denmark 1.9%
Egypt 1.6%
France 5.5%
Germany 5.8%
Hungary 1.3%
Ireland 5.9%
Italy 9.7%
Japan 9.1%
Mexico 0.9%
Morocco 1.2%
New Zealand 3.6%
Norway 4.1%
Poland 1.1%
South Africa 1.3%
Spain 4.2%
Sweden 0.7%
Switzerland -13.7%
U.K. 5.4%
U.S. 48.3%
- ------------------------------------
100%
- ------------------------------------
Exposure to the U.S. Dollar has
continued to increase, given the
strength of the domestic economy.
(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 11.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 - Scudder Global Bond Fund
<PAGE>
Portfolio Management Discussion
The following interview with Gary Johnson, Lead Portfolio Manager of Scudder
Global Bond Fund, provides a look at the Fund's fiscal year 1997 performance and
strategy, as well as management's outlook for the coming year.
Q: What was the global investment environment like for bonds during the past
year?
A: In the United States, economic activity was vigorous and widespread. Consumer
spending rose, unemployment fell, sales of new homes set records, and
manufacturing capacity became increasingly strained. Anticipating a potential
spike in inflation, the Federal Reserve Board raised short-term interest rates
by a quarter of a percentage point in late March. The adjustment dampened bond
market returns momentarily; bonds regained lost ground later in the year as
evidence of noninflationary growth bolstered investor confidence.
In Europe, the peripheral markets of Spain, Italy, and Sweden, buoyed by
improving fiscal deficits and a benign inflation outlook, continued to
outperform the core markets of Germany and France. Prospects for a broader
European Monetary Union (EMU) continued to narrow yield spreads among potential
participants. Earlier in the decade, when EMU was more theory than reality, less
fiscally virtuous countries such as Italy and Spain paid a stiff yield premium
to borrow in the markets. After the exchange rate mechanism crumbled in late
1992, Italian 10-year bonds traded as high as seven percentage points above
German bonds. Today, that spread has narrowed to 60 basis points (less than
two-thirds of one percentage point). In part, this reflects Italy's success at
curbing inflation and the growth of government borrowing. But it also reflects
the market's perception that Italy and Germany will one day share the same
currency. Strong performance also came from the U.K. market this year, as talk
of eventual British participation in EMU led to a dramatic rally in long-term
bonds.
Japan's economy seemed to be improving until a tax increase in April hurt that
country's already beleaguered consumers. Part of the Japanese government's plan
to reduce the bulging budget deficit by cutting spending and raising taxes, the
higher consumption tax coincides with the announcement of major deregulation
measures related to land reform and Japan's troubled banking sector. The economy
contracted at more than an 11% annual rate in the second quarter and bonds
rallied. As Japan's economic situation worsened over the summer, we increased
our investment stake. Although the extremely low yields on these securities
effectively capped their return potential, our Japanese position helped soften
the impact of declines in emerging markets.
Q: What about the emerging markets?
A: This year, investors witnessed how many of the emerging markets can respond
to negative economic events in any one emerging market. In the roughly two years
leading up to this summer, Japan and China enjoyed the benefits of declining
currencies relative to the U.S. dollar -- the chief benefit being cheaper
exports relative to other Southeast Asian countries, many of whom had
historically "pegged" their currencies to the U.S. dollar. The pressure for
countries such as Thailand, Indonesia, and Malaysia to become more competitive
through cheaper exports culminated this year in a series of currency
devaluations. Several monetary policy missteps in the aftermath of the
6 - Scudder Global Bond Fund
<PAGE>
devaluations left investors wary of emerging markets in general.
Q: How did Scudder Global Bond Fund perform relative to its benchmark, the
Salomon World Government Bond Index, in fiscal 1997?
A: The Fund's 0.66% return compares with a 2.62% total return for the unmanaged
index. The Fund's underperformance can be attributed largely to our relatively
conservative duration stance in the United States, and the fact that we were
underweight U.S. bonds in general. The Federal Reserve has demonstrated a
willingness to raise interest rates should persistent economic growth put
pressure on prices. They have also stated that noninflationary growth is
something on the order of 2.5% per annum, yet the economy has grown at better
than 3% all year. As a result, we were cautious with our U.S. holdings at a time
when that market was rallying.
Q: How did the Fund perform relative to its peers?
A: The average return of the 137 global bond funds tracked by Lipper Analytical
Services was 4.69% for the 12-month period. Many competing funds held
substantial stakes in the higher-yielding emerging markets during the year,
which exposed them to significantly greater volatility in October, when the
emerging markets gave back much of their earlier gains. During that month, the
Fund's return was 0.65%, versus -0.34% on average for the 149 global bond funds
tracked by Lipper.
Q: What were some of the positive factors contributing to fund performance this
year?
A: The chief contributor to positive performance was the Fund's stake in the
United States. With the yield advantage in "peripheral" European markets such as
Spain and Italy disappearing and with heightened volatility in the emerging
markets, investors increasingly have turned to the United States and Japan. Of
the developed countries, the United States now has one of the highest-yielding
bond markets -- along with a shrinking budget deficit, a strong currency, and
negligible inflation. The Fund's U.S. holdings (20% of net assets as of October
31, 1997) aided overall performance during the year, despite the market's
pullback in March related to the Fed rate increase.
Q: What factors detracted from Fund performance?
A: The strength of the U.S. dollar in the first half of the year hurt overall
Fund performance, because at that time the Fund had insufficient dollar
exposure. Changes in currency exchange rates can have a significant impact on
returns to U.S. holders of foreign bonds. When the value of the dollar rises
versus the currency in which your investment is held, the gain you may have
received "on paper" from that investment is reduced and can be turned into a
loss. Since the spring, we have employed a quantitative approach to currency
exposure, designed to keep the short-term impact on the Fund of a fluctuating
dollar within a relatively narrow range, while also seeking to minimize the
expense of managing currency risk.
7 - Scudder Global Bond Fund
<PAGE>
An additional negative came from our emerging-market holdings, which, although
relatively small (less than 10% of net assets at mid-year) and outside of
Southeast Asia, were nevertheless affected by events in that corner of the
world.
Q: How would you summarize Fund strategy going forward?
A: In the coming months, we expect to continue to hold emerging market bonds as
our primary investment in improving country fundamentals. In our view, bonds
from markets such as Argentina, Poland, and Mexico -- where ongoing reforms are
creating more favorable terms for investors -- are the most likely to receive
credit rating upgrades. We also expect to take advantage of opportunities in
select emerging markets that we believe are now oversold as a result of the
trouble in Southeast Asia.
In Europe, we expect to focus more on the peripheral markets, such as Italy,
Spain, and Sweden, than on the larger, principal markets. Although the secondary
markets have been the undisputed leaders in performance for the bulk of this
decade, we believe there is still opportunity for rates to fall and bond prices
to rise, especially in the short-end of the yield curve, as markets position for
European Monetary Union.
In the United States, we expect to maintain a somewhat cautious stance with
respect to interest rate exposure. Unless growth slows from the roughly 3% that
we've seen in the previous four calendar quarters, we believe the Federal
Reserve may see fit to raise rates in the new year. We intend to overweight the
8 - Scudder Global Bond Fund
<PAGE>
dollar, however, given the relative strength of the U.S. economy.
After this summer's rally, the Japanese market is now considered a relatively
safe haven, given that leading economic indicators have sunk to levels not seen
since before the recession of the early 1990s. At the same time, the more
burdensome tax structure in Japan is likely to quell domestic consumption.
Nevertheless, yields of less than 2% on 10-year bonds provide little room for
further gain. In the coming months, we intend to reduce our Japanese position.
With a stake in the world's developed and developing markets and a cautious eye
toward the future direction of interest rates, we believe Scudder Global Bond
Fund is well positioned to make the most of the fixed-income opportunities that
lie ahead.
Scudder Global
Bond Fund:
A Team Approach to Investing
Scudder Global Bond 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 Gary P. Johnson assumed responsibility for the Fund's
day-to-day management and investment strategies in 1997. Gary, who has 16
years of investment industry experience, joined Scudder in 1987. Adam M.
Greshin, Portfolio Manager, joined Scudder in 1986 as an international bond
analyst and is Product Leader for Scudder's global and international
fixed-income investing.
9 - Scudder Global Bond Fund
<PAGE>
Glossary of Investment Terms
BOND An interest-bearing or discounted government or
corporate security that typically requires the
issuer to pay a fixed amount of interest for a
specified time, usually a number of years, then
repay the bondholder the face amount (principal)
of the bond. Bondholders have an IOU from an
issuer but no ownership privileges, as with
stockholders.
CURRENCY RISK The risk of loss to a portfolio because of changes
in the value of different currencies. For a U.S.
investor in overseas markets, the risk that a
rising dollar relative to foreign currencies will
reduce returns.
DURATION A measure of a portfolio's sensitivity to changes
in interest rates. Generally, the longer the
duration (expressed in years), the greater the
sensitivity to a change in rates.
EMERGING MARKETS The rapidly growing stock and bond markets of
newly industrialized countries, such as Brazil or
Indonesia.
EXCHANGE RATE The price at which the currency of one country can
be converted to the currency of another.
GROSS DOMESTIC PRODUCT The value of a country's annual goods and services
(GDP) produced by the people, businesses, governments,
and property located in that country.
VOLATILITY The tendency of a security, commodity, or market
to rise and fall in price over time. Volatility is
inherent in almost all investments but differs in
degree from investment to investment and from
market to market. For example, in the United
States, money-market mutual funds strive to
maintain a fixed price and thus experience very
little volatility, if any. By comparison, bonds
from the emerging markets can be extremely
volatile.
YIELD The dividends or interest paid on a security,
expressed as a percentage of the security's
current price.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
10 - Scudder Global Bond Fund
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 2.8%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Dollars
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/31/97 at 5.7%, to be
repurchased at $3,698,756 on 11/3/97, collateralized by a $3,615,000 U.S. Treasury --------------
Bond, 6.375%, 1/15/00 (Cost $3,697,000) ................................................ 3,697,000 3,697,000
--------------
Foreign Denominated Debt Obligations 76.0%
- ------------------------------------------------------------------------------------------------------------------------------
Australian Dollars 4.2%
Commonwealth of Australia, 10%, 2/15/06 ................................................. 6,320,000 5,600,814
British Pounds 5.4% --------------
United Kingdom Treasury Bond, 8%, 12/7/15 ............................................... 3,700,000 7,181,033
Canadian Dollars 1.6% --------------
Rogers Cantel Mobile Communications Inc., 10.5%, 6/1/06 ................................. 2,600,000 2,196,842
Danish Kroner 1.8% --------------
Kingdom of Denmark, 7%, 11/15/07 ........................................................ 15,200,000 2,457,790
Deutsche Marks 6.9% --------------
Federal Republic of Germany, 8.875%, 12/20/00 ........................................... 5,600,000 3,633,328
Federal Republic of Germany, 6%, 2/16/06 ................................................ 9,270,000 5,553,293
--------------
9,186,621
--------------
Egyptian Pounds 1.6%
Citibank Time Deposit linked to Egyptian Pound, 8.4%, 11/3/97 ........................... 2,307,294 677,916
Citibank Time Deposit linked to Egyptian Pound, 8.4%, 11/6/97 ........................... 1,741,587 511,682
Citibank Time Deposit linked to Egyptian Pound, 8.35%, 11/12/97 ......................... 3,017,056 886,460
--------------
2,076,058
--------------
French Francs 5.4%
Government of France, 8.5%, 10/25/08 .................................................... 34,100,000 7,246,795
Hungarian Forints 1.1% --------------
Government of Hungary, 23.5%, 11/6/97 ................................................... 291,000,000 1,496,756
Indonesian Rupiahs 1.0% --------------
J.P. Morgan & Co. Time Deposit linked to Indonesian Rupiah, 14.16%, 11/12/97 ............ 4,997,621,679 1,360,750
Irish Pounds 5.8% --------------
Republic of Ireland, DIBOR less .04% (6.2%), 4/19/00 .................................... 2,334,000 3,503,794
Republic of Ireland, 6.5%, 10/18/01 ..................................................... 2,750,000 4,276,232
--------------
7,780,026
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Global Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italian Lire 11.5%
Republic of Italy, 8.5%, 8/1/99 ....................................................... 15,835,000,000 9,736,855
Republic of Italy, 8.5%, 1/1/04 ....................................................... 8,240,000,000 5,476,969
--------------
15,213,824
--------------
Japanese Yen 8.4%
European Investment Bank, 3%, 9/20/06 ................................................. 400,000,000 3,639,385
Japan Development Bank, 2.875%, 12/20/06 .............................................. 530,000,000 4,778,147
Kingdom of Spain, 3.1%, 9/20/06 ....................................................... 307,000,000 2,798,330
--------------
11,215,862
--------------
Mexican Pesos 0.4%
Certificados de la Tesoreria, Zero Coupon, 12/4/97 .................................... 5,064,870 589,012
Moroccan Dirham 1.2% --------------
Citibank Time Deposit linked to Moroccan Dirham, 8%, 12/1/97 .......................... 15,068,800 1,591,840
New Zealand Dollars 7.0% --------------
Federal National Mortgage Association Global Note, 7.25%, 6/20/02 ..................... 6,610,000 4,124,750
Government of Canada, 6.625%, 10/3/07 ................................................. 3,439,000 2,097,853
Government of New Zealand, 8%, 7/15/98 ................................................ 2,570,000 1,603,142
International Bank for Reconstruction & Development, 9%, 7/8/99 ....................... 2,400,000 1,522,277
--------------
9,348,022
--------------
Norwegian Kroner 4.1%
Kingdom of Norway, 6.75%, 1/15/07 ..................................................... 36,000,000 5,473,294
Polish Zlotys 1.1% --------------
Morgan Guaranty Trust Co. Time Deposit linked to Polish Zloty, 24.68%, 11/21/97 ....... 2,571,000 738,409
Morgan Guaranty Trust Co. Time Deposit linked to Polish Zloty, 24%, 11/21/97 .......... 2,550,750 738,068
--------------
1,476,477
--------------
South African Rands 1.3%
J.P. Morgan Time Deposit linked to South African Rand, 15.25%, 11/10/97 ............... 8,441,541 1,753,722
Spanish Pesetas 4.2% --------------
Kingdom of Spain, 9.4%, 4/30/99 ....................................................... 560,000,000 4,076,739
Kingdom of Spain, 10%, 2/28/05 ........................................................ 180,000,000 1,535,951
--------------
5,612,690
--------------
Swedish Kronor 1.7%
Kingdom of Sweden, 6%, 2/9/05 ......................................................... 16,900,000 2,225,009
Turkish Lire 0.3% --------------
J.P. Morgan & Co. Time Deposit linked to Turkish Lira, 79.5%, 12/30/97 ................ 65,311,200,000 359,958
- ------------------------------------------------------------------------------------------------------------------------------
Total Foreign Denominated Debt Obligations (Cost $102,243,374) 101,443,195
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Global Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Dollar Denominated Debt Obligations 21.0%
- ------------------------------------------------------------------------------------------------------------------------------
Cedulas Hipotecarias, LIBOR plus .29% (8.791%), 9/1/00 ............................. 1,300,000 1,279,664
Imperial Credit Industries, Inc., 9.875%, 1/15/07 .................................. 460,000 453,100
Midland Bank PLC, 7.625%, 6/15/06 .................................................. 1,500,000 1,581,585
Republic of Panama, Past Due Interest Bond, LIBOR plus .8125% (6.688%), 7/17/16 .... 1,027,130 754,941
Republic of Panama, 8.875%, 9/30/27 ................................................ 1,000,000 850,000
Republic of Venezuela, Debt Conversion Bond, Floating Rate Bond, Series DL,
LIBOR plus .875% (6.75%), 12/18/07 ................................................ 2,750,000 2,385,625
Tenet Healthcare Corp., 8%, 1/15/05 ................................................ 550,000 555,500
Time Warner Inc., 9.125%, 1/15/13 .................................................. 4,300,000 5,081,180
U.S. Treasury Note, 6%, 8/15/99 .................................................... 10,500,000 10,560,690
U.S. Treasury Note, 5.875%, 11/15/99 ............................................... 3,850,000 3,866,246
Webster Financial Corp., 9.36%, 1/29/27 ............................................ 500,000 553,526
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Dollar Denominated Debt Obligations (Cost $27,721,182) 27,922,057
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost $133,661,556) 133,062,252
- ------------------------------------------------------------------------------------------------------------------------------
Purchased Options 0.2%
- ------------------------------------------------------------------------------------------------------------------------------
Call on Japanese Yen, strike price 118.2, expires 12/2/97 ..........................JPY 827,400,000 56,495
Put on Australian Dollars, strike price .7189, expires 12/10/97 ....................AUD 3,500,000 73,500
Put on Deutsche Marks, strike price 1.8057, expires 1/22/98 ........................DEM 14,000,000 42,000
Put on Italian Lire, strike price 1786, expires 1/7/98 .............................ITL 26,400,000,000 52,008
Put on New Zealand Dollars, strike price .614, expires 12/3/97 .....................NZD 3,277,000 13,436
Put on New Zealand Dollars, strike price .6224, expires 11/7/97 ....................NZD 11,500,000 48,162
Number of
Contracts
---------------
Put on Eurolira, strike price 92.75, expires 12/16/97 .............................. 670 9,880
Tokyo Stock Exchange Put on Japanese Yen, strike price 124, expires 12/9/97 ........ 21 3,490
Put on Eurodollars, strike price 93.75, expires 12/16/97 ........................... 80 1,000
Put on Eurodollars, strike price 94, expires 12/15/97 .............................. 540 13,500
- ------------------------------------------------------------------------------------------------------------------------------
Total Purchased Options (Cost $642,505) 313,471
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $134,304,061) (a) 133,375,723
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Global Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $134,304,061. At October 31,
1997, net unrealized depreciation for all securities based on tax cost was
$928,338. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,531,971 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$3,460,309.
At October 31, 1997, outstanding written options were as follows:
Principal
Amount Expiration Strike Market
Call Options (000's) Date Price Value
- ------------ -------------------------------------------------------
AUD ...................... 3,500 12/11/97 AUD .7408 2,100
NZD ...................... 11,500 11/10/97 NZD .64 1,173
NZD ...................... 3,277 12/4/97 NZD .6482 2,130
Number of
Contracts
---------
MATIF Notionnel Futures .. 84 11/28/97 FRF 99 42,089
------
Total outstanding written options (Premiums received $150,986) ......... 47,492
------
Currency Abbreviations
- ------------------------------------------------------------------
AUD Australian Dollar ITL Italian Lira
CHF Swiss Franc JPY Japanese Yen
DEM Deutsche Mark MXP Mexican Peso
FRF French Franc NOK Norwegian Kroner
GBP British Pound NZD New Zealand Dollar
HUF Hungarian Forints SEK Swedish Krona
IND Indonesian Rupiah USD U.S. Dollar
The accompanying notes are an integral part of the financial statements.
14 - Scudder Global Bond Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $133,661,556) .................. $ 133,062,252
Purchased options, at market (identified cost $642,505) ................ 313,471
Foreign currency, at market (identified cost $99,631) .................. 100,649
Interest receivable .................................................... 3,297,261
Receivable on investments sold ......................................... 13,890,175
Receivable for when-issued and forward delivery securities sold ........ 1,072,500
Receivable on Fund shares sold ......................................... 7,015
Unrealized appreciation on forward currency exchange contracts ......... 531,344
Other assets ........................................................... 9,314
----------------
Total assets 152,283,981
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 13,925,358
Payable for when-issued and forward delivery securities ................ 1,072,500
Dividends payable ...................................................... 205,787
Payable for Fund shares redeemed ....................................... 742,221
Accrued management fee ................................................. 22,420
Other payables and accrued expenses .................................... 175,508
Written options, at market (premiums received $150,986) ................ 47,492
Unrealized depreciation on forward currency exchange contracts ......... 979,230
----------------
Total liabilities ...................................................... 17,170,516
----------------------------------------------------------------------------------------------
Net assets, at market value $ 135,113,465
----------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments ......................................................... (599,304)
Options ............................................................. (225,540)
Foreign currency related transactions ............................... (446,598)
Accumulated net realized loss .......................................... (8,283,332)
Paid-in capital ........................................................ 144,668,239
----------------------------------------------------------------------------------------------
Net assets, at market value $ 135,113,465
----------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($135,113,465 /
13,913,602 shares of capital stock outstanding, $.01 par value, ----------------
300,000,000 shares authorized) ...................................... $9.71
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Global Bond Fund
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Interest (net of foreign taxes withheld of $59,791) .................... $ 11,836,620
----------------
Expenses:
Management fee ......................................................... 1,269,569
Services to shareholders ............................................... 544,605
Custodian and accounting fees .......................................... 279,487
Directors' fees and expenses ........................................... 50,590
Reports to shareholders ................................................ 54,747
Auditing ............................................................... 91,642
Legal .................................................................. 14,907
Registration fees ...................................................... 20,816
Other .................................................................. 29,195
----------------
Total expenses before reductions ....................................... 2,355,558
Expense reductions ..................................................... (664,865)
----------------
Expenses, net .......................................................... 1,690,693
----------------------------------------------------------------------------------------------
Net investment income 10,145,927
----------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................ (7,830,292)
Options ................................................................ 1,518,785
Futures contracts ...................................................... (951,057)
Foreign currency related transactions .................................. 465,160
----------------
(6,797,404)
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................ (2,188,455)
Options ................................................................ (1,180,202)
Foreign currency related transactions .................................. (212,546)
----------------
(3,581,203)
----------------------------------------------------------------------------------------------
Net loss on investment transactions (10,378,607)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (232,680)
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Global Bond Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 10,145,927 $ 18,417,604
Net realized loss from investment transactions ............ (6,797,404) (9,160,980)
Net unrealized depreciation on investment transactions
during the period ...................................... (3,581,203) (1,385,338)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations ................................................ (232,680) 7,871,286
-------------- --------------
Distributions to shareholders from:
Net investment income ..................................... (2,459,944) (11,459,193)
-------------- --------------
Tax return of capital ..................................... (7,685,983) (6,958,411)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................. 26,565,023 18,750,629
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 7,206,681 14,288,523
Cost of shares redeemed ................................... (105,683,539) (162,428,423)
-------------- --------------
Net decrease in net assets from Fund share transactions ... (71,911,835) (129,389,271)
-------------- --------------
Decrease in net assets .................................... (82,290,442) (139,935,589)
Net assets at beginning of period ......................... 217,403,907 357,339,496
-------------- --------------
Net assets at end of period ............................... $135,113,465 $217,403,907
-------------- --------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................. 21,216,085 33,924,422
-------------- --------------
Shares sold ............................................... 2,733,367 1,831,418
Shares issued to shareholders in reinvestment of
distributions ............................................. 736,022 1,396,784
Shares redeemed ........................................... (10,771,872) (15,936,539)
-------------- --------------
Net decrease in Fund shares ............................... (7,302,483) (12,708,337)
-------------- --------------
Shares outstanding at end of period ....................... 13,913,602 21,216,085
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Global Bond Fund
<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>
<CAPTION>
For the Period
March 1, 1991
(commencement of
operations) to
Years Ended October 31, October 31,
1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Net asset value, beginning of period ........ $10.25 $10.53 $10.78 $11.68 $11.84 $12.01 $12.00
Income from investment operations: -------------------------------------------------------------------------------------
Net investment income ....................... .59 .67 .80 .87 .95 1.08 .76
Net realized and unrealized gain
(loss) on investment transactions ........ (.54) (.28) (.25) (.90) (.14) (.17) .01
-------------------------------------------------------------------------------------
Total from investment operations ............ .05 .39 .55 (.03) .81 .91 .77
Less distributions from: -------------------------------------------------------------------------------------
Net investment income ....................... (.14) (.42) (.36) (.02) (.95) (1.08) (.76)
Net realized gains on investments ........... -- -- -- -- (.02) -- --
Tax return of capital ....................... (.45) (.25) (.44) (.85) -- -- --
-------------------------------------------------------------------------------------
Total distributions ......................... (.59) (.67) (.80) (.87) (.97) (1.08) (.76)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Net asset value, end of period .............. $9.71 $10.25 $10.53 $10.78 $11.68 $11.84 $12.01
-------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ........................ 0.66 3.97 5.43 (.25) 7.14 7.83 6.65**
Ratios and Supplemental Data
Net assets, end of period ($millions) ....... 135 217 357 560 1,041 1,369 205
Ratio of operating expenses, net to
average daily net assets (%) ............ 1.00 1.00 1.00 1.00 1.00 1.00 1.00*
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) ..................... 1.39 1.28 1.20 1.15 1.11 1.23 1.89*
Ratio of net investment income to
average daily net assets (%) ............. 6.00 6.67 7.73 7.76 8.10 8.94 9.97*
Portfolio turnover rate (%) ................. 256.5 335.7 182.8 272.4 259.8 274.2 26.1*
</TABLE>
* Annualized
** Not annualized
(a) Total returns would have been lower had certain expenses not been reduced.
On December 27, 1995, the Fund adopted its current name and objectives.
Prior to that date, the Fund was known as the Scudder Short Term Global
Income Fund and its investment objective was to provide high current
income through short-term instruments. Financial information prior to
December 27, 1995 should not be considered representative of the present
Fund.
18 - Scudder Global Bond Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Global Bond 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 objective of the Fund 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.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities other than money market securities
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. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.
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 repurchase price.
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 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.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased put options and wrote call options on currencies as a
hedge against potential adverse price movements in the value of portfolio
assets. In addition, during the period, the Fund purchased call options and
wrote put options on currencies to lock in the purchase price of a security or
currency which it expects to purchase in the near future and to enhance
potential gain. If the Fund writes an option and 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 Fund elects to close
out the option it would recognize a gain or loss based on the difference between
the cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium
19 - Scudder Global Bond Fund
<PAGE>
paid. If the Fund elects to close out the option it would recognize a gain or
loss equal to the difference between the cost of acquiring the option and the
amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised, the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased 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 (bid for purchased options) if no bid
and asked prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the 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. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased interest rate futures to manage the duration of the portfolio,
and as a temporary substitute for purchasing selected investments. Also, during
the period, the Fund sold interest rate futures to hedge against declines in the
value of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
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 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 including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
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
20 - Scudder Global Bond Fund
<PAGE>
(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.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies and as a
hedge against changes in exchange rates relating to foreign currency denominated
assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, 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, 1997, the Fund had a net tax
basis capital loss carryforward of approximately $8,121,000 which may be applied
against any realized net taxable capital gains of each succeeding year until
fully utilized or until October 31, 2002 ($2,376,000), October 31, 2003
($5,009,000) and October 31, 2004 ($736,000), the respective expiration dates,
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
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
21 - Scudder Global Bond Fund
<PAGE>
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.
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.
B. Purchases and Sales of Securities
For the year ended October 31, 1997, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $336,296,349 and $403,958,774, respectively. Purchases and sales of
U.S. Government obligations aggregated $54,486,111 and $66,907,919,
respectively.
The aggregate face value of futures contracts opened and closed during the year
ended October 31, 1997 was $680,689,677.
Transactions in written options for the year ended October 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Exchange Traded Options Over-the-Counter Options on Currencies (000 omitted)
---------------------------- ------------------------------------------ ---------------
Number of
Contracts Premiums AUD DEM FRF Premiums
---------------------------- ------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Beginning -- $ -- -- 6,611 -- $ 69,390
of Period ..
Written ...... 591 730,361 62,096 52,231 28,027 1,058,251
Closed ....... (423) (542,670) (46,700) (39,335) -- (615,748)
Exercised .... (84) (149,231) (4,696) (6,615) (28,027) (408,997)
Expired ...... -- -- (7,200) (12,892) -- (76,471)
----------- ----------- ----------- ----------- ----------- ----------
End of
Period ..... 84 $ 38,460 3,500 -- -- $ 26,425
----------- ----------- ----------- ----------- ----------- ----------
-----------------------------------------------------------------------------------------
</TABLE>
22 - Scudder Global Bond Fund
<PAGE>
Transactions in written options for the year ended October 31, 1997 are
summarized as follows (continued):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Over-the-Counter Options on Currencies (000 omitted)
--------------------------------------------------------------------------------------------
GBP ITL JPY NZD SEK GBP/DEM NOK/DEM Premiums
-------------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning -- -- 3,084,706 5,660 -- -- -- $ 455,387
of Period ..
Written ...... 3,568 54,400,000 4,696,145 118,080 104,500 47,194 37,000 2,775,080
Closed ....... (3,568) (54,400,000) (3,522,345) (38,894) (77,000) (17,572) (37,000) (1,843,404)
Exercised .... -- -- (1,173,800) (35,558) -- (17,014) -- (578,874)
Expired ...... -- -- (3,084,706) (34,511) (27,500) (12,608) -- (722,088)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
End of
Period ..... -- -- -- 14,777 -- -- -- $ 86,101
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
-----------------------------------------------------------------------------------------------------------
</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 Adviser has agreed not to impose all or a portion of its
management fee until February 28, 1998, 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, 1997, the Adviser did not impose a
portion of its management fee aggregating $664,865 and the amount imposed
aggregated $604,704 which was equivalent to an annual effective rate of 0.36% of
the Fund's average daily net assets.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
23 - Scudder Global Bond Fund
<PAGE>
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended October 31, 1997, the amount charged to the Fund by SSC aggregated
$375,659, of which $25,549 is unpaid at October 31, 1997.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended October 31,
1997, the amount charged to the Fund by STC aggregated $16,092, of which $1,295
is unpaid at October 31, 1997.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1997, the amount charged to the Fund by SFAC aggregated $156,250, of
which $21,641 is unpaid at October 31, 1997.
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, 1997, Directors' fees and expenses aggregated $50,590.
D. Commitments
As of October 31, 1997, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized depreciation of
$447,886.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
----------------------- ----------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
IND 2,450,261,679 MXP 5,520,826 11/12/97 (23,449)
IND 2,547,360,000 USD 928,000 11/12/97 221,958
AUD 4,387,680 USD 3,232,843 11/13/97 154,326
DEM 3,089,222 USD 1,684,142 11/13/97 (107,962)
DEM 2,738,385 USD 1,500,000 11/13/97 (88,578)
USD 3,250,000 DEM 5,827,608 11/13/97 130,683
USD 175,000 HUF 34,794,375 11/14/97 3,037
JPY 184,600,459 USD 1,530,785 11/21/97 (6,817)
JPY 410,937,800 SEK 26,000,000 1/14/98 21,340
SEK 26,000,000 JPY 408,540,600 1/14/98 (41,471)
CHF 25,506,973 USD 17,751,390 3/24/98 (691,300)
SEK 10,209,208 USD 1,346,429 4/14/98 (19,653)
-------------
(447,886)
-------------
</TABLE>
E. Line of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
24 - Scudder Global Bond Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder Global Fund, Inc. and to the Shareholders
of Scudder Global Bond Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Global Bond Fund including the investment portfolio, as of October 31, 1997, 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 six 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, 1997, 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 Bond Fund as of October 31, 1997, 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 six 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 18, 1997
25 - Scudder Global Bond Fund
<PAGE>
Stockholder Meeting Results
A Special Meeting of Stockholders (the "Meeting") of Scudder Global Bond Fund
(the "Fund") was held on October 27, 1997, at the offices of Scudder, Stevens &
Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street), New York, New York
10154. At the Meeting, as adjourned and reconvened, the following matters were
voted upon by the stockholders (the resulting votes for each matter are
presented below.) With regard to certain proposals, it was recommended that the
Meeting be reconvened in order to provide stockholders with an additional
opportunity to return their proxies. The date of the reconvened meeting at which
the matters were decided is noted after the proposed matter.
1. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Paul Bancroft III 7,945,997 438,416
Sheryle J. Bolton 7,944,548 439,865
William T. Burgin 7,917,691 466,722
Thomas J. Devine 7,939,994 444,419
Keith R. Fox 7,946,227 438,186
William H. Gleysteen, Jr. 7,940,389 444,024
William H. Luers 7,943,735 440,678
Daniel Pierce 7,948,124 436,289
Kathryn L. Quirk 7,943,420 440,993
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
7,724,932 331,932 327,549 215,665
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
7,911,799 655,649 559,020 157,070
26 - Scudder Global Bond Fund
<PAGE>
4. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
<S> <C> <C> <C> <C>
4.1 Diversification 7,114,105 532,250 522,393 215,665
4.2 Borrowing 7,050,009 589,246 529,493 215,665
4.3 Senior securities 7,094,309 551,730 522,709 215,665
4.4 Purchase of physical 7,091,093 548,686 528,969 215,665
commodities
4.5 Concentration 7,107,488 538,500 522,760 215,665
4.6 Underwriting of securities 7,101,699 546,573 520,476 215,665
4.7 Investment in real estate 7,102,995 417,021 648,732 215,665
4.8 Lending 7,090,742 426,293 651,713 215,665
</TABLE>
5. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
7,905,163 126,862 352,388
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
27 - Scudder Global Bond Fund
<PAGE>
Officers and Directors
Daniel Pierce*
Chairman of the Board, Director
and Vice President
Nicholas Bratt*
President and Director
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; Consultant
Thomas J. Devine
Director; Consultant
Keith R. Fox
Director; President, Exeter
Capital Management
Corporation
William H. Gleysteen, Jr.
Director; Consultant
William H. Luers
Director; President, The
Metropolitan Museum of Art
Kathryn L. Quirk*
Director, Vice President and
Assistant Secretary
Robert W. Lear
Honorary Director;
Executive-in-Residence,
Columbia University Graduate
School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Susan E. Gray*
Vice President
Jerard K. Hartman*
Vice President
Gary P. Johnson*
Vice President
Thomas W. Joseph*
Vice President
Gerald J. Moran*
Vice President
M. Isabel Saltzman*
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
*Scudder, Stevens & Clark, Inc.
28 - Scudder Global Bond Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
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. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **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.
29 - Scudder Global Bond Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Global Bond Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
31 - Scudder Global Bond Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 over 40 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 us 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 long-standing
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.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
[LOGO]
<PAGE>
SCUDDER GLOBAL FUND, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
For Scudder Global Fund:
Financial Highlights for the ten fiscal years ended
June 30, 1997.
(Incorporated by reference to Post-Effective
Amendment No. 30 to the Registration Statement.)
For Scudder International Bond Fund:
Financial Highlights for the period July 6, 1988
(commencement of operations) to June 30, 1989 and for
the eight fiscal years ended June 30, 1997.
(Incorporated by reference to Post-Effective
Amendment No. 30 to the Registration Statement.)
For Scudder Global Discovery Fund:
Financial Highlights for the period September 10, 1991
(commencement of operations) to October 31, 1991 and for
the six fiscal years ended October 31, 1997 is filed
herein.
For Scudder Global Bond Fund:
Financial Highlights for the period March 1, 1991
(commencement of operations) to October 31, 1991 and
for the six fiscal years ended October 31, 1997.
(Incorporated by reference to Post-Effective
Amendment No. 32 to the Registration Statement.)
For Scudder Emerging Markets Income Fund:
Financial Highlights for the period December 31, 1993
(commencement of operations) to October 31, 1994 and
for the three fiscal years ended October 31, 1997.
(Incorporated by reference to Post-Effective
Amendment No. 32 to the Registration Statement.)
Included in Part B of this Registration Statement:
For Scudder Global Fund:
Investment Portfolio as of June 30, 1997
Statement of Assets and Liabilities as of June 30, 1997
Statement of Operations for the fiscal year ended
June 30, 1997
Statements of Changes in Net Assets for the two fiscal
years ended June 30, 1997
Financial Highlights for the ten fiscal years ended
June 30, 1997
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference to Post-Effective Amendment
No. 30 to the Registration Statement.)
Part C - Page 1
<PAGE>
For Scudder International Bond Fund:
Investment Portfolio as of June 30, 1997
Statement of Assets and Liabilities as of June 30, 1997
Statement of Operations for the fiscal year ended June
30, 1997
Statements of Changes in Net Assets for the two fiscal
years ended June 30, 1997
Financial Highlights for the period July 6, 1988
(commencement of operations) to June 30, 1989 and for
the eight fiscal years ended June 30, 1997
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference to Post-Effective Amendment
No. 30 to the Registration Statement.)
For Scudder Global Discovery Fund:
Investment Portfolio as of October 31, 1997
Statement of Assets and Liabilities as of October 31,
1997
Statement of Operations for the fiscal year ended
October 31, 1997
Statements of Changes in Net Assets for the two fiscal
years ended October 31, 1997
Financial Highlights for the period September 10, 1991
(commencement of operations) to October 31, 1991 and for
the six fiscal years ended October 31, 1997
Notes to Financial Statements
Report of Independent Accountants
For Scudder Global Bond Fund:
Investment Portfolio as of October 31, 1997
Statement of Assets and Liabilities as of October 31,
1997
Statement of Operations for the fiscal year ended
October 31, 1997
Statements of Changes in Net Assets for the two fiscal
years ended October 31, 1997
Financial Highlights for the period March 1, 1991
(commencement of operations) to October 31, 1991 and for
the six fiscal years ended October 31, 1997
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference to Post-Effective No. 32 to
the Registration Statement.)
For Scudder Emerging Markets Income Fund:
Investment Portfolio as of October 31, 1997
Statement of Assets and Liabilities as of October 31,
1997
Statement of Operations for the fiscal year ended
October 31, 1997
Statement of Changes in Net Assets for the period
December 31, 1993 (commencement of operations) to
October 31, 1994 and for the two fiscal years ended
October 31, 1997
Financial Highlights for the period December 31, 1993
(commencement of operations) to October 31, 1994 and for
the three fiscal years ended October 31, 1997
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference to Post-Effective No. 32 to
the Registration Statement.)
Statements, schedules and historical information other than
those listed above have been omitted since they are either not
applicable or are not required.
Part C - Page 2
<PAGE>
b. Exhibits:
1. (a) Articles of Amendment and Restatement dated
December 13, 1990.
(Incorporated by reference to Exhibit 1(a) to
Post-Effective Amendment No. 8 to the
Registration Statement.)
(b) Articles Supplementary dated February 14, 1991.
(Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 9 to the
Registration Statement.)
(c) Articles Supplementary dated July 11, 1991.
(Incorporated by reference to Exhibit No. 1(c) to
Post-Effective Amendment No. 12 to the
Registration Statement.)
(d) Articles Supplementary dated November 24, 1992.
(Incorporated by reference to Exhibit 1(d) to
Post-Effective Amendment No. 18 to the
Registration Statement.)
(e) Articles Supplementary dated October 20, 1993.
(Incorporated by reference to Exhibit 1(e) to
Post-Effective Amendment No. 19 to the
Registration Statement.)
(f) Articles Supplementary dated December 14, 1995.
(Incorporated by reference to Exhibit 1(f) to
Post-Effective Amendment No. 26 to the
Registration Statement.)
(g) Articles Supplementary dated March 6, 1996.
(Incorporated by reference to Exhibit 1(g) to
Post-Effective Amendment No. 28 to the
Registration Statement.)
(h) A form of the Articles Supplementary dated
__________ is filed herein.
2. (a) By-Laws dated May 15, 1986.
(Incorporated by reference to Exhibit 2 to
original Registration Statement.)
(b) Amendment dated May 4, 1987 to the By-Laws.
(Incorporated by reference to Exhibit 2(b) to
Post-Effective Amendment No. 2 to the
Registration Statement.)
(c) Amendment dated September 14, 1987 to the
By-Laws.
(Incorporated by reference to Exhibit 2(c) to
Post-Effective Amendment No. 5 to the
Registration Statement.)
(d) Amendment dated July 27, 1988 to the By-Laws.
(Incorporated by reference to Exhibit 2(d) to
Post-Effective Amendment No. 5 to the
Registration Statement.)
(e) Amendment dated September 15, 1989 to the
By-Laws.
(Incorporated by reference to Exhibit 2(e) to
Post-Effective Amendment No. 7 to the
Registration Statement.)
(f) Amended and Restated By-Laws dated March 4, 1991.
Part C - Page 3
<PAGE>
(Incorporated by reference to Exhibit 2(f) to
Post-Effective Amendment No. 12 to the
Registration Statement.)
(g) Amendment dated September 20, 1991 to the
By-Laws. (Incorporated by reference to Exhibit
No. 2(g) to Post-Effective Amendment No. 15 to
the Registration Statement.)
(h) Amendment dated December 12, 1991 to the By-Laws.
(Incorporated by reference to Exhibit No. 2(h) to
Post-Effective Amendment No. 23 to the
Registration Statement.)
(i) Amendment dated October 1, 1996 to the By-Laws.
(Incorporated by reference to Exhibit No. 2(i) to
Post-Effective Amendment No. 27 to the
Registration Statement.)
3. Inapplicable.
4. (a) Specimen Share Certificate representing shares
of capital stock of $.01 par value of Scudder
Global Fund.
(Incorporated by reference to Exhibit 4(a) to
Post-Effective Amendment No. 6 to the
Registration Statement.)
(b) Specimen Share Certificate representing shares of
capital stock of $.01 par value of Scudder
International Bond Fund.
(Incorporated by reference to Exhibit 4(b) to
Post-Effective Amendment No. 6 to the
Registration Statement.)
5. (a) Investment Management Agreement between the
Registrant (on behalf of Scudder Global Fund)
and Scudder, Stevens & Clark, Inc. dated
December 14, 1990.
(Incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 12 to the
Registration Statement.)
(b) Investment Management Agreement between the
Registrant (on behalf of Scudder International
Bond Fund) and Scudder, Stevens & Clark, Inc.
dated December 14, 1990.
(Incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 12 to the
Registration Statement.)
(c) Investment Management Agreement between the
Registrant (on behalf of Scudder Short Term
Global Income Fund) and Scudder, Stevens & Clark,
Inc. dated September 7, 1993.
(Incorporated by reference to Exhibit 5(c) to
Post-Effective Amendment No. 20 to the
Registration Statement.)
(d) Investment Management Agreement between the
Registrant (on behalf of Scudder Global Small
Company Fund) and Scudder, Stevens & Clark, Inc.
dated September 3, 1991.
(Incorporated by reference to Exhibit 5(d) to
Post-Effective Amendment No. 15 to the
Registration Statement.)
(e) Investment Management Agreement between the
Registrant (on behalf of Scudder Emerging
Markets Income Fund) and Scudder, Stevens &
Clark, Inc. dated December 29, 1993.
(Incorporated by reference to Post-Effective
Amendment No. 21 to the Registration
Statement.)
Part C - Page 4
<PAGE>
(f) Investment Management Agreement between the
Registrant (on behalf of Scudder International
Bond Fund) and Scudder, Stevens & Clark, Inc.
dated September 8, 1994.
(Incorporated by reference to Post-Effective
Amendment No. 22 to the Registration
Statement.)
(g) Investment Management Agreement between the
Registrant (on behalf of Scudder Global Fund)
and Scudder, Stevens & Clark, Inc. dated
September 6, 1995.
(Incorporated by reference to Post-Effective
Amendment No. 24 to the Registration
Statement.)
(h) Form of an Investment Management Agreement
between the Registrant (on behalf of Scudder
Global Fund) and Scudder Kemper Investments,
Inc. dated December 31, 1997 is filed herein.
(h)(1) Form of an Investment Management Agreement
between the Registrant (on behalf of Scudder
International Bond Fund) and Scudder Kemper
Investments, Inc. dated December 31, 1997 is
filed herein.
(h)(2) Form of an Investment Management Agreement
between the Registrant (on behalf of Scudder
Global Bond Fund) and Scudder Kemper
Investments, Inc. dated December 31, 1997 is
filed herein.
(h)(3) Form of an Investment Management Agreement
between the Registrant (on behalf of Scudder
Global Discovery Fund) and Scudder Kemper
Investments, Inc. dated December 31, 1997 is
filed herein.
(h)(4) Form of an Investment Management Agreement
between the Registrant (on behalf of Scudder
Emerging Markets Income Fund) and Scudder
Kemper Investments, Inc. dated December 31,
1997 is filed herein.
6. (a) Underwriting Agreement between the Registrant
and Scudder Investor Services, Inc. dated July
24, 1986.
(Incorporated by reference to Exhibit 6 to
Post-Effective Amendment No. 1 to the
Registration Statement.)
(b) Underwriting and Distribution Services Agreement
between the Registrant, on behalf of Global
Discovery Fund, dated __________ is
filed herein.
7. Inapplicable.
8. (a) Custodian Agreement between the Registrant and
State Street Bank and Trust Company dated
July 24, 1986.
(Incorporated by reference to Exhibit 8(a) to
Post-Effective Amendment No. 1 to the
Registration Statement.)
Part C - Page 5
<PAGE>
(b) Fee schedule for Exhibit 8(a).
(Incorporated by reference to Exhibit 8(b) to
Post-Effective Amendment No. 4 to the
Registration Statement.)
(c) Custodian Agreement between the Registrant (on
behalf of Scudder International Bond Fund) and
Brown Brothers Harriman & Co. dated July 1,
1988.
(Incorporated by reference to Exhibit 8(c) to
Post-Effective Amendment No. 5 to the
Registration Statement.)
(d) Fee schedule for Exhibit 8(c).
(Incorporated by reference to Exhibit 8(d) to
Post-Effective Amendment No. 5 to the
Registration Statement.)
(e) Amendment dated September 16, 1988 to the
Custodian Contract between the Registrant and
State Street Bank and Trust Company dated July
24, 1986.
(Incorporated by reference to Exhibit 8(d) to
Post-Effective Amendment No. 6 to the
Registration Statement.)
(f) Amendment dated December 7, 1988 to the
Custodian Contract between the Registrant and
State Street Bank and Trust Company dated July
24, 1986.
(Incorporated by reference to Exhibit 8(e) to
Post-Effective Amendment No. 6 to the
Registration Statement.)
(g) Amendment dated November 30, 1990 to the
Custodian Contract between the Registrant and
State Street Bank and Trust Company dated July
24, 1986.
(Incorporated by reference to Post-Effective
Amendment No. 10 to the Registration
Statement.)
(h) Custodian Agreement between the Registrant (on
behalf of Scudder Short Term Global Income
Fund) and Brown Brothers Harriman & Co. dated
February 28, 1991.
(Incorporated by reference to Post-Effective
Amendment No. 15 to the Registration
Statement.)
(i) Custodian Agreement between the Registrant (on
behalf of Scudder Global Small Company Fund)
and Brown Brothers Harriman & Co. dated
August 30, 1991.
(Incorporated by reference to Post-Effective
Amendment No. 16 to the Registration
Statement.)
(j) Custodian Agreement between the Registrant (on
behalf of Scudder Emerging Markets Income
Fund) and Brown Brothers Harriman & Co. dated
December 31, 1993.
(Incorporated by reference to Post-Effective
Amendment No. 23 to the Registration
Statement.)
(k) Amendment (on behalf of Scudder Global Fund)
dated October 3, 1995 to the Custodian Agreement
between the Registrant and Brown Brothers
Harriman & Co. dated March 7, 1995.
(Incorporated by reference to Post-Effective
Amendment No. 24 to the Registration Statement.)
(k)(1) Amendment dated September 29, 1997 to the
Custodian Contract between the Registrant and
Brown Brothers Harriman & Co. dated
March 7, 1995.
Part C - Page 6
<PAGE>
9. (a)(1) Transfer Agency and Service Agreement
between the Registrant and Scudder Service
Corporation dated October 2, 1989.
(Incorporated by reference to Exhibit 9(a)(1) to
Post-Effective Amendment No. 7 to the
Registration Statement.)
(a)(2) Fee schedule for Exhibit 9(a)(1).
(Incorporated by reference to Exhibit 9(a)(2)
to Post-Effective Amendment No. 7 to the
Registration Statement.)
(a)(3) Revised fee schedule dated October 1, 1995 for
Exhibit 9(a)(1).
(Incorporated by reference to Exhibit 9(a)(3)
to Post-Effective Amendment No. 27 to the
Registration Statement.)
(a)(4) Revised fee schedule dated October 1, 1996 for
Exhibit 9(a)(1) is filed herein.
(Incorporated by reference to Exhibit 9(a)(4)
to Post-Effective Amendment No. 28 to the
Registration Statement.)
(a)(5) Form of Agency agreement between the Registrant,
on behalf of Global Discovery Fund, and Kemper
Service Company dated _____________ is filed
herein.
(b)(1) COMPASS Service Agreement with Scudder Trust
Company dated January 1, 1990.
(Incorporated by reference to Exhibit 9(b)(1)
to Post-Effective Amendment No. 7 to the
Registration Statement.)
(b)(2) Fee schedule for Exhibit 9(b)(1).
(Incorporated by reference to Exhibit 9(b)(2)
to Post-Effective Amendment No. 7 to the
Registration Statement.)
(b)(3) COMPASS Service Agreement between Scudder
Trust Company and the Registrant dated
October 1, 1995.
(Incorporated by reference to Exhibit 9(b)(3)
to Post-Effective Amendment No. 26 to the
Registration Statement.)
(b)(4) Revised fee schedule dated October 1, 1996 for
Exhibit 9(b)(3) is filed herein.
(Incorporated by reference to Exhibit 9(b)(4)
to Post-Effective Amendment No. 28 to the
Registration Statement.)
(c)(1) Shareholder Services Agreement with Charles
Schwab & Co., Inc. dated June 1, 1990.
(Incorporated by reference to Exhibit 9(c) to
Post-Effective Amendment No. 7 to the
Registration Statement.)
(c)(2) Service Agreement between Copeland Associates,
Inc. and Scudder Service Corporation (on
behalf of Scudder Global Fund and Scudder
Global Small Company Fund) dated June 8, 1995.
(Incorporated by reference to Post-Effective
Amendment No. 24 to the Registration
Statement.)
(c)(3) Administrative Services Agreement between
McGladvey & Pullen, Inc. and the Registrant
dated September 30, 1995.
(Incorporated by reference to Exhibit 9(c)(3)
to Post-Effective Amendment No. 26 to the
Registration Statement.)
Part C - Page 7
<PAGE>
(c)(4) Form of Administrative Services Agreement
between the Registrant, on behalf of Global
Discovery Fund, and Kemper Distributors, Inc.
is filed herein.
(d)(1) Fund Accounting Services Agreement between the
Registrant (on behalf of Scudder Global Fund)
and Scudder Fund Accounting Corporation dated
March 14, 1995.
(Incorporated by reference to Post-Effective
Amendment No. 24 to the Registration
Statement.)
(d)(2) Fund Accounting Services Agreement between the
Registrant (on behalf of Scudder International
Bond Fund) and Scudder Fund Accounting
Corporation dated August 3, 1995.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(d)(3) Fund Accounting Services Agreement between the
Registrant (on behalf of Scudder Global Small
Company Fund) and Scudder Fund Accounting
Corporation dated June 15, 1995.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(d)(4) Fund Accounting Services Agreement between the
Registrant (on behalf of Scudder Global Bond
Fund (formerly Scudder Short Term Global Income
Fund)) and Scudder Fund Accounting Corporation
dated November 29, 1995.
(Incorporated by reference to Exhibit 9(d)(4) to
Post-Effective Amendment No. 26 to the
Registration Statement.)
(d)(5) Fund Accounting Services Agreement between the
Registrant (on behalf of Scudder Emerging
Markets Income Fund) and Scudder Fund Accounting
Corporation dated February 1, 1996.
(Incorporated by reference to Exhibit 9(d)(5) to
Post-Effective Amendment No. 27 to the
Registration Statement.)
10. Inapplicable.
11. Consent of Independent Accountants is filed
herein.
12. Inapplicable.
13. (a) Letter of Investment Intent (on behalf of
Scudder Global Fund)
(Incorporated by reference to Exhibit 13 to
Pre-Effective Amendment No. 2 to the
Registration Statement.)
(b) Letter of Investment Intent (on behalf of
Scudder International Bond Fund)
(Incorporated by reference to Exhibit 13(b) to
Post-Effective Amendment No. 4 to the
Registration Statement.)
(c) Letter of Investment Intent (on behalf of
Scudder Short Term Global Income Fund)
(Incorporated by reference to Exhibit 13(c) to
Post-Effective Amendment No. 9 to the
Registration Statement.)
Part C - Page 8
<PAGE>
14. (a) Scudder Flexi-Plan for Corporations and
Self-Employed Individuals.
(Incorporated by reference to Exhibit 14(a) to
Scudder Income Fund Post-Effective Amendment No.
46 to its Registration Statement on Form N-1A
[File Nos. 2-13627 and 811-42].)
(b) Scudder Individual Retirement Plan.
(Incorporated by reference to Exhibit 14(b) to
Scudder Income Fund Post-Effective Amendment
No. 46 to its Registration Statement on Form
N-1A [File Nos. 2-13627 and 811-42].)
(c) Scudder Funds 403(b) Plan.
(Incorporated by reference to Exhibit 14(c) to
Scudder Income Fund Post-Effective Amendment No.
46 to its Registration Statement on Form N-1A
[File Nos. 2-13627 and 811-42].)
(d) Scudder Employer-Select 403(b) Plan.
(Incorporated by reference to Exhibit 14(e)(2)
to Scudder Income Fund, Inc. Post-Effective
Amendment No. 43 to its Registration Statement
on Form N-1A [File Nos. 2-13627 and 811-42].)
(e) Scudder Cash or Deferred Profit Sharing Plan
under Section 401(k).
(Incorporated by reference to Exhibit 14(f) to
Scudder Income Fund, Inc. Post-Effective
Amendment No. 43 to its Registration Statement
on Form N-1A [File Nos. 2-13627 and 811-42].)
15. Inapplicable.
16. Schedule for Computation of Performance
Quotation.
(Incorporated by reference to Exhibit 16 to
Post-Effective Amendment No. 6 to the
Registration Statement.)
17. Article 6 Financial Data Schedules are filed
herein.
18. Mutual Funds Multi-Distribution System Plan
pursuant to Rule 18f-3 is filed herein.
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities (as of April 14, 1998).
(1) (2)
Title of Class Number of Shareholders
-------------- ----------------------
Shares of capital stock
($.01 par value)
Scudder Global Fund 122,070
Scudder International Bond Fund 14,228
Scudder Global Bond Fund 8,231
Scudder Global Discovery Fund 29,136
Scudder Emerging Markets Income Fund 18,015
Part C - Page 9
<PAGE>
Item 27. Indemnification.
A policy of insurance covering Scudder, Stevens & Clark, Inc., its
subsidiaries including Scudder Investor Services, Inc., and all of
the registered investment companies advised by Scudder, Stevens &
Clark, Inc. insures the Registrant's Directors and officers and
others against liability arising by reason of an alleged breach of
duty caused by any negligent error or accidental omission in the
scope of their duties.
Article Tenth of Registrant's Articles of Incorporation state as follows:
TENTH: Liability and Indemnification
To the fullest extent permitted by the Maryland General Corporation Law
and the Investment Company Act of 1940, no director or officer of the
Corporation shall be liable to the Corporation or to its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation, whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted. No amendment to these Articles of Amendment and Restatement or
repeal of any of its provisions shall limit or eliminate the benefits provided
to directors and officers under this provision with respect to any act or
omission which occurred prior to such amendment or repeal.
The Corporation, including its successors and assigns, shall indemnify its
directors and officers and make advance payment of related expenses to the
fullest extent permitted, and in accordance with the procedures required by
Maryland law, including Section 2-418 of the Maryland General Corporation Law,
as may be amended from time to time, and the Investment Company Act of 1940. The
By-laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.
The rights provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
such rights in serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Amendment and Restatement shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
Nothing in these Articles of Amendment and Restatement shall be deemed to
(i) require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission under
those Acts or (ii) protect any director or officer of the Corporation against
any liability to the Corporation or its stockholders to which he would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of his or her duties or by reason of his or her reckless
disregard of his or her obligations and duties hereunder.
Item 28. Business or Other Connections of Investment Adviser
Scudder Kemper Investments, Inc. has stockholders and employees
who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 28.
Part C - Page 10
<PAGE>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
Stephen R. Treasurer and Chief Financial Officer, Scudder Kemper
Beckwith Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting
Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution
Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning
Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments,
Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A. #
Laurence W. Director, Scudder Kemper Investments, Inc.**
Cheng Member, Corporate Executive Board, Zurich Insurance Company
of Switzerland ##
Director, ZKI Holding Corporation xx
Steven Director, Scudder Kemper Investments, Inc.**
Gluckstern Member, Corporate Executive Board, Zurich Insurance Company
of Switzerland ##
Director, Zurich Holding Company of America o
Rolf Huppi Director, Chairman of the Board, Scudder Kemper
Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company
of Switzerland ##
Director, Chairman of the Board, Zurich Holding Company of
America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and
Secretary, Scudder Kemper Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder
Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund
Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty
Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder
Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens &
Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada
Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty
Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark
Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas
Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined
Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital
Asset Corporation**
Director, Vice President and Secretary, Scudder Capital
Stock Corporation**
Director, Vice President and Secretary, Scudder Capital
Planning Corporation**
Director, Vice President and Secretary, SS&C Investment
Corporation**
Director, Vice President and Secretary, SIS Investment
Corporation**
Director, Vice President and Secretary, SRV Investment
Corporation**
Director, Vice President and Secretary, Scudder Brokerage
Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Part C - Page 11
<PAGE>
Markus Director, Scudder Kemper Investments, Inc.**
Rohrbasser Member Corporate Executive Board, Zurich Insurance Company
of Switzerland ##
President, Director, Chairman of the Board, ZKI Holding
Corporation xx
Cornelia M. Vice President, Scudder Kemper Investments, Inc.**
Small
Edmond D. Director, President and Chief Executive Officer, Scudder
Villani Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc. ###
President and Director, Scudder, Stevens & Clark Overseas
Corporation oo
President and Director, Scudder, Stevens & Clark
Corporation**
Director, Scudder Realty Advisors, Inc. x
Director, IBJ Global Investment Management S.A. Luxembourg,
Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 29. Principal Underwriters.
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of this
Item 29.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and
Name and Principal Position and Offices with Offices with
Business Address Scudder Investor Services, Inc. Registrant
---------------- ------------------------------- ----------
<S> <C> <C>
William S. Baughman Vice President None
Two International Place
Boston, MA 02110
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
</TABLE>
Part C - Page 12
<PAGE>
<TABLE>
<CAPTION>
Positions and
Name and Principal Position and Offices with Offices with
Business Address Scudder Investor Services, Inc. Registrant
---------------- ------------------------------- ----------
<S> <C> <C>
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and None
Two International Place Assistant Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice None
Two International Place President
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and None
345 Park Avenue Assistant Clerk
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Thomas F. McDonough Clerk Vice President,
Two International Place Secretary and
Boston, MA 02110 Treasurer
Daniel Pierce Director, Vice President Chairman of the
Two International Place and Assistant Treasurer Board, Director and
Boston, MA 02110 Vice President
Kathryn L. Quirk Director, Senior Vice President Director, Vice
345 Park Avenue and Assistant Clerk President and
New York, NY 10154 Assistant Secretary
</TABLE>
Part C - Page 13
<PAGE>
<TABLE>
<CAPTION>
Positions and
Name and Principal Position and Offices with Offices with
Business Address Scudder Investor Services, Inc. Registrant
---------------- ------------------------------- ----------
<S> <C> <C>
Robert A. Rudell Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens & Clark,
Inc., 345 Park Avenue, New York, NY 10154. Records relating to the
duties of the Registrant's custodian (on behalf of Scudder Global
Fund) are maintained by State Street Bank and Trust Company,
Heritage Drive, North Quincy, Massachusetts. Records relating to the
duties of the Registrant's custodian (on behalf of Scudder
International Bond Fund, Scudder Short Term Global Income Fund,
Scudder Global Small Company Fund and Scudder Emerging Markets
Income Fund) are maintained by Brown Brothers Harriman & Co., 40
Water Street, Boston, Massachusetts.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
None.
Part C - Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 15th day of April, 1998.
SCUDDER GLOBAL FUND, INC.
By /s/Thomas F. McDonough
----------------------------------
Thomas F. McDonough,
Vice President, Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- --------- ----- -----
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce* Chairman of the Board, Director and April 15, 1998
Vice President (Principal Executive
Officer)
/s/Paul Bancroft III
- --------------------------------------
Paul Bancroft III* Director April 15, 1998
/s/Sheryle J. Bolton
- --------------------------------------
Sheryle J. Bolton* Director April 15, 1998
/s/William T. Burgin
- --------------------------------------
William T. Burgin* Director April 15, 1998
/s/Thomas J. Devine
- --------------------------------------
Thomas J. Devine* Director April 15, 1998
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- -----
/s/Keith R. Fox
- --------------------------------
Keith R. Fox* Director April 15, 1998
/s/William H. Gleysteen, Jr.
- --------------------------------------
William H. Gleysteen, Jr.* Director April 15, 1998
/s/William H. Luers
- --------------------------------------
William H. Luers* Director April 15, 1998
/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Director April 15, 1998
/s/Thomas F. McDonough
- --------------------------------------
Thomas F. McDonough Vice President, Secretary and April 15, 1998
Treasurer (Principal Financial
Officer)
</TABLE>
*By: /s/ Thomas F. McDonough
-------------------------------
Thomas F. McDonough,
Attorney-in-fact pursuant to powers of attorney included with the
signature pages of Post-Effective Amendment No. 10 to the Registration
Statement filed July 1, 1991, Post-Effective Amendment No. 18 to the
Registration Statement filed September 2, 1993, Post-Effective
Amendment No. 19 to the Registration Statement filed November 1, 1993,
Post-Effective Amendment No. 26 to the Registration Statement filed
February 28, 1996, Post-Effective Amendment No. 27 to the Registration
Statement filed October 29, 1996 and Post-Effective Amendment No. 29 to
the Registration Statement filed August 26, 1997 and Post-Effective
Amendment No. 30 to the Registration Statement filed October 28, 1997.
<PAGE>
File No. 33-5724
File No. 811-4670
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 33
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 36
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER GLOBAL FUND, INC.
<PAGE>
SCUDDER GLOBAL FUND, INC.
Exhibit Index
Exhibit 1(h)
Exhibit 6(b)
Exhibit 9(a)(5)
Exhibit 9(c)(4)
Exhibit 11
Exhibit 17
Exhibit 18
SCUDDER GLOBAL FUND, INC.
ARTICLES SUPPLEMENTARY
Scudder Global Fund, Inc., a Maryland corporation (which is hereinafter
called the "Corporation), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article FIFTH of the Charter of the Corporation,
the Board of Directors (i) has duly designated and classified seventy million
(70,000,000) shares of the authorized but unissued shares of the "Global
Discovery Fund" series of the Corporation's capital stock into three separate
classes of shares of the "Global Discovery Fund" series, with forty million
(40,000,000) of such shares being designated and classified as "Class A" shares
of the "Global Discovery Fund" series, twenty million (20,000,000) of such
shares being designated and classified as "Class B" shares of the "Global
Discovery Fund" series, and ten million (10,000,000) of such shares being
designated and classified as "Class C" shares of the "Global Discovery Fund"
series, and (ii) has duly designated the thirty million (30,000,000) shares of
the issued and unissued authorized shares of the "Global Discovery Fund" series
of the Corporation's capital stock not designated and classified pursuant to (i)
above as a separate class of the "Global Discovery Fund" series, such class
being designated as the "Class S" shares of the "Global Discovery Fund" series.
(a) Immediately prior to the filing of these Articles Supplementary, the
Corporation had authority to issue eight hundred million (800,000,000) shares of
capital stock, $0.01 par value per share, one hundred million (100,000,000) of
such shares being designated as the "Emerging Markets Income Fund" series; three
hundred million (300,000,000) of such shares being designated as the "Global
Bond Fund" series; two hundred million (200,000,000) of such shares being
designated as the "International Bond Fund" series; and one hundred million
(100,000,000) of such shares being designated as the "Global Discovery Fund"
series.
(b) Immediately after the filing of these Articles Supplementary, the
Corporation will have the authority to issue eight hundred million (800,000,000)
shares of capital stock, $0.01 par value per share, one hundred million
(100,000,000) of such shares being designated as the "Emerging Markets Income
Fund" series; three hundred million (300,000,000) of such shares being
designated as the "Global Bond Fund" series; two hundred million (200,000,000)
of such shares being designated as the "International Bond Fund" series; and one
hundred million (100,000,000) of such shares being designated as the "Global
Discovery Fund" series. Of the one hundred million (100,000,000) shares
designated as the "Global Discovery Fund" series, forty million (40,000,000) of
such shares will be designated as "Class A" shares of the "Global Discovery
Fund" series; twenty million (20,000,000) of such shares will be designated as
"Class B" shares of the
<PAGE>
"Global Discovery Fund" series; ten million (10,000,000) of such shares will be
designated as "Class C" shares of the "Global Discovery Fund" series; and thirty
million (30,000,000) of such shares will be designated as "Class S" shares of
the "Global Discovery Fund" series.
SECOND: A description of the "Class A", "Class B" and "Class C" shares of
the "Global Discovery Fund" series, including the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and the terms or conditions of redemption of, such shares, as set
by the Board of Directors of the Corporation, is as follows:
(a) Except as provided in the Charter of the Corporation and except as
described in (b) and (c) below, the "Class A", "Class B" and "Class C" shares of
the "Global Discovery Fund" series each shall be identical in all respects, and
shall have the same preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption, as the "Class S" shares of the "Global Discovery Fund"
series.
(b) The "Class A", "Class B" and "Class C" shares of the "Global Discovery
Fund" series may be issued and sold subject to such sales loads or charges,
whether initial, deferred or contingent, or any combination thereof, and to such
expenses and fees (including, without limitation, distribution expenses under a
Rule 12b-1 plan and administrative expenses under an administrative or service
agreement, plan or other arrangement, however designated), and to such account
size requirements, which may be different from one another, as well as different
from the sales loads, charges, expenses, fees or account size requirements of
the "Class S" shares of the "Global Discovery Fund" series, all as the Board of
Directors may from time to time establish in accordance with the Investment
Company Act of 1940, as amended, and other applicable law.
(c) The "Class B" shares of the "Global Discovery Fund" series shall be
convertible into "Class A" shares of the "Global Discovery Fund" series on such
terms and subject to such provisions as the Board of Directors may from time to
time establish in accordance with the Investment Company Act of 1940, as
amended, and other applicable law.
THIRD: Except as otherwise provided by the express provisions of these
Articles Supplementary, nothing herein shall limit, by inference or otherwise,
the discretionary right of the Board of Directors of the Corporation to classify
and reclassify and issue any unissued shares of any series or class of the
Corporation's capital stock and to fix or alter all terms thereof to the full
extent provided by the Charter of the Corporation.
FOURTH: The Board of Directors of the Corporation, at a meeting duly
called and held, duly authorized and adopted resolutions designating and
classifying the "Class
-2-
<PAGE>
A", "Class B" and "Class C" shares of the "Global Discovery Fund" series as set
forth in these Articles Supplementary.
IN WITNESS WHEREOF, Scudder Global Fund, Inc. has caused these Articles
Supplementary to be signed and acknowledged in its name and on its behalf by its
President and attested to by its Secretary on this __ day of ____________, 1998;
and its President acknowledges that these Articles Supplementary are the act of
Scudder Global Fund, Inc., and he further acknowledges that, as to all matters
or facts set forth herein which are required to be verified under oath, such
matters and facts are true in all material respects to the best of his
knowledge, information and belief, and that this statement is made under the
penalties for perjury.
ATTEST: SCUDDER GLOBAL FUND, INC.
_______________________________ By: ______________________ (SEAL)
, Secretary , President
-3-
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this __ day of April, 1998 between Scudder Global Fund, Inc., a
Maryland corporation (the "Company"), or behalf of Global Discovery Fund, a
series of the Company (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware
corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Company hereby appoints KDI to act as agent for the distribution of the
Class A shares, Class B shares and Class C shares of the capital stock
(hereinafter called "shares")of the Fund in jurisdictions wherein shares of the
Fund may legally be offered for sale; provided, however, that the Company in its
absolute discretion may (a) issue or sell shares directly to holders of shares
of the Fund upon such terms and conditions and for such consideration, if any,
as it may determine, whether in connection with the distribution of subscription
or purchase rights, the payment or reinvestment of dividends or distributions,
or otherwise; or (b) issue or sell shares at net asset value to the shareholders
of any other investment company for which KDI shall act as exclusive
distributor, who wish to exchange all or a portion of their investment in shares
of such other investment company for shares of the Fund. KDI shall appoint
various financial service firms ("Firms") to provide distribution services to
investors. The Firms shall provide such office space and equipment, telephone
facilities, personnel, literature distribution, advertising and promotion as is
necessary or beneficial for providing information and distribution services to
existing and potential clients of the Firms. KDI may also provide some of the
above services for the Fund.
KDI accepts such appointment as distributor and principal underwriter and agrees
to render such services and to assume the obligations herein set forth for the
compensation herein provided. KDI shall for all purposes herein provided be
deemed to be an independent contractor and, unless expressly provided herein or
otherwise authorized, shall have no authority to act for or represent the
Company in any way. KDI, by separate agreement with the Company, may also serve
the Company in other capacities. The services of KDI to the Fund under this
Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various
1
<PAGE>
Firms to provide advertising, promotion and other distribution services
contemplated hereunder directly to or for the benefit of existing and potential
shareholders who may be clients of such Firms. Such Firms shall at all times be
deemed to be independent contractors retained by KDI and not the Company.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable federal and state laws and regulations and to the
Charter of the Company.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Company. In addition to sales made by it as agent of the
Fund, KDI may, in its discretion, also sell shares of the Fund as principal to
persons with whom it does not have selling group agreements.
Shares of any class of the Fund offered for sale or sold by KDI shall be so
offered or sold at a price per share determined in accordance with the then
current prospectus. The price the Fund shall receive, on behalf of the Fund, for
all Fund shares purchased from it shall be the net asset value used in
determining the public offering price applicable to the sale of such shares. Any
excess of the sales price over the net asset value of the shares of the Fund
sold by KDI as agent shall be retained by KDI as a commission for its services
hereunder. KDI may compensate Firms for sales of shares at the commission levels
provided in the Fund's prospectus from time to time. KDI may pay other
commissions, fees or concessions to Firms, and may pay them to others in its
discretion, in such amounts as KDI shall determine from time to time. KDI shall
be entitled to receive and retain any applicable contingent deferred sales
charge as described in the Fund's prospectus. KDI shall also receive any
distribution services fee payable by the Fund as provided in Section 8 hereof.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
2
<PAGE>
3. The Company will use its best efforts to keep effectively registered under
the Securities Act for sale as herein contemplated such Fund shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Company may
terminate, suspend or withdraw the offering of Fund shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Company will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of Fund shares for sale (including the qualification of the
Company or the Fund as a dealer where necessary or advisable) in such states as
KDI may reasonably request (it being understood that the Company shall not be
required without its consent to comply with any requirement which in its opinion
is unduly burdensome). The Company will furnish to KDI from time to time such
information with respect to the Fund and its shares as KDI may reasonably
request for use in connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of Fund
shares, KDI will pay or cause to be paid to the Fund the amount due the Company,
on behalf of the Fund, for the sale of such Fund shares. Certificates shall be
issued or shares registered on the transfer books of the Fund in such names and
denominations as KDI may specify.
6. KDI shall order shares of the Fund from the Company only to the extent that
it shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Director or officer of the Company or to any officer
or director of KDI or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to any corporation
or association, unless such sales are made in accordance with the then current
prospectus relating to the sale of such shares. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects conform to the requirements of all state and
federal laws and the Conduct Rules of the National Association of Securities
Dealers, Inc., relating to such sale or reacquisition,
3
<PAGE>
as the case may be, and will indemnify and save harmless the Company and its
Directors from any damage or expense on account of any wrongful act or failure
to act by KDI or any employee, representative or agent of KDI. KDI will observe
and be bound by all the provisions of the Charter of the Company (and of any
fundamental policies adopted by the Company pursuant to the Investment Company
Act of 1940, notice of which shall have been given to KDI) which at the time in
any way require, limit, restrict, prohibit or otherwise regulate any action on
the part of KDI hereunder.
7. The Company, on behalf of the Fund, shall assume and pay all charges and
expenses of its operations not specifically assumed or otherwise to be provided
by KDI under this Agreement. The Company, on behalf of the Fund, will pay or
cause to be paid expenses (including the fees and disbursements of its own
counsel) of any registration of the Fund and its shares under the United States
securities laws and expenses incident to the issuance of shares of capital
stock, such as the cost of share certificates, issue taxes, and fees of the
transfer agent. KDI will pay all expenses (other than expenses which one or more
Firms may bear pursuant to any agreement with KDI) incident to the sale and
distribution of the shares issued or sold hereunder, including, without limiting
the generality of the foregoing, all (a) expenses of printing and distributing
any prospectus and of preparing, printing and distributing or disseminating any
other literature, advertising and selling aids in connection with the offering
of the shares for sale (except that such expenses need not include expenses
incurred by the Fund in connection with the preparation, typesetting, printing
and distribution of any registration statement or prospectus, report or other
communication to shareholders in their capacity as such), (b) expenses of
advertising in connection with such offering and (c) expenses (other than the
Fund's auditing expenses) of qualifying or continuing the qualification of the
shares for sale and, in connection therewith, of qualifying or continuing the
qualification of the Company as a dealer or broker under the laws of such states
as may be designated by KDI under the conditions herein specified. No transfer
taxes, if any, which may be payable in connection with the issue or delivery of
shares sold as herein contemplated or of the certificates for such shares shall
be borne by the Fund, and KDI will indemnify and hold harmless the Company
against liability for all such transfer taxes.
8. For the services and facilities described herein in connection with Class B
shares and Class C shares of each series of the Fund, the Company, on behalf of
the Fund, will pay to KDI at the end of each calendar month a distribution
services fee computed at the annual rate of .75% of average daily net assets
attributable to the Class B shares and Class C shares of the
4
<PAGE>
Fund. For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year, respectively.
The foregoing fee shall be in addition to and shall not be reduced or offset by
the amount of any contingent deferred sales charge received by KDI under Section
2 hereof.
The net asset value shall be calculated in accordance with the provisions of the
Fund's current prospectus. On each day when net asset value is not calculated,
the net asset value of a share of any class of the Fund shall be deemed to be
the net asset value of such a share as of the close of business on the last
previous day on which such calculation was made. The distribution services fee
for any class of the Fund shall be based upon average daily net assets of the
Fund attributable to the class and such fee shall be charged only to such class.
9. KDI shall prepare reports for the Board of Directors of the Company on a
quarterly basis in connection with the Fund's distribution plan for Class B
shares and Class C shares showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board of Directors.
10. To the extent applicable, this Agreement constitutes the plan for the Class
B shares and Class C shares of the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940; and this Agreement and plan shall be approved
and renewed in accordance with Rule 12b-1 for such Class B shares and Class C
shares separately.
This Agreement shall become effective on the date hereof and shall continue
until September 30, 1998; and shall continue from year to year thereafter only
so long as such continuance is approved in the manner required by the Investment
Company Act of 1940.
This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Company,
on behalf of the Fund, or by KDI on sixty (60) days written notice to the other
party. The Company, on behalf of the Fund, may effect termination with respect
to any class of the Fund by a vote of (i) a majority of the Board of Directors,
(ii) a majority of the Directors who are not interested persons of the Company
and who have no direct or indirect financial interest in this Agreement or in
any agreement related to this Agreement, or (iii) a majority of the outstanding
voting securities of the class. Without prejudice to any other remedies of the
Company, the Company may terminate this Agreement
5
<PAGE>
at any time immediately upon KDI's failure to fulfill any of its obligations
hereunder.
This Agreement may not be amended to increase the amount to be paid to KDI by
the Company, on behalf of the Fund, for services hereunder with respect to a
class of the Fund without the vote of a majority of the outstanding voting
securities of such class. All material amendments to this Agreement must in any
event be approved by a vote of the Board of Directors of the Company including
the Directors who are not interested persons of the Company and who have no
direct or indirect financial interest in this Agreement or in any agreement
related to this Agreement, cast in person at a meeting called for such purpose.
The terms "assignment", "interested" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8 earned
prior to such termination.
11. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Company with copies
of all such material.
12. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Company's Charter, and
all amendments thereto, all of which are on file with the State Department of
Assessments and Taxation of Maryland. With respect to any claim by KDI for
recovery of any liability arising hereunder allocated to a particular class of
the Fund, whether in accordance with the express terms hereof or otherwise, KDI
shall have recourse solely against the assets of that class to satisfy such
claim and shall have no recourse against the assets of any other series of the
Company or class of the Fund for such purpose.
6
<PAGE>
15. This Agreement shall be construed in accordance with applicable federal law
and the laws of the State of Illinois.
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
7
<PAGE>
IN WITNESS WHEREOF, the Company and KDI have caused this Agreement to be
executed as of the day and year first above written.
SCUDDER GLOBAL FUND, Inc., on behalf of
Global Discovery Fund
By:______________________
Title: President
ATTEST:
__________________________
Title:____________________
KEMPER DISTRIBUTORS, INC.
By:______________________
Title:___________________
ATTEST:
__________________________
Title:____________________
8
AGENCY AGREEMENT
(Corporate Form)
AGREEMENT dated the ____ day of April, 1998, by and between Scudder Global
Fund, Inc., a Maryland corporation (the "Company") on behalf of Global Discovery
Fund, a series of the Company (the "Fund"), and KEMPER SERVICE COMPANY, a
Delaware corporation ("Service Company").
WHEREAS, Company wants to appoint Service Company as Transfer Agent and
Dividend Disbursing Agent, on behalf of Class A shares, Class B shares and Class
C shares of the Fund, and Service Company wants to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of Service Company as Transfer
Agent and Dividend Disbursing Agent for Fund, there will be filed
with Service Company the following documents:
A. A certified copy of the resolutions of the Board of Directors
of the Company appointing Service Company as Transfer Agent
and Dividend Disbursing Agent, approving the form of this
Agreement, and designating certain persons to give written
instructions and requests on behalf of the Fund.
B. A certified copy of the Charter of the Company and any
amendments thereto.
C. A certified copy of the Bylaws of the Company.
D. Copies of Registration Statements filed with the Securities
and Exchange Commission.
E. Specimens of all forms of outstanding share certificates for
the Fund as approved by the Board of Directors of the Company,
with a certificate of the Secretary of the Company as to such
approval.
F. Specimens of the signatures of the officers of the Company
authorized to sign share certificates and individuals
authorized to sign written instructions and requests on behalf
of the Fund.
G. An opinion of counsel for the Company:
(1) With respect to Company's organization and existence
under the laws of the State of Maryland.
<PAGE>
(2) With respect to the status of all shares of Fund covered
by this appointment under the Securities Act of 1933,
and any other applicable federal or state statute.
(3) To the effect that all issued Fund shares of the Fund
are, and all unissued shares of the Fund will be when
issued, validly issued, fully paid and non-assessable.
2. Certain Representations and Warranties of Service Company. Service
Company represents and warrants to the Company that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
B. It is duly qualified to carry on its business in the State of
Missouri.
C. It is empowered under applicable laws and by its Certificate
of Incorporation and Bylaws to enter into and perform the
services contemplated in this Agreement.
D. All requisite corporate action has been taken to authorize it
to enter into and perform this Agreement.
E. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
F. It is, and will continue to be, registered as a transfer agent
under the Securities Exchange Act of 1934, as amended.
3. Certain Representations and Warranties of the Company. The Company
represents and warrants to Service Company that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland.
B. It is an investment company registered under the Investment
Company Act of 1940, as amended.
C. A registration statement under the Securities Act of 1933 has
been filed and will be effective with
2
<PAGE>
respect to all shares of the Fund being offered for sale at
any time and from time to time.
D. All requisite steps have been or will be taken to register the
Fund's shares for sale in all applicable states, including the
District of Columbia.
E. The Company and its Directors are empowered under applicable
laws and by the Company's Charter and Bylaws to enter into and
perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement, the
Company, on behalf of the Fund, hereby employs and appoints
Service Company as Transfer Agent and Dividend Disbursing
Agent of the Fund effective the date hereof.
B. Service Company hereby accepts such employment and appointment
and agrees that it will act as the Fund's Transfer Agent and
Dividend Disbursing Agent. Service Company agrees that it will
also act as agent in connection with the Fund's periodic
withdrawal payment accounts and other open-account or similar
plans for stockholders, if any.
C. Service Company agrees to provide the necessary facilities,
equipment and personnel to perform its duties and obligations
hereunder in accordance with industry practice.
D. The Company, on behalf of the Fund, agrees to use all
reasonable efforts to deliver to Service Company in Kansas
City, Missouri, as soon as they are available, all its Fund
stockholder account records.
E. Subject to the provisions of Sections 20 and 21 hereof,
Service Company agrees that it will perform all the usual and
ordinary services of Transfer Agent and Dividend Disbursing
Agent and as agent for the various stockholder accounts,
including, without limitation, the following: issuing,
transferring and canceling share certificates, maintaining all
stockholder accounts, preparing stockholder meeting lists,
mailing proxies, receiving and tabulating proxies, mailing
stockholder reports and prospectuses, withholding federal
income taxes, preparing and mailing checks for disbursement of
income and capital gains dividends, preparing and filing all
3
<PAGE>
required U.S. Treasury Department information returns for all
stockholders, preparing and mailing confirmation forms to
stockholders and dealers with respect to all purchases and
liquidations of the Fund shares and other transactions in
stockholder accounts for which confirmations are required,
recording reinvestments of dividends and distributions in the
Fund shares, recording redemptions of the Fund shares and
preparing and mailing checks for payments upon redemption and
for disbursements to systematic withdrawal plan stockholders.
5. Compensation and Expenses.
A. In consideration for the services provided hereunder by
Service Company as Transfer Agent and Dividend Disbursing
Agent, the Company, on behalf of the Fund, will pay to Service
Company from time to time compensation as agreed upon in
writing by the parties for all services rendered as Agent, and
also, all its reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency, as
described in Section 5.B below. Such compensation will be set
forth in a separate schedule to be agreed to by the Company
and Service Company. The initial agreement regarding
compensation is attached as Exhibit A.
B. The Company, on behalf of the Fund, agrees to promptly
reimburse Service Company for all reasonable out-of-pocket
expenses or advances incurred by Service Company in connection
with the performance of services under this Agreement
including, but not limited to, postage (and first class mail
insurance in connection with mailing share certificates),
envelopes, check forms, continuous forms, forms for reports
and statements, stationery, and other similar items, telephone
and telegraph charges incurred in answering inquiries from
dealers or stockholders, microfilm used each year to record
the previous year's transactions in stockholder accounts and
computer tapes used for permanent storage of records and cost
of insertion of materials in mailing envelopes by outside
firms. Service Company may, at its option, arrange to have
various service providers submit invoices directly to the Fund
for payment of out-of-pocket expenses reimbursable hereunder.
4
<PAGE>
6. Efficient Operation of Service Company System.
A. In connection with the performance of its services under this
Agreement, Service Company is responsible for the accurate and
efficient functioning of its system at all times, including
without limitation:
(1) The accuracy of the entries in Service Company's records
reflecting purchase and redemption orders and other
instructions received by Service Company from dealers,
stockholders, the Company or its principal underwriter.
(2) The timely availability and the accuracy of stockholder
lists, stockholder account verifications, confirmations
and other stockholder account information to be produced
from Service Company's records or data.
(3) The accurate and timely issuance of dividend and
distribution checks in accordance with instructions
received from the Company.
(4) The accuracy of redemption transactions and payments in
accordance with redemption instructions received from
dealers, stockholders or the Company or other authorized
persons.
(5) The deposit daily in the Company's appropriate special
bank account for the Fund of all checks and payments
received from dealers or stockholders for investment in
shares.
(6) The requiring of proper forms of instructions,
signatures and signature guarantees and any necessary
documents supporting the rightfulness of transfers,
redemptions and other stockholder account transactions,
all in conformance with Service Company's present
procedures with such changes as may be deemed reasonably
appropriate by Service Company or as may be reasonably
approved by or on behalf of the Company.
(7) The maintenance of a current duplicate set of the Fund's
essential or required records, as agreed upon from time
to time by the Company
5
<PAGE>
and Service Company, at a secure distant location, in
form available and usable forthwith in the event of any
breakdown or disaster disrupting its main operation.
7. Indemnification.
A. The Company, on behalf of the Fund, shall indemnify and hold
Service Company harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or
attributable to any action or omission by Service Company
pursuant to this Agreement or in connection with the agency
relationship created by this Agreement, provided that Service
Company has acted in good faith, without negligence and
without willful misconduct.
B. Service Company shall indemnify and hold the Company harmless
from and against any and all claims, actions, suits, losses,
damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to any action or
omission by Service Company pursuant to this Agreement or in
connection with the agency relationship created by this
Agreement, provided that Service Company has not acted in good
faith, without negligence and without willful misconduct.
C. In order that the indemnification provisions contained in this
Section 7 shall apply, upon the assertion of a claim for which
either party (the "Indemnifying Party") may be required to
provide indemnification hereunder, the party seeking
indemnification (the "Indemnitee") shall promptly notify the
Indemnifying Party of such assertion, and shall keep such
party advised with respect to all developments concerning such
claim. The Indemnifying Party shall be entitled to assume
control of the defense and the negotiations, if any, regarding
settlement of the claim. If the Indemnifying Party assumes
control, the Indemnitee shall have the option to participate
in the defense and negotiations of such claim at its own
expense. The Indemnitee shall in no event confess, admit to,
compromise, or settle any claim for which the Indemnifying
Party may be required to indemnify it except with the prior
written consent of the Indemnifying Party, which shall not be
unreasonably withheld.
6
<PAGE>
8. Certain Covenants of Service Company and the Company.
A. All requisite steps will be taken by the Company, on behalf of
the Fund, from time to time when and as necessary to register
the Fund's shares for sale in all states in which the Fund's
shares shall at the time be offered for sale and require
registration. If at any time Company receives notice of any
stop order or other proceeding in any such state affecting
such registration or the sale of the Fund's shares, or of any
stop order or other proceeding under the Federal securities
laws affecting the sale of the Fund's shares, the Company will
give prompt notice thereof to Service Company.
B. Service Company hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Company
for safekeeping of share certificates, check forms, and
facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices. Further, Service Company
agrees to carry insurance, as specified in Exhibit B hereto,
with insurers reasonably acceptable to the Company and in
minimum amounts that are reasonably acceptable to the Company,
which will not be changed without the consent of the Company,
which consent shall not be unreasonably withheld, and which
will be expanded in coverage or increased in amounts from time
to time if and when reasonably requested by the Company. If
Service Company determines that it is unable to obtain any
such insurance upon commercially reasonable terms, it shall
promptly so advise the Company in writing. In such event, the
Company shall have the right to terminate this Agreement upon
30 days notice.
C. To the extent required by Section 31 of the Investment Company
Act of 1940 and Rules thereunder, Service Company agrees that
all records maintained by Service Company relating to the
services to be performed by Service Company under this
Agreement are the property of the Company and will be
preserved, maintained and made available in accordance with
such section and rules, and will be surrendered promptly to
the Company on request.
D. Service Company agrees to furnish the Company semi-annual
reports of the Fund's financial condition, consisting of a
balance sheet, earnings statement and any other reasonably
available
7
<PAGE>
financial information reasonably requested by the Company. The
annual financial statements of the Fund will be certified by
Service Company's certified public accountants.
E. Service Company represents and agrees that it will use all
reasonable efforts to keep current on the trends of the
investment company industry relating to stockholder services
and will use all reasonable efforts to continue to modernize
and improve its system without additional cost to the Company,
on behalf of the Fund.
F. Service Company will permit the Company and its authorized
representatives to make periodic inspections of its operations
at reasonable times during business hours.
G. If Service Company is prevented from complying, either totally
or in part, with any of the terms or provisions of this
Agreement, by reason of fire, flood, storm, strike, lockout or
other labor trouble, riot, war, rebellion, accidents, acts of
God, equipment, utility or transmission failure or damage,
and/or any other cause or casualty beyond the reasonable
control of Service Company, whether similar to the foregoing
matters or not, then upon written notice to the Company, the
requirements of this Agreement that are affected by such
disability, to the extent so affected, shall be suspended
during the period of such disability; provided, however, that
Service Company shall make reasonable effort to remove such
disability as soon as possible. During such period, the
Company may seek alternate sources of service without
liability hereunder; and Service Company will use all
reasonable efforts to assist the Company to obtain alternate
sources of service. Service Company shall have no liability to
the Company for nonperformance because of the reasons set
forth in this Section 8.G; but if a disability that, in the
Company's reasonable belief, materially affects Service
Company's ability to perform its obligations under this
Agreement continues for a period of 30 days, then the Company
shall have the right to terminate this Agreement upon 10 days
written notice to Service Company.
9. Adjustment.
In case of any recapitalization, readjustment or other change in the
structure of the Fund requiring a change in the form of share
certificates, Service Company will issue or register certificates in
the new form in
8
<PAGE>
exchange for, or in transfer of, the outstanding certificates in the
old form, upon receiving the following:
A. Written instructions from an officer of the Company.
B. Certified copy of any amendment to the Charter or other
document effecting the change.
C. Certified copy of any order or consent of each governmental or
regulatory authority required by law for the issuance of the
shares in the new form, and an opinion of counsel that no
order or consent of any other government or regulatory
authority is required.
D. Specimens of the new certificates in the form approved by the
Board of Directors of the Company, with a certificate of the
Secretary of the Company as to such approval.
E. Opinion of counsel for the Company:
(1) With respect to the status of the shares of the Fund in
the new form under the Securities Act of 1933, and any
other applicable federal or state laws.
(2) To the effect that the issued shares of the Fund in the
new form are, and all unissued shares of the Fund will
be when issued, validly issued, fully paid and
non-assessable.
10. Share Certificates.
The Company, on behalf of the Fund will furnish Service Company with
a sufficient supply of blank share certificates and from time to
time will renew such supply upon the request of Service Company.
Such certificates will be signed manually or by facsimile signatures
of the officers of the Company authorized by law and the Company's
Bylaws to sign share certificates and, if required, will bear the
trust seal or facsimile thereof.
11. Death, Resignation or Removal of Signing Officer.
The Company will file promptly with Service Company written notice
of any change in the officers authorized to sign share certificates,
written instructions or requests, together with two signature cards
bearing the specimen signature of each newly authorized officer,
9
<PAGE>
all as certified by an appropriate officer of the Company. In case
any officer of the Company who will have signed manually or whose
facsimile signature will have been affixed to blank share
certificates will die, resign, or be removed prior to the issuance
of such certificates, Service Company may issue or register such
share certificates as the share certificates of the Fund
notwithstanding such death, resignation, or removal, until
specifically directed to the contrary by the Company in writing. In
the absence of such direction, the Company will file promptly with
Service Company such approval, adoption, or ratification as may be
required by law.
12. Future Amendments of Charter and Bylaws.
The Company will promptly file with Service Company copies of all
material amendments to its Charter and Bylaws and Registration
Statement made after the date of this Agreement.
13. Instructions, Opinion of Counsel and Signatures.
At any time Service Company may apply to any officer of the Company
for instructions, and may consult with legal counsel for the Company
at the expense of the Company, or with its own legal counsel at its
own expense, with respect to any matter arising in connection with
the agency; and it will not be liable for any action taken or
omitted by it in good faith in reliance upon such instructions or
upon the opinion of such counsel. Service Company is authorized to
act on the orders, directions or instructions of such persons as the
Board of Directors of the Company shall from time to time designate
by resolution. Service Company will be protected in acting upon any
paper or document, including any orders, directions or instructions,
reasonably believed by it to be genuine and to have been signed by
the proper person or persons; and Service Company will not be held
to have notice of any change of authority of any person so
authorized by the Company until receipt of written notice thereof
from the Company. Service Company will also be protected in
recognizing share certificates that it reasonably believes to bear
the proper manual or facsimile signatures of the officers of the
Company, and the proper countersignature of any former Transfer
Agent or Registrar, or of a Co-Transfer Agent or Co-Registrar.
14. Papers Subject to Approval of Counsel.
The acceptance by Service Company of its appointment as Transfer
Agent and Dividend Disbursing Agent, and all documents filed in
connection with such appointment and
10
<PAGE>
thereafter in connection with the agencies, will be subject to the
approval of legal counsel for Service Company, which approval will
not be unreasonably withheld.
15. Certification of Documents.
The required copy of the Charter of the Company and copies of all
amendments thereto will be certified by the appropriate official of
the State of Maryland; and if such Charter and amendments are
required by law to be also filed with a county, city or other
officer or official body, a certificate of such filing will appear
on the certified copy submitted to Service Company. A copy of the
order or consent of each governmental or regulatory authority
required by law for the issuance of the Fund shares will be
certified by the Secretary or Clerk of such governmental or
regulatory authority, under proper seal of such authority. The copy
of the Bylaws and copies of all amendments thereto and copies of
resolutions of the Board of Directors of the Company will be
certified by the Secretary or an Assistant Secretary of the Fund.
16. Records.
Service Company will maintain customary records in connection with
its agency, and particularly will maintain those records required to
be maintained pursuant to sub-paragraph (2)(iv) of paragraph (b) of
Rule 31a-1 under the Investment Company Act of 1940, if any.
17. Disposition of Books, Records and Canceled Certificates.
Service Company will send periodically to the Company, or to where
designated by the Secretary or an Assistant Secretary of the
Company, all books, documents, and all records no longer deemed
needed for current purposes and share certificates which have been
canceled in transfer or in exchange, upon the understanding that
such books, documents, records, and share certificates will not be
destroyed by the Company without the consent of Service Company
(which consent will not be unreasonably withheld), but will be
safely stored for possible future reference.
18. Provisions Relating to Service Company as Transfer Agent.
A. Service Company will make original issues of share
certificates upon written request of an officer of the Company
and upon being furnished with a
11
<PAGE>
certified copy of a resolution of the Board of Directors
authorizing such original issue, an opinion of counsel as
outlined in Section 1.G or 9.E of this Agreement, the
certificates required by Section 10 of this Agreement and any
other documents required by Section 1 or 9 of this Agreement.
B. Before making any original issue of certificates, the Company,
on behalf of the Fund, will furnish Service Company with
sufficient funds to pay any taxes required on the original
issue of the shares. Company will furnish Service Company such
evidence as may be required by Service Company to show the
actual value of the shares. If no taxes are payable, Service
Company will upon request be furnished with an opinion of
outside counsel to that effect.
C. Shares will be transferred and new certificates issued in
transfer, or shares accepted for redemption and funds remitted
therefor, upon surrender of the old certificates in form
deemed by Service Company properly endorsed for transfer or
redemption accompanied by such documents as Service Company
may deem necessary to evidence the authority of the person
making the transfer or redemption, and bearing satisfactory
evidence of the payment of any applicable share transfer
taxes. Service Company reserves the right to refuse to
transfer or redeem shares until it is satisfied that the
endorsement or signature on the certificate or any other
document is valid and genuine, and for that purpose it may
require a guarantee of signature by such persons as may from
time to time be specified in the prospectus related to such
shares or otherwise authorized by the Company. Service Company
also reserves the right to refuse to transfer or redeem shares
until it is satisfied that the requested transfer or
redemption is legally authorized, and it will incur no
liability for the refusal in good faith to make transfers or
redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. Service Company may,
in effecting transfers or redemptions, rely upon
Simplification Acts or other statutes which protect it and the
Company in not requiring complete fiduciary documentation.
D. When mail is used for delivery of share certificates, Service
Company will forward share certificates in "nonnegotiable"
form as provided by the Company, on behalf of the Fund, by
first
12
<PAGE>
class mail, all such mail deliveries to be covered while in
transit to the addressee by insurance arranged for by Service
Company.
E. Service Company will issue and mail subscription warrants and
certificates provided by Company, on behalf of the Fund, and
representing share dividends, exchanges or split-ups, or act
as Conversion Agent upon receiving written instructions from
any officer of the Company and such other documents as Service
Company deems necessary.
F. Service Company will issue, transfer, and split-up
certificates upon receiving written instructions from an
officer of the Company and such other documents as Service
Company may deem necessary.
G. Service Company may issue new certificates in place of
certificates represented to have been lost, destroyed, stolen
or otherwise wrongfully taken, upon receiving indemnity
satisfactory to Service Company, and may issue new
certificates in exchange for, and upon surrender of, mutilated
certificates. Any such issuance shall be in accordance with
the provisions of law governing such matter and any procedures
adopted by the Board of Directors of the Company of which
Service Company has notice.
H. Service Company will supply a stockholder's list of the Fund
to the Company properly certified by an officer of Service
Company for any stockholder meeting upon receiving a request
from an officer of the Company. It will also supply lists at
such other times as may be reasonably requested by an officer
of the Company.
I. Upon receipt of written instructions of an officer of the
Company, Service Company will address and mail notices to
stockholders of the Fund.
J. In case of any request or demand for the inspection of the
share books of the Company related to the Fund or any other
books of Company related to the Fund in the possession of
Service Company, Service Company will endeavor to notify the
Company and to secure instructions as to permitting or
refusing such inspection. Service Company reserves the right,
however, to exhibit the share books or other books to any
person in case it is advised by its counsel that it may be
held responsible for the failure to exhibit the share books or
other books to such person.
13
<PAGE>
19. Provisions Relating to Dividend Disbursing Agency.
A. Service Company will, at the expense of the Company, on behalf
of the Fund, provide a special form of check containing the
imprint of any device or other matter desired by the Company.
Said checks must, however, be of a form and size convenient
for use by Service Company.
B. If the Company wants to include additional printed matter,
financial statements, etc., with the dividend checks, the same
will be furnished to Service Company within a reasonable time
prior to the date of mailing of the dividend checks, at the
expense of the Company, on behalf of the Fund.
C. If the Company wants the Fund's distributions mailed in any
special form of envelopes, sufficient supply of the same will
be furnished to Service Company but the size and form of said
envelopes will be subject to the approval of Service Company.
If stamped envelopes are used, they must be furnished by the
Company, on behalf of the Fund; or, if postage stamps are to
be affixed to the envelopes, the stamps or the cash necessary
for such stamps must be furnished by the Company, on behalf of
the Fund.
D. Service Company will maintain one or more deposit accounts as
Agent for the Fund, into which the funds for payment of
dividends, distributions, redemptions or other disbursements
provided for hereunder will be deposited, and against which
checks will be drawn.
20. Termination of Agreement.
A. This Agreement may be terminated by either party upon sixty
(60) days prior written notice to the other party.
B. The Company, in addition to any other rights and remedies,
shall have the right to terminate this Agreement forthwith
upon the occurrence at any time of any of the following
events:
(1) Any interruption or cessation of operations by Service
Company or its assigns which materially interferes with
the business operation of the Fund.
14
<PAGE>
(2) The bankruptcy of Service Company or its assigns or the
appointment of a receiver for Service Company or its
assigns.
(3) Any merger, consolidation or sale of substantially all
the assets of Service Company or its assigns.
(4) The acquisition of a controlling interest in Service
Company or its assigns, by any broker, dealer,
investment adviser or investment company except as may
presently exist.
(5) Failure by Service Company or its assigns to perform its
duties in accordance with this Agreement, which failure
materially adversely affects the business operations of
the Fund and which failure continues for thirty (30)
days after written notice from the Company.
(6) The registration of Service Company or its assigns as a
transfer agent under the Securities Exchange Act of 1934
is revoked, terminated or suspended for any reason.
C. In the event of termination, the Company, on behalf of the
Fund, will promptly pay Service Company all amounts due to
Service Company hereunder. Upon termination of this Agreement,
Service Company shall deliver all stockholder and account
records and other materials pertaining to the Fund either to
the Company or as directed in writing by the Company.
21. Assignment.
A. Neither this Agreement nor any rights or obligations hereunder
may be assigned by Service Company without the written consent
of the Company; provided, however, no assignment will relieve
Service Company of any of its obligations hereunder.
B. This Agreement including, without limitation, the provisions
of Section 7 will inure to the benefit of and be binding upon
the parties and their respective successors and assigns.
C. Service Company is authorized by the Company to use the system
services of DST Systems, Inc. and the system and other
services, including data entry, of Administrative Management
Group, Inc.
15
<PAGE>
22. Confidentiality.
A. Except as provided in the last sentence of Section 18.J
hereof, or as otherwise required by law, Service Company will
keep confidential all records of and information in its
possession relating to the Fund or its stockholders or
stockholder accounts and will not disclose the same to any
person except at the request or with the consent of the
Company.
B. Except as otherwise required by law, the Company will keep
confidential all financial statements and other financial
records (other than statements and records relating solely to
the Company's business dealings with Service Company) and all
manuals, systems and other technical information and data, not
publicly disclosed, relating to Service Company's operations
and programs furnished to it by Service Company pursuant to
this Agreement and will not disclose the same to any person
except at the request or with the consent of Service Company.
Notwithstanding anything to the contrary in this Section 22.B,
if an attempt is made pursuant to subpoena or other legal
process to require the Company, on behalf of the Fund, to
disclose or produce any of the aforementioned manuals, systems
or other technical information and data, the Company shall
give Service Company prompt notice thereof prior to disclosure
or production so that Service Company may, at its expense,
resist such attempt.
23. Survival of Representations and Warranties.
All representations and warranties by either party herein contained
will survive the execution and delivery of this Agreement.
24. Miscellaneous.
A. This Agreement is executed and delivered in the State of New
York and shall be governed by the laws of said state.
B. No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized
and executed by both parties hereto.
C. The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
16
<PAGE>
D. This Agreement shall become effective as of the date hereof.
E. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
F. If any part, term or provision of this Agreement is held by
the courts to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
G. With respect to any claim by Service Company for recovery of
that portion of the compensation and expenses (or any other
liability of the Company arising hereunder) allocated to a
particular class of the Fund, whether in accordance with the
express terms hereof or otherwise, Service Company shall have
recourse solely against the assets of that class to satisfy
such claim and shall have no recourse against the assets of
any other series of the Company or class of the Fund for such
purpose.
H. This Agreement is the entire contract between the parties
relating to the subject matter hereof and supersedes all prior
agreements between the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized officer as of the day and year first set forth
above.
SCUDDER GLOBAL FUND, INC.,
on behalf of Global Discovery Fund
By____________________________
Title: President
ATTEST:
_____________________________
Title: Assistant Secretary
17
<PAGE>
KEMPER SERVICE COMPANY
By____________________________
Title:
ATTEST:
_____________________________
Title:
18
<PAGE>
EXHIBIT A
FEE SCHEDULE (MULTIPLE CLASSES OF SHARES)
FEE PAYABLE BY THE COMPANY, ON
TRANSFER AGENCY FUNCTION BEHALF OF THE FUND
CLASS A and C CLASS B
1. Annual open shareholder account fee
(per year per account):
a. Non-daily dividend series. $6.00 $6.00
b. CDSC account fee. Not Applicable $2.25
c. Non-monetary transaction fee. $2.00 $2.00
2. Annual closed shareholder account $6.00 $6.00
fee (per year per account).
3. Establishment of new shareholder $4.00 $4.00
account (per new account).*
4. Transaction Based Fees
(per transaction):
a. Dividend transaction fee (per $ .40 $ .40
dividend per account).
b. Automated transaction fee (per $ .50 $ .50
transaction).**
c. Purchase or redemption of shares $1.25 $1.25
transaction fee.
d. Audio Response fee. $0.15 $0.15
The out-of-pocket expenses of Service Company will be reimbursed by the
Company, on behalf of the Fund, in accordance with the provisions of Section 5
of the Agency Agreement.
- ----------
* The new shareholder account fee is not applicable to Class A Share
accounts established in connection with a conversion from Class B Shares.
** Automated transaction includes, without limitation, money market series
purchases and redemptions, ACH purchases, systematic exchanges and
conversions from Class B Shares to Class A Shares.
19
<PAGE>
EXHIBIT B
INSURANCE COVERAGE
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of
securities on or outside of premises while in possession of
authorized person, loss caused by forgery or alteration of checks or
similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and
omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of
customers processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of securities lost in
the mails:
Non-negotiable securities mailed to domestic locations via
registered mail.
Non-negotiable securities mailed to domestic locations via
first-class or certified mail.
Non-negotiable securities mailed to foreign locations via
registered mail.
Negotiable securities mailed to all locations via registered
mail.
20
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this ___ day of April, 1998 by and between Scudder Global Fund,
Inc., a Maryland corporation (the "Company") on behalf of Global Discovery Fund,
a series of the Company (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware
corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Company hereby appoints KDI to provide information and administrative
services for the benefit of the Fund and its shareholders. In this regard, KDI
shall appoint various broker-dealer firms and other service or administrative
firms ("Firms") to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide such office space
and equipment, telephone facilities, personnel or other services as may be
necessary or beneficial for providing information and services to investors in
the Fund. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund and its
special features, assistance to investors in changing dividend and investment
options, account designations and addresses, and such other administrative
services as the Company or KDI may reasonably request. Firms may include
affiliates of KDI. KDI may also provide some of the above services for the Fund
directly.
KDI accepts such appointment and agrees during such period to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Company in any way or
otherwise be deemed an agent of the Company. KDI, by separate agreement with the
Company, may also serve the Company in other capacities. In carrying out its
duties and responsibilities hereunder, KDI will appoint various Firms to provide
administrative and other services described herein directly to or for the
benefit of investors in the Fund. Such Firms shall at all times be deemed to be
independent contractors retained by KDI and not the Company. KDI and not the
Company will be responsible for the payment of compensation to such Firms for
such services.
2. For the administrative services and facilities described in Section 1, the
Company, on behalf of the Fund, will pay to KDI at the end of each calendar
month an administrative service fee computed at an annual rate of up to 0.25 of
1% of the average
<PAGE>
daily net assets of the Fund (except assets attributable to Class S Shares). The
current fee schedule is set forth as Appendix I hereto. The administrative
service fee will be calculated separately for each class of each series of the
Fund as an expense of each such class; provided, however, no administrative
service fee shall be payable with respect to Class S Shares. For the month and
year in which this Agreement becomes effective or terminates, there shall be an
appropriate proration on the basis of the number of days that the Agreement is
in effect during such month and year, respectively. The services of KDI to the
Company under this Agreement are not to be deemed exclusive, and KDI shall be
free to render similar services or other services to others.
The net asset value for each share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a share of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
3. The Company, on behalf of the Fund, shall assume and pay all charges and
expenses of the Fund's operations not specifically assumed or otherwise to be
provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Company, on behalf of the Fund, or by KDI on sixty (60) days
written notice to the other party. Termination of this Agreement shall not
affect the right of KDI to receive payments on any unpaid balance of the
compensation described in Section 2 hereof earned prior to such termination.
This Agreement may not be amended for any class of the Fund to increase the
amount to be paid to KDI for services hereunder above .25 of 1% of the average
daily net assets of such class without the vote of a majority of the outstanding
voting securities of such class. All material amendments to this Agreement must
in any event be approved by vote of the Board of Directors of the Company.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. All parties hereto are expressly put on notice of the Company's Charter and
all amendments thereto, all of which are on file with the State Department of
Assessments and Taxation of
2
<PAGE>
Maryland. With respect to any claim by KDI for recovery of any liability arising
hereunder allocated to a particular class, whether in accordance with the
express terms hereof or otherwise, KDI shall have recourse solely against the
assets of that class to satisfy such claim and shall have no recourse against
the assets of any other series of the Company or class of the Fund for such
purpose.
8. This Agreement shall be construed in accordance with applicable federal law
and the laws of the State of Illinois.
9. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Company and KDI have caused this Agreement to be
executed as of the day and year first above written.
SCUDDER GLOBAL FUND, INC., on behalf of
Global Discovery Fund KEMPER DISTRIBUTORS, INC.
By: _____________________________ By: ___________________________
Title: President Title: ________________________
3
<PAGE>
APPENDIX I
GLOBAL DISCOVERY FUND
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to which this
Appendix is attached, the Company and KDI agree that the administrative service
fee will be computed at an annual rate of .25 of 1% (the "Fee Rate") based upon
assets with respect to which a Firm provides administrative services.
SCUDDER GLOBAL FUND, INC., on behalf of
Global Discovery Fund KEMPER DISTRIBUTORS, INC.
By: _________________________________ By: __________________________
Title: President Title: _______________________
Dated: April __, 1998
4
Coopers
& Lybrand
Consent of Independent Accountants
To the Board of Directors of Scudder Global Fund, Inc.:
We consent to the incorporation by reference in Post-Effective Amendment No. 33
to the Registration Statement of Scudder Global Fund, Inc. on Form N-1A, of our
report dated December 12, 1997 on our audit of the financial statements and
financial highlights of Scudder Global Discovery Fund, which report is included
in the Annual Report to Shareholders for the period ended October 31, 1997 which
is incorporated by reference in the Post-Effective Amendment to the Registration
Statement.
We also consent to the reference to our Firm under the caption, "Experts."
Boston, Massachusetts Coopers & Lybrand L.L.P.
April 15, 1998
MUTUAL FUNDS
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, each investment company adopting this Multi-Distribution System
Plan (each a "Fund" and collectively the "Funds") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, Scudder Kemper Investments, Inc. serves as investment adviser
and Kemper Distributors, Inc. or Scudder Investor Services, Inc. serves as
principal underwriter for each Fund;
WHEREAS, each Fund has a non-Rule 12b-1 administrative services agreement
providing for a service fee at an annual rate of up to .25% of average daily net
assets;
WHEREAS, each Fund has established a Multi-Distribution System with
respect to certain series of its shares enabling each such series, as more fully
reflected in its prospectus, to offer investors the option of purchasing shares
(a) with a front-end sales load (which may vary among Funds) and a service fee
("Class A shares"); (b) without a front-end sales load, but subject to a
Contingent Deferred Sales Charge ("CDSC") (which may vary among Funds), a Rule
12b-1 plan providing for a distribution fee, and a service fee ("Class B
shares"); (c) without a front-end sales load, but subject to a CDSC which may
vary among Funds), a Rule 12b-1 Plan providing for a distribution fee, and a
service fee ("Class C shares"); and (d) for certain Funds, without a front-end
load, a CDSC, a distribution fee or a service fee ("Class S shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation,
attached hereto as Schedule A, of each class and any related conversion features
or exchange privileges;
NOW, THEREFORE, each Fund, wishing to be governed by Rule 18f-3 under the
1940 Act, hereby adopts this Multi-Distribution System Plan with respect to all
or certain series of its shares, as follows:
1. Each class of shares will represent interests in the same portfolio of
investments of the Fund (or series), and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Fund (or series) will relate solely to: (a) different
distribution fee payments associated with any Rule 12b-1 Plan for a particular
class of shares and any other costs relating to implementing or amending such
Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1
Plan or any amendment thereto), which will be borne solely by shareholders of
such classes; (b) different service fees; (c) different shareholder servicing
fees; (d) different class expenses, which will be limited to the following
expenses determined by the Fund board to be attributable to a specific class of
shares: (i) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific class and related matters
<PAGE>
that differ between classes; (ii) Securities and Exchange Commission
registration fees incurred by a specific class; (iii) litigation or other legal
expenses relating to a specific class; (iv) board member fees or expenses
incurred as a result of issues relating to a specific class; and (v) accounting
expenses relating to a specific class; and (vi) transfer agency fees
attributable to a certain class; (e) the voting rights related to any Rule 12b-1
Plan affecting a specific class of shares; (f) conversion features; (g) exchange
privileges; and (h) class names or designations. Any additional incremental
expenses not specifically identified above that are subsequently identified and
determined to be properly applied to one class of shares of the Fund (or a
series) shall be so applied upon approval by a majority of the members of the
Fund's board, including a majority of the board members who are not interested
persons of the Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative aggregate
net assets of the classes, except that, if the Fund has series, expenses will
first be allocated among series, based upon their relative aggregate net assets.
Expenses that are attributable to a particular series, but not to a particular
class thereof, will be borne by each class of that series on the basis of the
relative aggregate net assets of the classes. Notwithstanding the foregoing, the
underwriter, the investment manager or other provider of services to the Fund
may waive or reimburse the expenses of a specific class or classes to the extent
permitted under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to that class including: (a) any distribution fees associated with
any Rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto); (b) any service fees
attributable to such class; (c) any shareholder servicing fees attributable to
such class; and (d) any class expenses determined by the Fund board to be
attributable to such class.
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund (or series)
at the relative net asset values of the two classes and will thereafter not be
subject to a Rule 12b-1 Plan; provided, however, that any Class B Shares issued
in exchange for shares originally classified as Initial Shares of Kemper
Portfolios, formerly known as Kemper Investment Portfolios (KP), whether in
connection with a reorganization with a series of KP or otherwise, shall convert
to Class A shares seven years after issuance of such Initial Shares if such
Initial Shares were issued prior to February 1, 1991. Class B shares issued upon
reinvestment of income and capital gain dividends and other distributions will
be converted to Class A shares on a pro rata basis with the Class B shares.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the Fund
(or series) will be exchangeable with shares of the same class of another Fund
(or series), or with money
2
<PAGE>
market fund shares as described in the applicable prospectus. Exchanges will
comply with all applicable provisions of Rule 11a-3 under the 1940 Act. For
purposes of calculating the time period remaining on the conversion of Class B
shares to Class A shares, Class B shares received on exchange retain their
original purchase date.
6. Dividends paid by the Fund (or series) as to each class of its shares,
to the extent any dividends are paid, will be calculated in the same manner, at
the same time, on the same day, and will be in the same amount; except that any
distribution fees, service fees, shareholder servicing fees and class expenses
allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of the Fund, including distribution fees,
front-end sales loads and CDSCs, will comply with Section 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc.
8. All material amendments to this Plan must be approved by a majority of
the members of the Fund's board, including a majority of the board members who
are not interested persons, as defined in the 1940 Act, of the Fund.
Any open-end investment company may establish a Multi-Distribution System
and adopt this Multi-Distribution System Plan by approval of a majority of the
members of any such company's governing board, including a majority of the board
members who are not interested persons of such company.
For use on or after: April __, 1998
3
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
Global Discovery Fund Annual Report for the fiscal year ended October 31, 1997
and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> SCUDDER GLOBAL DISCOVERY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 264,107,088
<INVESTMENTS-AT-VALUE> 351,608,291
<RECEIVABLES> 5,875,153
<ASSETS-OTHER> 5,781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 357,489,225
<PAYABLE-FOR-SECURITIES> 6,603,238
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,764,033
<TOTAL-LIABILITIES> 8,367,271
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239,999,759
<SHARES-COMMON-STOCK> 16,134,908
<SHARES-COMMON-PRIOR> 17,152,364
<ACCUMULATED-NII-CURRENT> (113,840)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21,747,987
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 87,488,048
<NET-ASSETS> 349,121,954
<DIVIDEND-INCOME> 2,304,339
<INTEREST-INCOME> 1,467,465
<OTHER-INCOME> 0
<EXPENSES-NET> 5,862,570
<NET-INVESTMENT-INCOME> (2,090,766)
<REALIZED-GAINS-CURRENT> 26,874,290
<APPREC-INCREASE-CURRENT> 12,247,359
<NET-CHANGE-FROM-OPS> 37,030,883
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,252,537)
<DISTRIBUTIONS-OF-GAINS> (14,901,393)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,176,506
<NUMBER-OF-SHARES-REDEEMED> (8,023,613)
<SHARES-REINVESTED> 829,650
<NET-CHANGE-IN-ASSETS> (1,708,026)
<ACCUMULATED-NII-PRIOR> (747,671)
<ACCUMULATED-GAINS-PRIOR> 14,752,222
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,960,949
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 358,916,870
<PER-SHARE-NAV-BEGIN> 20.45
<PER-SHARE-NII> (0.12)
<PER-SHARE-GAIN-APPREC> 2.30
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.86)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.64
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
