Scudder
Global
Discovery Fund
Annual Report
October 31, 1998
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.
Scudder Global Discovery Fund is properly known as Global Discovery
Fund.
The Fund is a diversified series of Global/International Fund, Inc.
SCUDDER (logo)
<PAGE>
Scudder Global Discovery Fund
- --------------------------------------------------------------------------------
Total Net Assets
Date of Inception: 9/10/91 of Scudder Shares as of Ticker Symbol: SGSCX
10/31/98: $309.5 million
- --------------------------------------------------------------------------------
o For the 12-month period ended October 31, 1998, Global Discovery Fund --
Scudder Shares provided a 1.19% return, exceeding the -10.15% average return of
global small-cap funds according to Lipper Analytical Services.
o The Shares' strong relative performance can be attributed to management's
emphasis on well run, rapidly growing companies, and an avoidance of Asia, Latin
America, and Russia.
o The crises in the emerging markets caused many investors to seek liquid, high
quality securities.
o Morningstar assigned the Fund a 4-star rating for its risk-adjusted
performance among 839 international equity funds as of October 31, 1998.^1
Table of Contents
3 Letter from the Fund's Chairman 19 Financial Highlights
4 Performance Update 23 Notes to Financial Statements
5 Portfolio Summary 29 Report of Independent Accountants
6 Portfolio Management Discussion 30 Tax Information
10 Glossary of Investment Terms 32 Officers and Directors
11 Investment Portfolio 33 Investment Products and Services
16 Financial Statements 34 Scudder Solutions
^1 Morningstar's proprietary ratings reflect historical risk-adjusted
performance. Ratings are subject to change monthly and are calculated from
a 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 equity category, the Fund's
Scudder Shares received a 4 star rating for the three- and five-year
periods among 839 and 373 funds, respectively. The Fund's Scudder Shares
were not rated for the ten-year period because it commenced operations on
September 10, 1991. Past performance is no guarantee of future results.
2 - Scudder Global Discovery Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
The past 12 months have been a challenging period for most small-cap
investors, whether you were invested in the United States or abroad.
Nevertheless, the Scudder Shares of Global Discovery Fund managed to rank among
the top 6% of 32 global small-cap equity funds according to Lipper Analytical
Services. In addition, Scudder Shares outdistanced its benchmark and the
majority of its peers by a significant margin during a difficult market
environment.
As described in the following discussion with the Fund's managers, the
outperformance of the Fund's Scudder Shares versus the benchmark index was the
result of a focus on high quality companies with dominant market positions. In
addition, avoidance of Asian, Latin American, and Russian markets contributed to
favorable relative returns.
The Russian devaluation and debt moratorium in August sent the markets lower
despite the relatively small size of the Russian economy in global terms, as
investors worried that other markets might be at risk as well. While small-caps
have recovered somewhat since then, the event resulted in negative returns for
global small-caps overall. Management's investment strategy is discussed in more
detail beginning on page 6.
For those of you who are interested in new Scudder funds, we recently
introduced two international funds: Scudder International Growth Fund -- which
seeks to invest in high growth opportunities in both developed and developing
markets, and Scudder International Value Fund -- which seeks to invest in
undervalued foreign securities. For further information on these new funds,
please call Scudder Investor Information at 1-800-225-2470.
Thank you for your investment in Scudder Global Discovery Fund. If you have
any questions about your Fund, please call Scudder Investor Information at the
number above, or visit our Internet Web site at www.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, 1998
- ----------------------
Fund Index Comparisons
- ----------------------
Total Return
- ---------------------------------------------------
Period Ended Growth of Average
10/31/98 $10,000 Cumulative Annual
- ---------------------------------------------------
Global Discovery Fund -- Scudder Shares
- ---------------------------------------------------
1 Year $ 10,119 1.19% 1.19%
5 Year $ 15,149 51.49% 8.66%
Life of Fund* $ 20,730 107.30% 10.75%
- ---------------------------------------------------
Salomon Brothers World Equity EMI
- ---------------------------------------------------
1 Year $ 9,550 -4.50% -4.50%
5 Year $ 14,106 41.06% 7.12%
Life of Fund* $ 17,934 79.34% 8.60%
- ---------------------------------------------------
* The Fund commenced operation on September 10, 1991.
Index comparisons begin September 30, 1991.
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Salomon Brothers World Global Discovery Fund --
Equity EMI Scudder Shares
9/91* 10000 10000
'91 10148 9770
'92 9563 9894
'93 12528 13459
'94 13297 13837
'95 14211 14988
'96 16326 18131
'97 18504 20151
'98 17672 20390
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.
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
Yearly periods ended October 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1991* 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 11.92 $ 12.05 $ 16.14 $ 16.27 $ 17.54 $ 20.45 $ 21.64 $ 19.81
- ---------------------------------------------------------------------------------------------------------------------
Income Dividends $ -- $ .02 $ .07 $ .18 $ -- $ .20 $ .13 $ .64
- ---------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ -- $ .12 $ .15 $ .08 $ .44 $ .86 $ 1.41
- ---------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) -.67 1.26 36.04 2.80 8.32 20.97 11.14 1.19
- ---------------------------------------------------------------------------------------------------------------------
Index Total Return (%)** 1.48 -4.37 31.01 6.13 6.88 14.89 13.34 -4.50
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective April 16, 1998, the Fund changed its name from Scudder Global
Discovery Fund to Global Discovery Fund and an additional three classes of
shares were offered. Existing shares of Global Discovery Fund outstanding on
that date were redesignated Scudder Shares of the Fund. The total return
information provided is for the Fund's Scudder Share class. Prior to March 6,
1996, 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 expenses, the
total returns for the five year and life of Fund periods would have been lower.
**Prior to April 30, 1997, the Morgan Stanley Capital International World Index
was used as a comparative index.
4 - Scudder Global Discovery Fund
<PAGE>
Portfolio Summary as of October 31, 1998
- -------------------------------
Geographical
(Excludes 10% Cash Equivalents)
- -------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Europe 53%
U.S. & Canada 45%
Japan 1%
Other 1%
---------------------------------------------
100%
---------------------------------------------
The Fund benefited from significant holdings in Europe -- a
strong performing region, and an avoidance of the weak
markets of Asia, Latin America, and Russia.
- -------------------------------
Sectors
(Excludes 10% Cash Equivalents)
- -------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Service Industries 21%
Technology 20%
Financial 14%
Health 13%
Consumer Discretionary 9%
Communications 6%
Consumer Staples 4%
Manufacturing 4%
Transportation 3%
Other 6%
---------------------------------------------
100%
---------------------------------------------
Management seeks to construct a relatively concentrated
portfolio based on a bottom-up approach to stock selection;
risk is controlled by investing top holdings in areas that
are uncorrelated to one another.
- ---------------------------
Ten Largest Equity Holdings
(34% of Portfolio)
- ---------------------------
1. Network Appliance, Inc.
Designer and manufacturer of network
data storage devices in the United
States
2. Serco Group PLC
Facilities management company in the
United Kingdom
3. Bank of Ireland PLC
Bank in Ireland
4. Sterling Commerce, Inc.
Producer of electronic data
interchange products and services in
the United States
5. Vitesse Semiconductor Corp.
Manufacturer of digital integrated
circuits in the United States
6. Provident Financial PLC
Personal finance group in the United
Kingdom
7. Fiserv Inc.
Data processing services in the United
States
8. Telecel-Comunicacoes Pessoais, S.A.
Cellular communication services in
Portugal
9. Billing Concepts
Billing and information management
services in the United States
10. Altran Technologies, S.A.
Engineering and consulting services
for aerospace, telecommunications and
electronics fields in France
The majority of the Fund's strong performance is
attributable to its top holdings, many of which have been
mainstays in the portfolio for several years.
For more complete details about the Fund's investment portfolio, see page 11. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Global Discovery Fund
<PAGE>
Portfolio Management Discussion
We asked Gerald J. Moran, Lead Portfolio Manager, and Sewall F. Hodges,
Portfolio Manager of Scudder Global Discovery Fund, to discuss the market
environment and the Fund's current investment strategy.
Q: How did the Fund's Scudder Shares perform for the 12-month period ended
October 31, 1998?
A: The Fund's Scudder Shares returned 1.19%, which compares favorably to the
weak performance of small-caps around the world for the fiscal year. This result
surpassed by a meaningful margin the -4.50% return of our benchmark, the
unmanaged Salomon Brothers World Equity Index-Extended Market Index, and the
- -10.15% average return of global small-cap equity funds according to Lipper
Analytical Services for the same period.
Q: To what do you attribute this strong relative performance?
A: In the portfolio we have emphasized well run, rapidly growing companies in
the United States and Europe, while maintaining nominal exposure to Asia, Latin
America, and Russia. Many of the Fund's largest holdings performed well during
this difficult period. We also made an effort to construct a concentrated
portfolio so that our best ideas could have a meaningful impact on performance.
This concentration reflects our emphasis on individual stock selection over "top
down" investment decisions. With significant position sizes, control of
individual security risk increases in importance. We accomplish this control
through industry and market diversification and by knowing the business
fundamentals affecting our companies. This approach helps to limit the
volatility of our individual stock holdings on the portfolio as a whole.
For the 12-month period, positive performance came from four areas: our emphasis
on European peripheral countries, good stock selection among our U.S. holdings,
strong results from companies in Germany and France, and a general avoidance of
emerging markets.
Q: Your focus on peripheral European countries has been a continuing theme for
the Fund. In which countries did you invest?
A: Our peripheral country holdings include Ireland (the portfolio's third
largest country holding after the U.S. and the U.K.), Spain, and Portugal. We
have found a number of attractively priced companies with exceptional business
fundamentals in these markets. Furthermore, these three markets benefited as
each continued to prepare for the launch of a single European currency in
January 1999. All three countries recently cut interest rates
THE PRINTED DOCUMENT CONTAINS A TABLE HERE
Top Rankings from Lipper
Rankings for global small-cap equity funds as of
October 31, 1998
------------------------------------------------
One-year Three-year Five-year
-------- ---------- ---------
Rank 2 2 4
Percentile Top 6% Top 9% Top 29%
Funds in category: 32 23 14
- ----------
Source: Lipper Analytical Services
The Shares' long-running record of superior performance remained intact, ranking
it near the top of all global small-cap funds for the one-, three-, and
five-year periods.
6 - Scudder Global Discovery Fund
<PAGE>
to bring their economies into alignment for monetary union, which has had a
positive effect on overall economic growth. Lower rates have been good for many
businesses and a number of our holdings have been beneficiaries of this
environment. In Ireland, our continuing holdings in Bank of Ireland and Irish
Life were strong performers. In Portugal, the food producer and retailer
Jeronimo Martins also generated solid gains.
Q: It was tough sledding for U.S. small-caps, yet the Fund's U.S. holdings
performed well. What was responsible for this outperformance?
A: Our individual stock selection approach among our U.S. holdings was very
effective for the 12 months. While the Russell 2000 Index declined 11.54% on a
total return basis, our U.S. holdings held up relatively well, and closed the
period essentially with a flat return. Small-caps were hurt by the "flight to
quality" in the wake of the Russian devaluation and debt moratorium in August.
However, our long-term U.S. small-cap holdings in Network Appliance and Vitesse
Semiconductor continued to make important contributions to performance. Sepracor
and Symbol Technologies were also big winners.
Sepracor, which develops enhanced forms of existing pharmaceuticals, illustrates
our focus on identifying niche companies. Our analyst says that their process
could be likened to "a generic drug on steroids." For years drugs were developed
with left handed and right handed isomers of the same chemical mixture. Many
patients have had serious allergic reactions to either the left or right isomer
of a certain group of existing drugs. Sepracor has developed a patented process
that allows certain
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
Stock Market and Currency Performance
CHART PERIOD:
For the 12 months ended October 31, 1998
Currency Return Relative Stock Market Index
to U.S. Dollar Return (Local)
------------------------ ------------------
Italy 3.2% 34.8%
France 3.6% 29.1%
Germany 3.9% 23.3%
U.S. 0.0% 21.1%
U.K. -0.1% 11.2%
Netherlands 3.9% 3.7%
Korea -26.9% 3.2%
Philippines -12.3% 2.4%
Hong Kong -0.2% -5.6%
Mexico -16.5% -6.5%
Taiwan -4.7% -10.7%
Argentina 0.0% -12.1%
Japan 3.2% -17.5%
Singapore -3.4% -21.2%
Brazil -7.6% -28.7%
Thailand 11.6% -35.7%
Malaysia -38.3% -41.5%
Indonesia -52.6% -51.3%
Source: Factset
7 - Scudder Global Discovery Fund
<PAGE>
drugs to be manufactured in single-isomer form with essentially no harmful side
effects. Some of Sepracor's drugs include the allergy drug Claritin and asthma
medicine Albuterol. We believe the company has a promising future: it is working
with a number of proven compounds and has a portfolio of drugs to roll out in
single-isomer form over the next ten years.
Q: Holdings in Germany and France were important contributors to performance.
What helped here?
A: In Germany, long-time holding Marschollek Lautenschlaeger und Partner AG -- a
rapidly growing services firm specializing in providing financial products and
planning to German professionals -- continued to make an important contribution
to portfolio returns. Pfeiffer Vacuum AG is another important position in
Germany. Pfeiffer is a good example of the equity market opportunities available
through developing stock markets such as the German Neuer Market. The company is
a leading manufacturer of high performance vacuum pumps for a wide range of
industrial applications. We acquired shares at the initial public offering more
than a year ago, and the stock has been a terrific performer.
In France, we added Altran Technologies, which has become our largest holding
there and a top ten Fund holding. Altran, an outsourcing company, provides
engineering and consulting services for aerospace, telecommunications, and
electronics companies. The company specializes in complex engineering tasks,
including research and development functions.
8 - Scudder Global Discovery Fund
<PAGE>
Q: What held back performance over the period?
A: Our holdings in Japan declined over the 12 months. We eliminated most of our
positions there, including finance companies Nichiei and Shohkoh Fund, whose
customer base of small- and mid-size firms will likely be impacted by the dismal
economic environment. In addition, we had small positions in Hungary and Israel,
which were affected by the overall declines in the emerging markets. In Hungary,
Richter Gedeon, a leading drug manufacturer, was severely impacted because the
majority of their sales were made to former Soviet satellite countries. Central
European Media, a U.K. company operating in eastern Europe, was the worst
performer for the period as the advertising revenue growth from the company's TV
and radio franchises did not live up to expectations.
Q: With a slowdown in global economic growth now evident, where do you see
attractive opportunities?
A: We are still enthusiastic about Europe, which continues to provide fertile
ground for many growing and dynamic small companies. European monetary union is
bringing about significant changes as many companies adapt to cross border
competition. We have already seen some benefit from this major economic
transition and expect to see more in 1999. From a valuation standpoint, many
European small-caps trade at very attractive multiples compared to small-caps in
other world markets. In managing the portfolio, we intend to continue with our
disciplined approach to selecting individual stocks with niche leadership in
their respective markets, while seeking to take advantage of changing business
environments conducive to corporate growth in shareholder earnings.
Scudder Global Discovery Fund: A Team Approach to Investing
Scudder Global Discovery Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays 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 the Adviser's large staff of economists, research
analysts, traders, and other investment specialists who work in our offices
across the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging our 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. Mr. Moran joined Scudder's
equity research and management area in 1968 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 11 years'
experience in global analysis and portfolio management, focuses on
stock selection and research.
9 - 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.
Trading or central bank intervention (or the lack of
intervention) may prompt this 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 characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined 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.
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 not as good in developing
markets where disclosure requirements may be less
stringent, and protectionism, subsidies, and cronyism
may distort the business environment.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
10 - Scudder Global Discovery Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 9.6%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/30/1998 at 5.4%,
to be repurchased at $31,945,369 on 11/2/1998, collateralized by a ------------
$31,153,000 U.S. Treasury Bond, 3.375%, 1/15/2007 (Cost $31,931,000) .................. 31,931,000 31,931,000
------------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 90.4%
- ------------------------------------------------------------------------------------------------------------------------------
Australia 0.1%
CI Technologies Group Ltd. (Developer of process monitoring and industrial
automation software) .................................................................. 111,400 242,991
------------
Austria 1.0%
Eybl International AG* (Producer of textiles for automobiles sold worldwide) ............ 13,700 317,443
Schoeller Bleckmann Oilfield Equipment AG (Manufacturer of components for oil
and gas drilling equipment) ........................................................... 17,000 1,123,364
Topcall International AG (Manufacturer of electronic messaging systems) ................. 5,800 1,861,575
------------
3,302,382
------------
Canada 0.1%
StressGen Biotechnologies Corp. "A"* (Developer of products for treatment of
cancer and certain infectious diseases) ............................................... 205,000 212,573
------------
Croatia 0.7%
Pliva D.D. (GDR) (Pharmaceutical company) ............................................... 159,800 2,349,060
------------
Czech Republic 0.4%
Central European Media Enterprises Ltd. "A"* (Owner and operator of national and
regional private commercial television stations in central Europe and Germany) ....... 243,300 1,551,038
------------
Finland 0.5%
JOT Automation Group Oyj* (Developer and manufacturer of high technology
production automation systems and equipment) .......................................... 39,600 966,908
KCI Konecrones International Oyj (Manufacturer of elevators) ............................ 9,500 413,002
Sponda Oyj* (Owner and manager of commercial rental properties) ......................... 28,900 192,189
------------
1,572,099
------------
France 3.1%
Altran Technologies, SA (Engineering and consulting services for aerospace,
telecommunication and electronics fields) ............................................. 37,993 7,432,447
Dassault Systemes SA (Computer aided design, manufacturing and engineering
software) ............................................................................. 42,691 1,628,812
Leon de Bruxelles SA (Operator of low cost family restaurants) .......................... 10,257 830,676
Penauille Polyservices SA (Industrial cleaning and security services) ................... 1,460 341,582
------------
10,233,517
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Global Discovery Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany 3.7%
Hawesko Holding AG* (Marketer of wines, liqueurs and related products) .................. 34,488 1,748,863
Kamps AG* (Producer and distributor of baked goods) ..................................... 17,256 783,369
Marschollek Lautenschlaeger und Partner AG (pfd) (Leading independent life
insurance company) .................................................................... 11,800 6,019,318
MobilCom AG (Provider of mobile telephone services) ..................................... 5,979 1,736,130
Pfeiffer Vacuum Technology AG (ADR)* (Manufacturer of various pumps and vacuum
systems) .............................................................................. 43,999 2,084,453
------------
12,372,133
------------
Greece 0.4%
STET Hellas Telecommunications S.A. (ADR)* (Provider of mobile telecommunication
services) ............................................................................. 58,221 1,528,301
------------
Hungary 0.7%
OTP Bank Rt (GDR) (Commercial bank) ..................................................... 23,300 844,629
Richter Gedeon Rt (Pharmaceutical company) .............................................. 26,200 865,334
Richter Gedeon Rt (GDR) ................................................................. 19,800 663,300
------------
2,373,263
------------
Ireland 9.2%
Bank of Ireland PLC (Bank) .............................................................. 611,468 11,300,388
ESAT Telecom Group PLC (ADR)* (Provider of telecommunication services in the
Republic of Ireland) .................................................................. 111,800 3,381,950
Green Property PLC (Conductor of operations in property development, investment
and trading) .......................................................................... 354,880 1,856,356
Irish Continental Group PLC (Transporter of passengers, freight and containers
between Ireland the U.K. and the continent) ........................................... 211,555 2,479,320
Irish Life PLC (Provider of life and disability insurance and pensions) ................. 437,310 3,876,646
Irish Permanent PLC (Retail financial services group) ................................... 182,152 2,613,678
Jury's Hotel Group PLC (Hotel operator) ................................................. 501,255 3,765,680
Ryan Hotels PLC (Owner and operator of hotel chain) ..................................... 1,213,200 1,148,385
------------
30,422,403
------------
Israel 0.6%
Check Point Software Technologies Ltd.* (Developer and marketer of management
solutions for active networks) ........................................................ 65,000 1,478,750
ESC Medical Systems Ltd.* (Producer of devices for non-invasive treatment of
benign vascular lesions) .............................................................. 44,100 358,313
------------
1,837,063
------------
Italy 2.6%
Aeroporti di Roma SpA (Management of Fiumicino and Ciampino airports) ................... 631,600 3,950,029
Bulgari SpA (Manufacturer and retailer of fine jewelry, luxury watches and
perfumes) ............................................................................. 444,800 2,437,112
Safilo Azionaria Fabbrica Lavorazione Occhiali SpA (Manufacturer of frames for
glasses) .............................................................................. 518,000 2,307,209
------------
8,694,350
------------
</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>
Japan 0.9%
Riso Kagaku Corp. (Manufacturer of copying machines) .................................... 50,900 2,864,218
------------
Luxembourg 1.3%
Millicom International Cellular S.A.* (Developer and operator of cellular
telephone networks) ................................................................... 127,400 4,251,975
------------
Netherlands 3.3%
De Telegraaf Holding NV (Leading publisher of newspapers, magazines and books) .......... 69,600 1,758,347
Equant NV* (Provider of international data network services) ............................ 38,500 1,668,460
IHC Caland NV (Dredging and offshore services) .......................................... 129,000 5,834,448
Tas Groep NV* (Software developer) ...................................................... 346,000 1,574,158
------------
10,835,413
------------
Philippines 0.3%
International Container Terminal Services, Inc. (Containerized cargo handling
firm) ................................................................................. 15,415,650 1,031,530
------------
Poland 0.4%
Pioneer Poland Fund (Closed-end investment company) (b)(c) .............................. 3 1,250,332
------------
Portugal 4.4%
Jeronimo Martins SA (Food producer and retailer) ........................................ 145,525 6,303,528
Telecel-Comunicacoes Pessoais, S.A.* (Cellular communication services) .................. 44,366 8,172,650
------------
14,476,178
------------
Spain 1.4%
Aldeasa SA (Operator of airport duty-free shops) ........................................ 49,500 1,686,781
Tele Pizza, SA* (Operator of fast food restaurants) ..................................... 384,000 3,135,028
------------
4,821,809
------------
Sweden 0.8%
Kinnevik AB "B" (Diversified holding company) ........................................... 53,200 1,378,132
OM Gruppen AB (Operator of exchanges and clearing organizations) ........................ 75,700 1,155,236
------------
2,533,368
------------
Switzerland 2.4%
Gretag Imaging Group* (Manufacturer of image processing equipment and systems) .......... 25,431 2,307,815
Kuoni Reisen AG (Registered) (Travel agency) ............................................ 1,067 3,810,152
Lindt & Spruengli AG (Manufacturer of chocolate and confectionery products) ............. 37 88,583
Phoenix Meccano AG (Bearer) (Manufacturer of housings and components for
computers) ............................................................................ 3,537 1,904,980
------------
8,111,530
------------
United Kingdom 11.2%
ARM Holdings PLC* (Producer of RISC microprocessors, technology and software) ........... 30,600 458,431
Aegis Group PLC (Independent media services group) ...................................... 532,187 824,016
Computacenter PLC (Information technology services) ..................................... 61,345 472,353
</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>
Expro International Group PLC (Provider of oilfield services) ........................... 438,900 2,402,387
Games Workshop Group PLC (Manufacturer of table top war game systems and
miniatures) ........................................................................... 163,000 1,514,294
ICON PLC (ADR)* (Pharmaceutical and biotechnological research and development
services) ............................................................................. 45,000 1,260,000
ITNET PLC* (Supplier of business process management services) ........................... 104,122 732,018
Matalan PLC* (Clothing retailer) ........................................................ 256,786 1,203,536
New Look Group PLC* (Retailer of womenswear) ............................................ 755,371 1,808,115
Provident Financial PLC (Personal finance group) ........................................ 561,192 8,459,114
RM PLC (Information technology solutions to educational markets) ........................ 677,500 4,110,996
Regent Inns PLC (Owner and operator of hotels and restaurants) .......................... 617,262 1,255,381
Serco Group PLC* (Facilities management company) ........................................ 703,700 12,250,409
Taylor Nelson Sofres PLC* (Market research company) ..................................... 300,062 439,490
------------
37,190,540
------------
United States 40.9%
Access Health, Inc.* (Personal health management services) .............................. 48,500 1,739,938
Aptargroup, Inc. (Manufacturer of packaging equipment components) ....................... 118,200 3,161,842
Axogen Elan Corp. (ADR)* (Future development of therapeutic products for
treatment of neurological disorders) .................................................. 106,100 6,843,450
Barrett Resources Corp.* (Oil and gas exploration and production) ....................... 64,600 1,522,138
Billing Concepts Corp. (Billing and information management services) .................... 538,300 7,603,488
Black Box Corp.* (Manufacturer of wide area networking products, direct marketer
of computer products) ................................................................. 39,000 1,301,625
CNF Transportation, Inc. (Provider of trucking and air freight) ......................... 95,700 2,894,925
Cintas Corp. (Uniform rentals) .......................................................... 62,200 3,327,700
Concentra Managed Care, Inc.* (Provider of integrated workers' compensation
managed care) ......................................................................... 148,100 1,518,025
Concord EFS, Inc.* (Electronic transaction authorization, processing, settlement
and transfer services) ................................................................ 108,500 3,092,250
Dallas Semiconductor Corp. (Manufacturer of silicon integrated circuits and
subsystems) ........................................................................... 36,400 1,346,800
Eagle USA Airfreight, Inc.* (Airfreight forwarding services) ............................ 14,500 185,781
Fiserv Inc.* (Data processing services) ................................................. 181,162 8,424,033
G & K Services, Inc. "A" (Uniform rentals) .............................................. 52,100 2,383,575
Harveys Casino Resorts (Owner and operator of hotel/casino properties) .................. 115,300 2,932,944
Healthcare Recoveries, Inc.* (Provider of recovery services for private
healthcare payors) .................................................................... 17,300 175,163
IDX Systems Corp.* (Provider of health care information systems to physician
groups and academic medical centers) .................................................. 109,500 4,640,063
MBIA, Inc. (Insurer of municipal bonds) ................................................. 43,852 2,680,454
Mercury Computer Systems, Inc.* (Manufacturer of digital signal processing
computer systems) ..................................................................... 4,700 82,838
Network Appliance, Inc.* (Designer and manufacturer of network data storage
devices) .............................................................................. 331,600 18,155,100
</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>
North Fork Bancorporation, Inc. (Commercial and savings bank holding company) ........... 15,900 316,013
Quintiles Transnational Corp.* (Provides full-service contract research, sales
and marketing services to the worldwide pharmaceutical, biotechnology and
medical device industries) ............................................................ 21,900 990,975
S & P Mid-Cap 400 Depository Receipts (Security that represents ownership in the
Mid-Cap SPDR Trust) ................................................................... 95,800 6,185,088
Sepracor, Inc.* (Developer of enhanced forms of existing pharmaceuticals) ............... 64,700 4,440,038
Sola International, Inc.* (Manufacturer of plastic eyeglass lenses) ..................... 210,200 4,033,213
Sterling Commerce, Inc.* (Producer of electronic data interchange products and
services) ............................................................................. 307,934 10,854,674
Symbol Technologies Inc. (Manufacturer of bar code laser scanners) ...................... 111,600 4,994,100
Tiffany & Co. (Retailer of jewelry and gift items) ...................................... 125,400 4,051,988
Total Renal Care Holdings, Inc.* (Dialysis services for treatment of chronic
kidney failure) ....................................................................... 201,799 4,944,076
VISX, Inc.* (Developer of laser technologies and systems for vision correction) ......... 117,800 5,904,725
Vincam Group, Inc.* (Provider of solutions to complexities and costs of
employment and personnel) ............................................................. 30,000 474,375
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) .............. 319,000 10,287,750
Wackenhut Corrections Corp.* (Manager of privatized correctional and detention
facilities) ........................................................................... 89,800 2,205,713
Wesley Jessen VisionCare, Inc.* (Manufacturer of soft contact lenses) ................... 85,100 1,521,163
Wisconsin Central Transportation Corp.* (Operator of regional freight railroad) ......... 45,700 691,213
------------
135,907,236
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $209,541,090) 299,965,302
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $241,472,090) (a) 331,896,302
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $245,698,479. At October 31,
1998, net unrealized appreciation for all securities based on tax cost was
$86,197,823. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $112,778,559 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$26,580,736.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $1,250,332 (.38% 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, 1998 aggregated $1,477,500.
(c) Market value and cost reflect full payment. The remaining installments
which total $369,375 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.
15 - Scudder Global Discovery Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $241,472,090) ................ $ 331,896,302
Cash ................................................................. 269
Receivable for Fund shares sold ...................................... 1,692,618
Dividends and interest receivable .................................... 102,368
Foreign taxes recoverable ............................................ 77,263
Other assets ......................................................... 18,704
----------------
Total assets ......................................................... 333,787,524
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................... 2,228,334
Payable for Fund shares redeemed ..................................... 1,890,052
Accrued management fee ............................................... 326,115
Other payables and accrued expenses .................................. 614,082
----------------
Total liabilities .................................................... 5,058,583
-------------------------------------------------------------------------------------------
Net assets, at market value $ 328,728,941
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income ......... (4,219,149)
Unrealized appreciation (depreciation) on:
Investments ....................................................... 90,424,212
Foreign currency related transactions ............................. 3,896
Accumulated net realized gain (loss) ................................. (5,310,945)
Paid-in capital ...................................................... 247,830,927
-------------------------------------------------------------------------------------------
Net assets, at market value $ 328,728,941
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Scudder Shares
Net asset value, offering and redemption price per share
($309,503,949 / 15,622,534 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ........................................................ $19.81
----------------
Class A Shares
Net asset value and redemption price per share ($11,317,146 /
572,228 shares of outstanding shares of beneficial interest, ----------------
$.01 par value, unlimited number of shares authorized) ............. $19.78
----------------
----------------
Maximum offering price per share (100 / 94.25 of $19.78) ............. $20.99
----------------
Class B Shares
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($5,715,337 /
290,159 outstanding shares of beneficial interest, $.01 par ----------------
value, unlimited number of shares authorized) ...................... $19.70
----------------
Class C Shares
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($2,192,509 /
111,280 outstanding shares of beneficial interest, $.01 par ----------------
value, unlimited number of shares authorized) ...................... $19.70
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Global Discovery Fund
<PAGE>
Statement of Operations
year ended October 31, 1998
<TABLE>
<S> <C> <C>
Investment Income (loss)
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $278,480) ................ $ 2,978,015
Interest ............................................................. 1,317,528
----------------
4,295,543
Expenses:
Management fee ....................................................... 3,960,160
Services to shareholders ............................................. 1,099,979
Custodian and accounting fees ........................................ 510,424
Distribution fees .................................................... 14,995
Administrative service fees .......................................... 11,813
Directors' fees and expenses ......................................... 57,103
Reports to shareholders .............................................. 107,316
Auditing ............................................................. 86,753
Legal ................................................................ 30,107
Registration fees .................................................... 73,063
Other ................................................................ 31,516
----------------
Total expenses before reductions ..................................... 5,983,229
Expense reductions ................................................... (13,525)
----------------
Expenses, net ........................................................ 5,969,704
-------------------------------------------------------------------------------------------
Net investment income (loss) (1,674,161)
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .......................................................... 2,152,524
Foreign currency related transactions ................................ (42,492)
----------------
2,110,032
Net unrealized appreciation (depreciation) during the period on:
Investments .......................................................... 2,923,009
Foreign currency related transactions ................................ 17,051
----------------
2,940,060
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 5,050,092
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 3,375,931
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Global Discovery Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) ........................................ $ (1,674,161) $ (2,090,766)
Net realized gain (loss) from investment transactions ............... 2,110,032 26,874,290
Net unrealized appreciation (depreciation) on
investment transactions during the period ......................... 2,940,060 12,247,359
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ........................................................ 3,375,931 37,030,883
---------------- ----------------
Distributions to shareholders from:
Net investment income -- Scudder Shares ........................... (9,815,437) (2,252,537)
---------------- ----------------
Net realized gains -- Scudder Shares .............................. (21,794,909) (14,901,393)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ........................................... 203,840,754 129,503,033
Net asset value of shares issued to shareholders in
reinvestment of distributions ..................................... 29,399,080 16,335,810
Cost of shares redeemed ............................................. (225,398,432) (167,423,822)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ...................................................... 7,841,402 (21,584,979)
---------------- ----------------
Increase (decrease) in net assets ................................... (20,393,013) (1,708,026)
Net assets at beginning of period ................................... 349,121,954 350,829,980
Net assets at end of period (including accumulated
distributions in excess of net investment income ---------------- ----------------
of $4,219,149 and $113,840, respectively) ......................... $ 328,728,941 $ 349,121,954
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - 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.
Scudder Shares (b)
<TABLE>
<CAPTION>
Years Ended October 31,
1998(a) 1997(a) 1996(a) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
Net asset value, beginning of period ................................ $ 21.64 $ 20.45 $ 17.54 $ 16.27 $ 16.14
-----------------------------------------------------------
Income from investment operations:
Net investment income (loss) ........................................ (.10) (.12) (.04) (.03) (.02)
Net realized and unrealized gain (loss) on investment
transactions ...................................................... .32 2.30 3.59 1.38 .48
-----------------------------------------------------------
Total from investment operations .................................... .22 2.18 3.55 1.35 .46
-----------------------------------------------------------
Less distributions:
From net investment income .......................................... (.64) (.13) (.20) -- --
In excess of net investment income .................................. -- -- -- -- (.18)
From net realized gains on investment transactions .................. (1.41) (.86) (.44) (.08) (.15)
-----------------------------------------------------------
Total distributions ................................................. (2.05) (.99) (.64) (.08) (.33)
-----------------------------------------------------------
-----------------------------------------------------------
Net asset value, end of period ...................................... $ 19.81 $ 21.64 $ 20.45 $ 17.54 $ 16.27
-----------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) .................................................... 1.19 11.14 20.97 8.32 2.80(c)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 310 349 351 255 256
Ratio of operating expenses, net to average daily net assets (%) .... 1.65 1.63 1.60 1.69 1.70
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ..................................... 1.65 1.63 1.60 1.69 1.76
Ratio of net investment income (loss) to average daily net
assets (%) ........................................................ (.45) (.58) (.20) (.12) (.28)
Portfolio turnover rate (%) ......................................... 40.6 60.5 63.0 43.7 45.8
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On April 16, 1998 existing shares of the Fund were designated as Scudder
Shares and are generally not available to new investors.
(c) Total return would have been lower had certain expenses not been reduced.
19 - Scudder Global Discovery Fund
<PAGE>
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class A
<TABLE>
<CAPTION>
For the Period
April 16, 1998
(commencement
of
sale of
Class A shares)
to October 31,
1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
-------------------
Net asset value, beginning of period ................................................................ $ 23.98
-------------------
Income from investment operations:
Net investment income (loss) ........................................................................ (.09)
Net realized and unrealized gain (loss) on investment transactions .................................. (4.11)
-------------------
Total from investment operations .................................................................... (4.20)
-------------------
-------------------
Net asset value, end of period ...................................................................... $ 19.78
-------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................................ (17.51)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................................................. 11
Ratio of operating expenses, net to average daily net assets (%) .................................... 1.95*
Ratio of operating expenses before expense reductions, to average daily net assets (%) .............. 2.20*
Ratio of net investment income (loss) to average daily net assets (%) ............................... (1.00)*
Portfolio turnover rate (%) ......................................................................... 40.6
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
20 - Scudder Global Discovery Fund
<PAGE>
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class B
<TABLE>
<CAPTION>
For the Period
April 16, 1998
(commencement
of
sale of
Class B shares)
to October 31,
1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
-------------------
Net asset value, beginning of period ................................................................ $ 23.98
-------------------
Income from investment operations:
Net investment income (loss) ........................................................................ (.18)
Net realized and unrealized gain (loss) on investment transactions .................................. (4.10)
-------------------
Total from investment operations .................................................................... (4.28)
-------------------
-------------------
Net asset value, end of period ...................................................................... $ 19.70
-------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................................ (17.85)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................................................. 6
Ratio of operating expenses, net to average daily net assets (%) .................................... 2.83*
Ratio of operating expenses before expense reductions, to average daily net assets (%) .............. 3.13*
Ratio of net investment income (loss) to average daily net assets (%) ............................... (1.87)*
Portfolio turnover rate (%) ......................................................................... 40.6
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
21 - Scudder Global Discovery Fund
<PAGE>
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class C
<TABLE>
<CAPTION>
For the Period
April 16, 1998
(commencement
of
sale of
Class C shares)
to October 31,
1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
-------------------
Net asset value, beginning of period ................................................................ $ 23.98
-------------------
Income from investment operations:
Net investment income (loss) ........................................................................ (.17)
Net realized and unrealized gain (loss) on investment transactions .................................. (4.11)
-------------------
Total from investment operations .................................................................... (4.28)
-------------------
-------------------
Net asset value, end of period ...................................................................... $ 19.70
-------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ............................................................................ (17.85)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................................................. 2
Ratio of operating expenses, net to average daily net assets (%) .................................... 2.80*
Ratio of operating expenses before expense reductions, to average daily net assets (%) .............. 3.23*
Ratio of net investment income (loss) to average daily net assets (%) ............................... (1.88)*
Portfolio turnover rate (%) ......................................................................... 40.6
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
22 - Scudder Global Discovery Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Global Discovery Fund (the "Fund") is a diversified series of
Global/International Fund, Inc. (formerly known as Scudder Global Fund, Inc.), a
Maryland corporation registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
Effective April 16, 1998, the Fund changed its name from Scudder Global
Discovery Fund to Global Discovery Fund and an additional three classes of
shares were offered, namely Classes A, B and C. Existing shares of Global
Discovery Fund outstanding on that date were redesignated Scudder Shares. Class
A shares 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 and Scudder 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 and
Scudder Shares and a contingent deferred sales charge payable upon certain
redemptions within one year of purchase. Class C shares do not convert into
another class. Scudder Shares are generally not available to new investors and
are not subject to initial or contingent deferred sales charges.
Investment income, realized and unrealized capital gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears expenses unique to that class. Each class of shares differs in
its respective distribution, shareholder services, administrative services and
certain other class-specific expenses and expense reductions. All shares of the
Fund have equal rights with respect to voting.
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 Stock Market, Inc.
("Nasdaq"), 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 instruments with an original
maturity over 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 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.
23 - Scudder Global Discovery Fund
<PAGE>
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 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.
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.
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 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, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $5,304,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2006, the expiration date, whichever occurs first.
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
24 - Scudder Global Discovery Fund
<PAGE>
distributed and, therefore, will be distributed to shareholders annually. An
additional distribution may be made to the extent necessary to avoid the payment
of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in forward contracts, passive
foreign investment companies, and certain securities sold at a loss. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
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, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $135,928,874 and
$174,772,325, respectively.
C. Related Parties
Management Agreement. Effective December 31, 1997, Scudder, Stevens & Clark,
Inc. ("Scudder") and The Zurich Insurance Company ("Zurich"), an international
insurance and financial services organization, formed a new global investment
organization by combining Scudder's business with that of Zurich's subsidiary,
Zurich Kemper Investments, Inc. As a result of the transaction, Scudder changed
its name to Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"). The transaction between Scudder and Zurich resulted in the
termination of the Fund's Investment Management Agreement with Scudder. However,
a new Investment Management Agreement (the "Agreement") between the Fund and
Scudder Kemper was approved by the Fund's Board of Directors and by the Fund's
Shareholders. The Agreement, which was effective December 31, 1997, is the same
in all material respects as the corresponding previous Investment Management
Agreement, except that Scudder Kemper is the new investment adviser to the Fund.
Under the Agreement with Scudder Kemper, the Fund pays 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, 1998, the fee pursuant to the
Agreement amounted to $3,960,160, of which $326,115 was unpaid at October 31,
1998.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's
25 - Scudder Global Discovery Fund
<PAGE>
businesses to form a new global insurance and financial services company known
as Zurich Financial Services. Upon consummation of the transaction, the Fund's
investment management agreement with Scudder Kemper was deemed to have been
assigned and, therefore, terminated. The Board of Directors of the Fund has
approved a new investment management agreement with Scudder Kemper, which is
substantially identical to the former investment management agreement, except
for the dates of execution and termination. The Board of Directors of the Fund
has obtained shareholder approval of the new investment management agreement.
Distribution Service Agreement. In accordance with Rule 12b-1 under the
Investment Company Act of 1940, Kemper Distributors, Inc. ("KDI"), a subsidiary
of the Adviser, receives a fee of .75% of average daily net assets of Classes B
and C. Pursuant to the agreement, KDI enters into related selling group
agreements with various firms at various rates for sales of Class B and C
shares. For the period April 16, 1998 through October 31, 1998, the Distribution
Fee was as follows:
<TABLE>
<CAPTION>
Fees Waived by Unpaid at
Distribution Fees Total Aggregated KDI October 31, 1998
-------------------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
Class B................... $ 11,237 $ 790 $ 10,447
Class C................... 3,758 922 2,836
--------- --------- ---------
$ 14,995 $ 1,712 $ 13,283
========= ========= =========
</TABLE>
Underwriting Agreement and Contingent Deferred Sales Charge. KDI is the
principal underwriter for Classes A, B and C. Underwriting commissions paid in
connection with the distribution of Class A shares for the period April 16, 1998
through October 31, 1998 aggregated $133,686, all of which was paid to other
firms.
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C share
redemptions occurring within one year of purchase. There is no such charge upon
redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the period
April 16, 1998 through October 31, 1998, the CDSC for Classes B and C aggregated
$477 and $134, respectively.
Administrative Service Fees. KDI provides information and administrative
services to Classes A, B and C shareholders at an annual rate of up to .25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based upon the assets of shareholder accounts the firms service. For the period
beginning April 16, 1998 through October 31, 1998, the Administrative Service
Fee was as follows:
<TABLE>
<CAPTION>
Fees Waived by Unpaid at
Administrative Service Fees Total Aggregated KDI October 31, 1998
----------------------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
Class A...................... $ 6,815 $ 6,815 $ --
Class B...................... 3,745 3,745 --
Class C...................... 1,253 1,253 --
--------- --------- ---------
$ 11,813 $ 11,813 $ --
========= ========= =========
</TABLE>
26 - Scudder Global Discovery Fund
<PAGE>
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Fund's Classes A, B and C Shares. For the period beginning April 16, 1998
through October 31, 1998, the amount charged to Classes A, B and C by KSC
aggregated $11,105, $7,875 and $3,086, respectively, of which $8,648 is unpaid
at October 31, 1998. Scudder Service Corporation ("SSC"), a subsidiary of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Scudder Shares. For the year ended October 31, 1998, the amount charged to the
Scudder Shares by SSC for shareholder services aggregated $734,090, of which
$58,838 is unpaid at October 31, 1998.
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 Scudder Shares of the Fund. For the year
ended October 31, 1998, the amount charged to the Scudder Shares by STC
aggregated $200,043, of which $17,404 is unpaid at October 31, 1998.
Fund Accounting Fees. 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, 1998, the amount charged to the Fund by SFAC
aggregated $302,281, of which $57,863 is unpaid at October 31, 1998.
Directors Fees. The Fund pays each of its Directors not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the year ended October 31, 1998, the Directors fees and
expenses aggregated $57,103.
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 1/3 percent of its net assets under the agreement. In addition,
the Fund also maintains an uncommitted line of credit.
27 - Scudder Global Discovery Fund
<PAGE>
E. Capital Share Transactions
The following table summarizes capital share and dollar activity in the Fund:
<TABLE>
<CAPTION>
Year ended Year ended
October 31, 1998 October 31, 1997
----------------------------- -----------------------------
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
Shares sold
Scudder Shares ................................. 6,972,104 $ 148,104,107 6,176,506 $ 129,503,033
Class A ........................................ 2,260,575 46,546,836 -- --
Class B ........................................ 309,368 6,651,125 -- --
Class C ........................................ 117,930 2,538,686 -- --
------------ ------------- ----------- -------------
9,659,977 203,840,754 6,176,506 129,503,033
------------ ------------- ----------- -------------
Shares issued to shareholders in reinvestment of
distributions
Scudder Shares ................................. 1,514,636 $ 29,399,080 829,650 $ 16,335,810
Class A ........................................ -- -- -- --
Class B ........................................ -- -- -- --
Class C ........................................ -- -- -- --
------------ ------------- ----------- -------------
1,514,636 29,399,080 829,650 16,335,810
------------ ------------- ----------- -------------
Shares redeemed
Scudder Shares ................................. (8,999,114) $(190,396,588) (8,023,612) $(167,423,822)
Class A ........................................ (1,688,347) (34,483,052) -- --
Class B ........................................ (19,209) (386,029) -- --
Class C ........................................ (6,650) (132,763) -- --
------------ ------------- ----------- -------------
(10,713,320) (225,398,432) (8,023,612) (167,423,822)
------------ ------------- ----------- -------------
Net increase (decrease)
Scudder Shares ................................. (512,374) $ (12,893,401) (1,017,456) $ (21,584,979)
Class A ........................................ 572,228 12,063,784 -- --
Class B ........................................ 290,159 6,265,096 -- --
Class C ........................................ 111,280 2,405,923 -- --
------------ ------------- ----------- -------------
461,293 $ 7,841,402 (1,017,456) $ (21,584,979)
------------ ------------- ----------- -------------
</TABLE>
28 - Scudder Global Discovery Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Global/International Fund, Inc. and to the
Shareholders of Global Discovery Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Global Discovery Fund (the "Fund")
at October 31, 1998, the results of its operations for the year then ended and
the changes in its net assets, and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 23, 1998
29 - Scudder Global Discovery Fund
<PAGE>
Tax Information
The Scudder Shares paid distributions of $1.41 per share from net long-term
capital gains during the year ended October 31, 1998, of which 89.4% represents
20% rate gains.
The Fund paid foreign taxes of $278,480 and earned $278,480 of foreign source
income during the year ended October 31, 1998. Pursuant to Section 853 of the
Internal Revenue Code, the Fund designates $.02 per share as foreign taxes paid
and $.02 per share as income earned from foreign sources for the year ended
October 31, 1998.
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 account, please call 1-800-SCUDDER.
30 - Scudder Global Discovery Fund
<PAGE>
This Page
intentionally
left blank.
31 - Scudder Global Discovery Fund
<PAGE>
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
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
Joan Spero
Director; President, Doris Duke
Charitable Foundation
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Susan E. Dahl*
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
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
32 - 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--
Prime Reserve Shares*
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 Corporate Bond 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 Dividend & Growth 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 Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company 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 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. ++Only the International 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 other stock exchanges.
33 - 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 money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
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 -- www.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 previously designated.
Distributions Direct
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
- ------------------------------------------------------------------------------------------------------------------------------
34 - 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 8,000 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
800 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 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
</TABLE>
35 - Scudder Global Discovery Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
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>
ANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED OCTOBER 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
Kemper Global Discovery Fund seeks above-average capital appreciation over the
long-term by investing primarily in equity securities of small companies located
throughout the world.
Kemper Global Discovery Fund is properly known as Global Discovery Fund.
KEMPER GLOBAL DISCOVERY FUND
"... For the 12-month period, positive performance came from four areas: an
emphasis on European peripheral countries, good U.S. stock selection, strong
results from German and French companies, and a general avoidance of emerging
markets. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
9
COUNTRY CONCENTRATIONS
10
LARGEST HOLDINGS
11
REPORT OF
INDEPENDENT ACCOUNTANTS
12
INVESTMENT PORTFOLIO
19
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
24
NOTES TO
FINANCIAL STATEMENTS
AT A GLANCE
- --------------------------------------------------------------------------------
ABOUT YOUR REPORT
- --------------------------------------------------------------------------------
KEMPER GLOBAL DISCOVERY FUND COMMENCED OFFERING CLASS A, B AND C SHARES (THE
KEMPER CLASSES) AS OF APRIL 16, 1998. SHARES OF THE FUND OUTSTANDING AS OF APRIL
16, 1998 WERE REDESIGNATED SCUDDER SHARES (CLASS S SHARES). THE INCEPTION DATE
OF CLASS S SHARES IS SEPTEMBER 10, 1991. ALL SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO OF SECURITIES AND HAVE THE SAME MANAGEMENT TEAM. BECAUSE OF
DIFFERENT FEES AND EXPENSES, PERFORMANCE OF SHARE CLASSES WILL DIFFER. CLASS S
SHARES ARE GENERALLY NOT AVAILABLE TO NEW INVESTORS.
- --------------------------------------------------------------------------------
GLOBAL DISCOVERY FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998 (UNADJUSTED FOR ANY SALES CHARGE)
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER GLOBAL SMALL CAP FUNDS CATEGORY
GLOBAL DISCOVERY FUND CLASS S AVERAGE*
- ----------------------------- --------------------------------------
<S> <C>
1.19 -10.15
</TABLE>
- --------------------------------------------------------------------------------
RETURNS ARE HISTORICAL FOR GLOBAL DISCOVERY FUND CLASS S SHARES WHICH, UNLIKE
CLASS A, B AND C SHARES, DO NOT HAVE ANY SALES CHARGES, 12B-1 FEES, OR OTHER
CLASS SPECIFIC EXPENSES LIKE ADMINISTRATIVE SERVICE FEES. INVESTMENT RETURNS AND
PRINCIPAL VALUE FLUCTUATE. CLASS S SHARES ARE REDEEMABLE AT CURRENT NET ASSET
VALUE, WHICH MAY BE MORE OR LESS THAN ORIGINAL COST. KEMPER GLOBAL DISCOVERY
FUND CLASS A, B AND C SHARES WERE INITIALLY OFFERED APRIL 16, 1998. FROM
INCEPTION TO OCTOBER 31, 1998 THE TOTAL RETURN (UNADJUSTED FOR SALES CHARGE) FOR
CLASS A SHARES WAS -17.51%, FOR CLASS B SHARES WAS -17.85% AND FOR CLASS C
SHARES WAS -17.85. THE LIPPER GLOBAL SMALL CAP AVERAGE FOR CLASS A,B AND C
SHARES FROM APRIL 16, 1998 THROUGH OCTOBER 31, 1998 WAS -21.80%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------------------------
AS OF AS OF
10/31/98 4/16/98
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL DISCOVERY FUND
CLASS A $19.78 $23.98
- --------------------------------------------------------------------------------------------------
GLOBAL DISCOVERY FUND
CLASS B $19.70 $23.98
- --------------------------------------------------------------------------------------------------
GLOBAL DISCOVERY FUND
CLASS C $19.70 $23.98
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
GLOBAL DISCOVERY FUND LIPPER
RANKINGS AS OF 10/31/98*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GLOBAL SMALL CAP FUNDS CATEGORY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C>
1-YEAR #2 of
32 funds
- --------------------------------------------------------------------------------------------------
3-YEAR #2 of
23 funds
- --------------------------------------------------------------------------------------------------
5-YEAR #4 of
14 funds
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES. IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE. RANKING
INFORMATION IS FOR CLASS S SHARES.
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED OCTOBER 31, 1998, GLOBAL DISCOVERY FUND PAID THE
FOLLOWING DIVIDENDS:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
GLOBAL
DISCOVERY
FUND
- --------------------------------------------------------------------------------------------------
<S> <C>
INCOME DIVIDEND $0.64
- --------------------------------------------------------------------------------------------------
CAPITAL GAIN DISTRIBUTION $1.41
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND INFORMATION IS FOR CLASS S SHARES.
- --------------------------------------------------------------------------------
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Data provided by Morningstar, Inc., Chicago, IL (312) 696-6000. The
Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratios relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO
NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY-TO-DAY.
A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS
BASED ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO
HOLDINGS OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED KEMPER GLOBAL
DISCOVERY FUND IN THE WORLD STOCK CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A
DESCRIPTION OF INVESTMENT POLICIES.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year. The nation's budget
surplus for 1998 came in at $60 billion, with another budget surplus expected
for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2.5 percent and 3.5 percent for the second half of 1998 and is
anticipated to hover around 2 percent for the first half of 1999. The consumer
price index (CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOV 98 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1)* 4.53 5.64 6.03 6.53
PRIME RATE(2)* 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.49 1.50 2.08 2.99
THE U.S. DOLLAR(4) 0.83 6.86 9.65 3.46
CAPITAL GOODS ORDERS(5)* 2.51 7.47 10.64 9.19
INDUSTRIAL PRODUCTION(5)* 2.12 4.97 6.72 4.93
EMPLOYMENT GROWTH(6) 2.28 2.65 2.70 2.33
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF OCTOBER 31, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. The threat of impeachment, new
acts of terrorism or any other hints of crisis could prompt a downward spike in
our markets in the short run. In the long run, the keys to investment
performance remain moderate growth, low inflation and limited taxation and
regulation.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
MANAGING DIRECTOR
SCUDDER KEMPER INVESTMENTS, INC
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF DECEMBER 2, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[MORAN PHOTO]
GERALD J. MORAN IS A SENIOR VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC.
AND IS THE LEAD PORTFOLIO MANAGER FOR KEMPER GLOBAL DISCOVERY FUND. HE HAS
MANAGED THE FUND SINCE ITS INCEPTION IN 1991. MORAN HAS MORE THAN 30 YEARS OF
INDUSTRY EXPERIENCE AND HAS WORKED EXCLUSIVELY WITH SMALL COMPANY STOCKS FOR THE
LAST DECADE. HE RECEIVED A BACHELOR OF ARTS DEGREE FROM YALE IN 1961.
VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
THE FUND FIRST OFFERED KEMPER CLASSES ON APRIL 16, 1998. (PRIOR TO APRIL 16,
1998 THE FUND OPERATED AS SCUDDER GLOBAL DISCOVERY FUND (CLASS S SHARES)). THE
PAST 12 MONTHS HAVE BEEN A CHALLENGING PERIOD FOR MOST SMALL-CAP INVESTORS. YET,
KEMPER GLOBAL DISCOVERY FUND MANAGED TO RANK AMONG THE TOP 6 PERCENT OF 32
GLOBAL SMALL-CAP EQUITY FUNDS ACCORDING TO LIPPER ANALYTICAL SERVICES. THIS
PERFORMANCE OUTDISTANCED ITS BENCHMARK AND THE MAJORITY OF ITS PEERS BY A
SIGNIFICANT MARGIN DURING A DIFFICULT MARKET ENVIRONMENT. WE ASKED GERALD J.
MORAN, LEAD PORTFOLIO MANAGER OF KEMPER GLOBAL DISCOVERY FUND, TO DISCUSS THE
MARKET ENVIRONMENT AND THE FUND'S CURRENT INVESTMENT STRATEGY.
Q HOW DID THE FUND CLASS S SHARES ("THE SHARES") PERFORM FOR THE 12-MONTH
PERIOD ENDED OCTOBER 31, 1998?
A The shares returned 1.19 percent, which compares favorably to the weak
performance of small-caps around the world for the fiscal year. This result
surpassed by a meaningful margin the -4.50 percent return of our benchmark, the
unmanaged Salomon Brothers World Equity Index-Extended Market Index, and the
- -10.15 percent average return of global small-cap equity funds according to
Lipper Analytical Services for the same period.
Q TO WHAT DO YOU ATTRIBUTE THIS FAVORABLE RELATIVE PERFORMANCE?
A We have emphasized well-run, rapidly growing companies in the United
States and Europe, while maintaining nominal exposure to Asia, Latin America and
Russia. Many of the fund's largest holdings performed well during this difficult
period. We also made an effort to construct a concentrated portfolio so that our
best ideas could have a meaningful impact on performance. This concentration
reflects our emphasis on individual stock selection over "top down" investment
decisions. With significant position sizes, control of individual security risk
increases in importance. We accomplish this control through industry and market
diversification and by knowing the business fundamentals affecting our
companies. This approach helps to limit the volatility of our individual stock
holdings on the portfolio as a whole.
For the 12-month period, positive performance came from four areas: an
emphasis on European peripheral countries, good U.S. stock selection, strong
results from German and French companies, and a general avoidance of emerging
markets.
- --------------------------------------------------------------------------------
TOP RANKINGS FROM LIPPER
- --------------------------------------------------------------------------------
RANKINGS FOR GLOBAL SMALL-CAP EQUITY FUNDS AS OF OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ONE- THREE- FIVE-
YEAR YEAR YEAR
- --------------------------------------------------------------------------------
KEMPER GLOBAL DISCOVERY FUND
- --------------------------------------------------------------------------------
TOP 6% TOP 9% TOP 29%
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FUNDS IN
CATEGORY: 32 23 14
- --------------------------------------------------------------------------------
</TABLE>
SOURCE: LIPPER ANALYTICAL SERVICES
RANKING INFORMATION IS FOR CLASS S SHARES.
THE FUND'S LONG-RUNNING RECORD OF SUPERIOR PERFORMANCE REMAINED INTACT, RANKING
IT NEAR THE TOP OF ALL GLOBAL SMALL-CAP FUNDS FOR THE ONE-, THREE-, AND
FIVE-YEAR PERIODS.
5
<PAGE> 6
PERFORMANCE UPDATE
Q YOUR FOCUS ON PERIPHERAL EUROPEAN COUNTRIES HAS BEEN A CONTINUING THEME
FOR THE FUND. IN WHICH COUNTRIES DID YOU INVEST?
A Our peripheral country holdings include Ireland, Spain and Portugal. We
have found a number of attractively priced companies with exceptional business
fundamentals in these markets. Furthermore, these three markets benefited as
each continued to prepare for the launch of a single European currency in
January 1999. All three countries recently cut interest rates to bring their
economies into alignment for monetary union, which has had a positive effect on
overall economic growth. Lower rates have been good for many businesses and
a number of our holdings have been beneficiaries of this environment. In
Ireland, our continuing holdings in Bank of Ireland and Irish Life were strong
performers. In Portugal, the food producer and retailer Jeronimo Martins also
generated solid gains.
Q IT WAS TOUGH SLEDDING FOR U.S. SMALL-CAPS, YET THE FUND'S U.S. HOLDINGS
PERFORMED RELATIVELY WELL. WHAT DROVE THIS OUTPERFORMANCE?
A Again, our individual stock selection approach among U.S. holdings was
very effective. While the Russell 2000 Index declined 11.54 percent on a total
return basis, the fund's U.S. holdings held up relatively well, and closed the
period essentially with a flat return. Small-caps were hurt by the "flight to
quality" in the wake of the Russian devaluation and debt moratorium in August.
However, our long-term U.S. small-cap holdings in Network Appliance and Vitesse
Semiconductor continued to make important contributions to performance. Sepracor
and Symbol Technologies were also big winners.
Q HOLDINGS IN GERMANY AND FRANCE WERE IMPORTANT CONTRIBUTORS TO PERFORMANCE.
WHAT HELPED HERE?
A In Germany, long-time holding Marschollek Lautenschlaeger und Partner
AG -- a rapidly growing services firm specializing in providing financial
products and planning to German professionals -- continued to make an important
contribution to portfolio returns. Pfeiffer Vacuum AG is another important
position in Germany. Pfeiffer is a good example of the equity market
opportunities available through developing stock markets such as the German
Neuer Market. The company is a leading manufacturer of high performance vacuum
pumps for a wide range of industrial applications. We acquired shares at the
initial public offering more than a year ago, and the stock has been a terrific
performer, up over 100% for the 12 months.
In France, we added Altran Technologies, which has become our largest holding
there and a top 10 fund holding. Altran, an outsourcing company, provides
engineering and consulting services for aerospace, telecommunications and
electronics companies. The company specializes in complex engineering tasks,
including research and development functions.
- --------------------------------------------------------------------------------
STOCK MARKET AND CURRENCY PERFORMANCE
- --------------------------------------------------------------------------------
THE FOLLOWING CHART OFFERS A COMPARISON OF DIFFERENT MARKET RETURNS AND COMPARES
THE CURRENCY VALUATION TO THE U.S. DOLLAR. FOR THE 12 MONTHS ENDED OCTOBER 31,
1998.
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
ITALY 34.8% 3.2%
- --------------------------------------------------------------------------------
FRANCE 29.1% 3.6%
- --------------------------------------------------------------------------------
GERMANY 23.3% 3.9%
- --------------------------------------------------------------------------------
U.S. 21.1% 0.0%
- --------------------------------------------------------------------------------
U.K. 11.2% -0.1%
- --------------------------------------------------------------------------------
NETHERLANDS 3.7% 3.9%
- --------------------------------------------------------------------------------
KOREA 3.2% -26.9%
- --------------------------------------------------------------------------------
PHILIPPINES 2.4% -12.3%
- --------------------------------------------------------------------------------
HONG KONG -5.6% -0.2%
- --------------------------------------------------------------------------------
MEXICO -6.5% -16.5%
- --------------------------------------------------------------------------------
TAIWAN -10.7% -4.7%
- --------------------------------------------------------------------------------
ARGENTINA -12.1% 0.0%
- --------------------------------------------------------------------------------
JAPAN -17.7% 3.2%
- --------------------------------------------------------------------------------
SINGAPORE -21.2% -3.4%
- --------------------------------------------------------------------------------
BRAZIL -28.7% -7.6%
- --------------------------------------------------------------------------------
THAILAND -35.7% 11.6%
- --------------------------------------------------------------------------------
MALAYSIA -41.5% -38.3%
- --------------------------------------------------------------------------------
INDONESIA -51.3% -52.6%
- --------------------------------------------------------------------------------
</TABLE>
- - Percent change in stock market index (local)
- - Percent change in currency relative to U.S. dollar Source: Factset
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHAT HELD BACK PERFORMANCE OVER THE PERIOD?
A Our holdings in Japan declined over the 12 months. We eliminated most of
our positions there, including finance companies Nichiei and Shohkoh Fund, whose
customer base of small- and mid-size firms will likely be impacted by the dismal
economic environment. In addition, we had small positions in Hungary and Israel,
which were affected by the overall declines in the emerging markets. In Hungary,
Richter Gedeon, a leading drug manufacturer, was severely impacted because the
majority of their sales were made to former Soviet satellite countries. Central
European Media, a U.K. company operating in eastern Europe, was the worst
performer for the period as the advertising revenue growth from the company's TV
and radio franchises did not live up to expectations.
Q WITH A SLOWDOWN IN GLOBAL ECONOMIC GROWTH NOW EVIDENT, WHERE DO YOU SEE
ATTRACTIVE OPPORTUNITIES?
A We are still enthusiastic about Europe, which continues to provide fertile
ground for many growing and dynamic small companies. European monetary union is
bringing about significant changes as many companies adapt to cross border
competition. We have already seen some benefit from this major economic
transition and expect to see more in 1999. From a valuation standpoint, many
European small-caps trade at very attractive multiples compared to small-caps in
other world markets. In managing the portfolio, we intend to continue with our
disciplined approach to selecting individual stocks with niche leadership in
their respective markets, while seeking to take advantage of changing business
environments conducive to corporate growth in shareholder earnings.
- --------------------------------------------------------------------------------
TERMS TO KNOW
CURRENCY DEVALUATION A significant decline of a currency's value relative to
other currencies, such as the U.S. dollar. Trading or central bank intervention
(or the lack of intervention) may prompt such a decline 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, fundamental research is based on historical price and trading volume
movements, rather than the financial results of the underlying company.
LIQUIDITY A characteristic of an investment or an asset referring to the ease of
convertibility into cash within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of common
stock, determined 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.
PRICE/EARNINGS RATIO (P/E) (ALSO "EARNINGS MULTIPLE") A widely used gauge of a
stock's valuation that 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 not as good in
developing markets where disclosure requirements may be less stringent, and
protectionism, subsidies and cronyism may distort the business environment.
SOURCES: SCUDDER KEMPER INVESTMENTS, INC.; BARRON'S DICTIONARY OF FINANCE AND
INVESTMENT TERMS
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF CLASS** 1-YEAR 5-YEAR LIFE OF FUND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER GLOBAL DISCOVERY FUND
CLASS A -22.26 -4.77 7.35 9.80 (since 9/10/91)
- ----------------------------------------------------------------------------------------------------------
KEMPER GLOBAL DISCOVERY FUND
CLASS B -20.31 -2.39 8.31 10.66 (since 9/10/91)
- ----------------------------------------------------------------------------------------------------------
KEMPER GLOBAL DISCOVERY FUND
CLASS C -18.68 0.63 8.54 10.66 (since 9/10/91)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
KEMPER GLOBAL DISCOVERY FUND CLASS A
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER GLOBAL DISCOVERY FUND SALOMON BROTHERS WORLD EQUITY
CLASS A(1) INDEX+
---------------------------- -----------------------------
<S> <C> <C>
9/10/91 9427.00 10149.00
9584.00 10295.00
9757.00 9861.00
9828.00 9945.00
10119.00 9843.00
9631.00 10257.00
9750.00 11254.00
10853.00 11927.00
11469.00 12710.00
9/30/93 12571.00 12590.00
13472.00 12970.00
12902.00 13044.00
12666.00 13357.00
13081.00 12988.00
12438.00 13353.00
12143.00 13898.00
13348.00 14838.00
14765.00 15162.00
14657.00 15087.00
3/31/96 15660.00 16861.00
17079.00 16643.00
17427.00 16641.00
17804.00 17062.00
17018.00 16558.00
19142.00 16423.00
20213.00 19579.00
19571.00 18494.00
22974.00 20905.00
22708.00 20418.00
18920.00 16901.00
10/31/98 19512.00 17935.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN OR
LOSS FROM PORTFOLIO INVESTMENTS, ASSUMING REINVESTMENT OF ALL DIVIDENDS. ON
APRIL 16, 1998, THE FUND OFFERED AN ADDITIONAL THREE CLASSES OF SHARES, NAMELY
THE CLASS A, B AND C SHARES DESCRIBED HEREIN. PRIOR TO THAT DATE, THE FUND
CONSISTED OF ONE CLASS OF SHARES WHICH, ON THAT DATE, WERE RE-DESIGNATED AS
CLASS S SHARES OF THE FUND. RETURNS SHOWN FOR CLASS A, B AND C SHARES FOR THE
PERIODS PRIOR TO THEIR INCEPTION ARE DERIVED FROM THE HISTORICAL PERFORMANCE OF
CLASS S SHARES OF GLOBAL DISCOVERY FUND DURING SUCH PERIODS AND HAVE BEEN
ADJUSTED TO REFLECT THE CURRENT MAXIMUM 5.75% INITIAL SALES CHARGE FOR CLASS A
SHARES OR THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC), IF ANY, CURRENTLY
APPLICABLE TO CLASS B AND C SHARES. CLASS S SHARES HAVE NO SALES CHARGES, RULE
12B-1 FEES, OR ADMINISTRATIVE SERVICE FEES (ASF). CLASS B SHARE PERFORMANCE IS
ADJUSTED FOR THE APPLICABLE CDSC, WHICH IS 4% WITHIN THE FIRST YEAR AFTER
PURCHASE, DECLINING TO 0% AFTER SIX YEARS. CLASS C SHARE PERFORMANCE IS ADJUSTED
FOR A CDSC, WHICH IS 1% WITHIN THE FIRST YEAR AFTER PURCHASE. THE PERFORMANCE
FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT RULE 12B-1 FEES OF .75%, WHICH ARE
APPLICABLE TO EACH OF CLASS B AND C SHARES, AND ASF OF UP TO .25%, WHICH ARE
APPLICABLE TO EACH OF CLASS A, B AND C SHARES FROM THE DATE OF EACH SUCH CLASS'S
INCEPTION. THE RULE 12B-1 FEES AND ASF APPLICABLE TO THE RESPECTIVE CLASSES OF
SHARES OF THE FUND WILL AFFECT PERFORMANCE. CLASS S SHARES ARE SUBJECT TO
CERTAIN OTHER, OR DIFFERENT LEVELS OF, EXPENSES THAN CLASSES A, B, AND C. THE
EXPENSES APPLICABLE TO CLASS S HAVE BEEN REFLECTED IN THE PERFORMANCE PRESENTED.
THE DIFFERENCE IN EXPENSES WILL AFFECT PERFORMANCE. IF THE ADVISER HAD NOT
MAINTAINED EXPENSES, THE TOTAL RETURN FOR THE FIVE YEAR AND LIFE OF FUND PERIODS
WOULD HAVE BEEN LOWER. DURING THE PERIODS NOTED, SECURITIES PRICES FLUCTUATED.
FOR ADDITIONAL INFORMATION, SEE THE PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL HIGHLIGHTS.
**CLASS A, B AND C SHARES WERE INITIALLY OFFERED ON APRIL 16, 1998. RETURNS FOR
THIS PERIOD ARE TOTAL RETURN NOT AVERAGE ANNUAL TOTAL RETURN.
(1)PERFORMANCE IS FOR CLASS S SHARES OF GLOBAL DISCOVERY FUND AND HAS BEEN
ADJUSTED TO REFLECT THE CURRENT, MAXIMUM 5.75% INITIAL SALES CHARGE APPLICABLE
TO CLASS A SHARES OF THE FUND. CLASS B AND C SHARES OF THE FUND, THE PERFORMANCE
OF EACH OF WHICH IS NOT INCLUDED IN THE GRAPH, IS EACH SUBJECT TO RULE 12-B-1
FEES AND A CDSC OF 4% WITHIN THE FIRST YEAR AFTER PURCHASE, DECLINING TO 0%
AFTER SIX YEARS, FOR CLASS B SHARES AND 1% WITHIN THE FIRST YEAR OF PURCHASE FOR
CLASS C SHARES, WHICH WOULD AFFECT PERFORMANCE.
THE SPECIAL RISK CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN THE FUND,
INCLUDING RISKS RELATED TO FOREIGN INVESTMENTS AND TO A NON-DIVERSIFIED
INVESTMENT COMPANY, ARE DISCUSSED IN THE PROSPECTUS. RISKS ASSOCIATED WITH
FOREIGN SECURITIES, INCLUDING FLUCTUATING EXCHANGE RATES, GOVERNMENT REGULATIONS
AND DIFFERENCES IN LIQUIDITY, MAY AFFECT YOUR INVESTMENT. AS A NON-DIVERSIFIED
INVESTMENT COMPANY, THE FUND MAY INVEST MORE THAN 5 PERCENT OF ITS ASSETS IN THE
SECURITIES OF A PARTICULAR FOREIGN GOVERNMENT.
+THE SALOMON BROTHERS WORLD EQUITY EXTENDED MARKET INDEX IS AN UNMANAGED SMALL
CAPITALIZATION EQUITY INDEX COMPILED FROM A UNIVERSE OF 22 COUNTRIES. INDEX
RETURNS ASSUME DIVIDENDS REINVESTED NET OF WITHHOLDING TAX AND, UNLIKE FUND
RETURNS, DO NOT REFLECT FEES OR EXPENSES.
8
<PAGE> 9
COUNTRY CONCENTRATIONS
- --------------------------------------------------------------------------------
GEOGRAPHIC COMPOSITION OF GLOBAL DISCOVERY FUND
Based on total common stocks as of October 31, 1998
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
UNITED STATES 45%
- --------------------------------------------------------------------------------
UNITED KINGDOM 12%
- --------------------------------------------------------------------------------
IRELAND 10%
- --------------------------------------------------------------------------------
PORTUGAL 5%
- --------------------------------------------------------------------------------
GERMANY 4%
- --------------------------------------------------------------------------------
NETHERLANDS 4%
- --------------------------------------------------------------------------------
FRANCE 3%
- --------------------------------------------------------------------------------
ITALY 3%
- --------------------------------------------------------------------------------
SWITZERLAND 3%
- --------------------------------------------------------------------------------
SPAIN 2%
- --------------------------------------------------------------------------------
OTHER 9%
- --------------------------------------------------------------------------------
</TABLE>
*Portfolio composition is subject to change.
9
<PAGE> 10
LARGEST HOLDINGS
KEMPER GLOBAL DISCOVERY FUND'S TOP 20 HOLDINGS*
Representing 53.3 percent of the fund's equity holdings on October 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HOLDING COUNTRY PERCENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
1. NETWORK APPLIANCE, INC. United States 6.1%
- -------------------------------------------------------------------------------------------------------
2. SERCO GROUP PLC United Kingdom 4.1%
- -------------------------------------------------------------------------------------------------------
3. BANK OF IRELAND PLC Ireland 3.8%
- -------------------------------------------------------------------------------------------------------
4. STERLING COMMERCE, INC. United States 3.6%
- -------------------------------------------------------------------------------------------------------
5. VITESSE SEMICONDUCTOR CORP. United States 3.4%
- -------------------------------------------------------------------------------------------------------
6. PROVIDENT FINANCIAL PLC United Kingdom 2.8%
- -------------------------------------------------------------------------------------------------------
7. FISERV INC. United States 2.8%
- -------------------------------------------------------------------------------------------------------
8. TELECEL-COMUNICACOES PESSOAIS, S.A. Portugal 2.7%
- -------------------------------------------------------------------------------------------------------
9. BILLING CONCEPTS CORP. United States 2.5%
- -------------------------------------------------------------------------------------------------------
10. ALTRAN TECHNOLOGIES, S.A. France 2.5%
- -------------------------------------------------------------------------------------------------------
11. AXOGEN LTD. United States 2.3%
- -------------------------------------------------------------------------------------------------------
12. JERONIMO MARTINS S.A. Portugal 2.1%
- -------------------------------------------------------------------------------------------------------
13. S & P MID-CAP 400 DEPOSITARY RECEIPTS United States 2.1%
- -------------------------------------------------------------------------------------------------------
14. MARSCHOLLEK LAUTENSCHLAEGER UND PARTNER AG Germany 2.0%
- -------------------------------------------------------------------------------------------------------
15. VISX INC. United States 2.0%
- -------------------------------------------------------------------------------------------------------
16. IHC CALAND NV Netherlands 2.0%
- -------------------------------------------------------------------------------------------------------
17. SYMBOL TECHNOLOGIES INC. United States 1.7%
- -------------------------------------------------------------------------------------------------------
18. TOTAL RENAL CARE HOLDINGS, INC. United States 1.7%
- -------------------------------------------------------------------------------------------------------
19. IDX SYSTEMS CORP. United States 1.6%
- -------------------------------------------------------------------------------------------------------
20. SEPRACOR, INC. United States 1.5%
- -------------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio holdings are subject to change.
10
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF GLOBAL/INTERNATIONAL FUND, INC.
AND TO THE SHAREHOLDERS OF GLOBAL DISCOVERY FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Global Discovery Fund (the "Fund")
at October 31, 1998, the results of its operations for the year then ended and
the changes in its net assets, and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 23, 1998
11
<PAGE> 12
INVESTMENT PORTFOLIO
KEMPER GLOBAL DISCOVERY FUND
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
REPURCHASE AGREEMENTS--9.6% AMOUNT ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreement with Donaldson, Lufkin
& Jenrette dated 10/30/1998 at 5.4% to be
repurchased at $31,945,369 on 11/2/1998,
collateralized by a $31,153,000 U.S.
Treasury Bond, 3.375%, 1/15/2007 (Cost
$31,931,000) 31,931,000 31,931,000
---------------------------------------------------------------------------
COMMON STOCKS--90.4% SHARES
AUSTRALIA--0.1% CI Technologies Group Ltd.
(DEVELOPER OF PROCESS MONITORING
AND INDUSTRIAL AUTOMATION SOFTWARE) 111,400 242,991
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
AUSTRIA--1.0% Eybl International AG*
(PRODUCER OF TEXTILES FOR AUTOMOBILES SOLD
WORLDWIDE) 13,700 317,443
Schoeller Bleckmann Oilfield Equipment AG
(MANUFACTURER OF COMPONENTS FOR OIL AND
GAS DRILLING EQUIPMENT) 17,000 1,123,364
Topcall International AG
(MANUFACTURER OF ELECTRONIC MESSAGING
SYSTEMS) 5,800 1,861,575
---------------------------------------------------------------------------
3,302,382
- ------------------------------------------------------------------------------------------------------------------------
CANADA--0.1% StressGen Biotechnologies Corp. "A"*
(DEVELOPER OF PRODUCTS FOR TREATMENT OF
CANCER AND CERTAIN INFECTIOUS DISEASES) 205,000 212,573
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
CROATIA--0.7% Pliva D.D. (GDR)
(PHARMACEUTICAL COMPANY) 159,800 2,349,060
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
CZECH REPUBLIC--0.4% Central European Media Enterprises Ltd. "A"*
(OWNER AND OPERATOR OF NATIONAL AND
REGIONAL PRIVATE COMMERCIAL TELEVISION
STATIONS IN CENTRAL EUROPE AND GERMANY) 243,300 1,551,038
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
FINLAND--0.5% JOT Automation Group Oyj*
(DEVELOPER AND MANUFACTURER OF HIGH
TECHNOLOGY PRODUCTION AUTOMATION SYSTEMS
AND EQUIPMENT) 39,600 966,908
KCI Konecrones International Oyj
(MANUFACTURER OF ELEVATORS) 9,500 413,002
Sponda Oyj*
(OWNER AND MANAGER OF COMMERCIAL RENTAL
PROPERTIES) 28,900 192,189
---------------------------------------------------------------------------
1,572,099
</TABLE>
12
<PAGE> 13
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANCE--3.1% Altran Technologies, SA
(ENGINEERING AND CONSULTING SERVICES FOR
AEROSPACE, TELECOMMUNICATION AND
ELECTRONICS FIELDS) 37,993 7,432,447
Dassault Systemes SA
(COMPUTER AIDED DESIGN, MANUFACTURING AND
ENGINEERING SOFTWARE) 42,691 1,628,812
Leon de Bruxelles SA
(OPERATOR OF LOW COST FAMILY RESTAURANTS) 10,257 830,676
Penauille Polyservices SA
(INDUSTRIAL CLEANING AND SECURITY
SERVICES) 1,460 341,582
---------------------------------------------------------------------------
10,233,517
- ------------------------------------------------------------------------------------------------------------------------
GERMANY--3.7% Hawesko Holding AG*
(MARKETER OF WINES, LIQUEURS AND RELATED
PRODUCTS) 34,488 1,748,863
Kamps AG*
(PRODUCER AND DISTRIBUTOR OF BAKED GOODS) 17,256 783,369
Marschollek Lautenschlaeger und Partner AG
(pfd)
(LEADING INDEPENDENT LIFE INSURANCE
COMPANY) 11,800 6,019,318
MobilCom AG
(PROVIDER OF MOBILE TELEPHONE SERVICES) 5,979 1,736,130
Pfeiffer Vacuum Technology AG (ADR)*
(MANUFACTURER OF VARIOUS PUMPS AND VACUUM
SYSTEMS) 43,999 2,084,453
---------------------------------------------------------------------------
12,372,133
- ------------------------------------------------------------------------------------------------------------------------
GREECE--0.4% STET Hellas Telecommunications S.A. (ADR)*
(PROVIDER OF MOBILE TELECOMMUNICATION
SERVICES) 58,221 1,528,301
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
HUNGARY--0.7% OTP Bank Rt (GDR)
(COMMERCIAL BANK) 23,300 844,629
Richter Gedeon Rt
(PHARMACEUTICAL COMPANY) 26,200 865,334
Richter Gedeon Rt (GDR) 19,800 663,300
---------------------------------------------------------------------------
2,373,263
</TABLE>
13
<PAGE> 14
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES VALUE ($)
<S> <C> <C> <C> <C>
IRELAND--9.2% Bank of Ireland PLC
(BANK) 611,468 11,300,388
ESAT Telecom Group PLC (ADR)*
(PROVIDER OF TELECOMMUNICATION SERVICES IN
THE REPUBLIC OF IRELAND) 111,800 3,381,950
Green Property PLC
(CONDUCTOR OF OPERATIONS IN PROPERTY
DEVELOPMENT, INVESTMENT AND TRADING) 354,880 1,856,356
Irish Continental Group PLC
(TRANSPORTER OF PASSENGERS, FREIGHT AND
CONTAINERS BETWEEN IRELAND THE U.K. AND
THE CONTINENT) 211,555 2,479,320
Irish Life PLC
(PROVIDER OF LIFE AND DISABILITY INSURANCE
AND PENSIONS) 437,310 3,876,646
Irish Permanent PLC
(RETAIL FINANCIAL SERVICES GROUP) 182,152 2,613,678
Jury's Hotel Group PLC
(HOTEL OPERATOR) 501,255 3,765,680
Ryan Hotels PLC
(OWNER AND OPERATOR OF HOTEL CHAIN) 1,213,200 1,148,385
---------------------------------------------------------------------------
30,422,403
- ------------------------------------------------------------------------------------------------------------------------
ISRAEL--0.6% Check Point Software Technologies Ltd.*
(DEVELOPER AND MARKETER OF MANAGEMENT
SOLUTIONS FOR ACTIVE NETWORKS) 65,000 1,478,750
ESC Medical Systems Ltd.*
(PRODUCER OF DEVICES FOR NON-INVASIVE
TREATMENT OF BENIGN VASCULAR LESIONS) 44,100 358,313
---------------------------------------------------------------------------
1,837,063
- ------------------------------------------------------------------------------------------------------------------------
ITALY--2.6% Aeroporti di Roma SpA
(MANAGEMENT OF FIUMICINO AND CIAMPINO
AIRPORTS) 631,600 3,950,029
Bulgari SpA
(MANUFACTURER AND RETAILER OF FINE
JEWELRY, LUXURY WATCHES AND PERFUMES) 444,800 2,437,112
Safilo Azionaria Fabbrica Lavorazione
Occhiali SpA
(MANUFACTURER OF FRAMES FOR GLASSES) 518,000 2,307,209
---------------------------------------------------------------------------
8,694,350
- ------------------------------------------------------------------------------------------------------------------------
JAPAN--0.9% Riso Kagaku Corp.
(MANUFACTURER OF COPYING MACHINES) 50,900 2,864,218
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
LUXEMBOURG--1.3% Millicom International Cellular S.A.*
(DEVELOPER AND OPERATOR OF CELLULAR
TELEPHONE NETWORKS) 127,400 4,251,975
---------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NETHERLANDS--3.3% De Telegraaf Holding NV
(LEADING PUBLISHER OF NEWSPAPERS,
MAGAZINES AND BOOKS) 69,600 1,758,347
Equant NV*
(PROVIDER OF INTERNATIONAL DATA NETWORK
SERVICES) 38,500 1,668,460
IHC Caland NV
(DREDGING AND OFFSHORE SERVICES) 129,000 5,834,448
Tas Groep NV*
(SOFTWARE DEVELOPER) 346,000 1,574,158
---------------------------------------------------------------------------
10,835,413
- ------------------------------------------------------------------------------------------------------------------------
PHILIPPINES--0.3% International Container Terminal Services,
Inc.
(CONTAINERIZED CARGO HANDLING FIRM) 15,415,650 1,031,530
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
POLAND--0.4% Pioneer Poland Fund
(CLOSED-END INVESTMENT COMPANY) (B)(C) 3 1,250,332
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
PORTUGAL--4.4% Jeronimo Martins SA
(FOOD PRODUCER AND RETAILER) 145,525 6,303,528
Telecel-Comunicacoes Pessoais, S.A.*
(CELLULAR COMMUNICATION SERVICES) 44,366 8,172,650
---------------------------------------------------------------------------
14,476,178
- ------------------------------------------------------------------------------------------------------------------------
SPAIN--1.4% Aldeasa SA
(OPERATOR OF AIRPORT DUTY-FREE SHOPS) 49,500 1,686,781
Tele Pizza, SA*
(OPERATOR OF FAST FOOD RESTAURANTS) 384,000 3,135,028
---------------------------------------------------------------------------
4,821,809
- ------------------------------------------------------------------------------------------------------------------------
SWEDEN--0.8% Kinnevik AB "B"
(DIVERSIFIED HOLDING COMPANY) 53,200 1,378,132
OM Gruppen AB
(OPERATOR OF EXCHANGES AND CLEARING
ORGANIZATIONS) 75,700 1,155,236
---------------------------------------------------------------------------
2,533,368
- ------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--2.4% Gretag Imaging Group*
(MANUFACTURER OF IMAGE PROCESSING
EQUIPMENT AND SYSTEMS) 25,431 2,307,815
Kuoni Reisen AG (REGISTERED)
(TRAVEL AGENCY) 1,067 3,810,152
Lindt & Spruengli AG
(MANUFACTURER OF CHOCOLATE AND
CONFECTIONERY PRODUCTS) 37 88,583
Phoenix Meccano AG (Bearer)
(MANUFACTURER OF HOUSINGS AND COMPONENTS
FOR COMPUTERS) 3,537 1,904,980
---------------------------------------------------------------------------
8,111,530
</TABLE>
15
<PAGE> 16
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--11.2% ARM Holdings PLC*
(PRODUCER OF RISC MICROPROCESSORS,
TECHNOLOGY AND SOFTWARE) 30,600 458,431
Aegis Group PLC
(INDEPENDENT MEDIA SERVICES GROUP) 532,187 824,016
Computacenter PLC
(INFORMATION TECHNOLOGY SERVICES) 61,345 472,353
Expro International Group PLC
(PROVIDER OF OILFIELD SERVICES) 438,900 2,402,387
Games Workshop Group PLC
(MANUFACTURER OF TABLE TOP WAR GAME
SYSTEMS AND MINIATURES) 163,000 1,514,294
ICON PLC (ADR)*
(PHARMACEUTICAL AND BIOTECHNOLOGICAL
RESEARCH AND DEVELOPMENT SERVICES) 45,000 1,260,000
ITNET PLC*
(SUPPLIER OF BUSINESS PROCESS MANAGEMENT
SERVICES) 104,122 732,018
Matalan PLC*
(CLOTHING RETAILER) 256,786 1,203,536
New Look Group PLC*
(RETAILER OF WOMENSWEAR) 755,371 1,808,115
Provident Financial PLC
(PERSONAL FINANCE GROUP) 561,192 8,459,114
RM PLC
(INFORMATION TECHNOLOGY SOLUTIONS TO
EDUCATIONAL MARKETS) 677,500 4,110,996
Regent Inns PLC
(OWNER AND OPERATOR OF HOTELS AND
RESTAURANTS) 617,262 1,255,381
Serco Group PLC*
(FACILITIES MANAGEMENT COMPANY) 703,700 12,250,409
Taylor Nelson Sofres PLC*
(MARKET RESEARCH COMPANY) 300,062 439,490
---------------------------------------------------------------------------
37,190,540
- ------------------------------------------------------------------------------------------------------------------------
UNITED STATES--40.9% Access Health, Inc.*
(PERSONAL HEALTH MANAGEMENT SERVICES) 48,500 1,739,938
Aptargroup, Inc.
(MANUFACTURER OF PACKAGING EQUIPMENT
COMPONENTS) 118,200 3,161,842
Axogen Elan Corp. (ADR)*
(FUTURE DEVELOPMENT OF THERAPEUTIC
PRODUCTS FOR TREATMENT OF NEUROLOGICAL
DISORDERS) 106,100 6,843,450
Barrett Resources Corp.*
(OIL AND GAS EXPLORATION AND PRODUCTION) 64,600 1,522,138
Billing Concepts Corp.
(BILLING AND INFORMATION MANAGEMENT
SERVICES) 538,300 7,603,488
Black Box Corp.*
(MANUFACTURER OF WIDE AREA NETWORKING
PRODUCTS, DIRECT MARKETER OF COMPUTER
PRODUCTS) 39,000 1,301,625
CNF Transportation, Inc.
(PROVIDER OF TRUCKING AND AIR FREIGHT) 95,700 2,894,925
Cintas Corp.
(UNIFORM RENTALS) 62,200 3,327,700
Concentra Managed Care, Inc.*
(PROVIDER OF INTEGRATED WORKERS'
COMPENSATION MANAGED CARE) 148,100 1,518,025
</TABLE>
16
<PAGE> 17
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Concord EFS, Inc.*
(ELECTRONIC TRANSACTION AUTHORIZATION,
PROCESSING, SETTLEMENT AND TRANSFER
SERVICES) 108,500 3,092,250
Dallas Semiconductor Corp.
(MANUFACTURER OF SILICON INTEGRATED
CIRCUITS AND SUBSYSTEMS) 36,400 1,346,800
Eagle USA Airfreight, Inc.*
(AIRFREIGHT FORWARDING SERVICES) 14,500 185,781
Fiserv Inc.*
(DATA PROCESSING SERVICES) 181,162 8,424,033
G & K Services, Inc. "A"
(UNIFORM RENTALS) 52,100 2,383,575
Harveys Casino Resorts
(OWNER AND OPERATOR OF HOTEL/CASINO
PROPERTIES) 115,300 2,932,944
Healthcare Recoveries, Inc.*
(PROVIDER OF RECOVERY SERVICES FOR PRIVATE
HEALTHCARE PAYORS) 17,300 175,163
IDX Systems Corp.*
(PROVIDER OF HEALTH CARE INFORMATION
SYSTEMS TO PHYSICIAN GROUPS AND ACADEMIC
MEDICAL CENTERS) 109,500 4,640,063
MBIA, Inc.
(INSURER OF MUNICIPAL BONDS) 43,852 2,680,454
Mercury Computer Systems, Inc.*
(MANUFACTURER OF DIGITAL SIGNAL PROCESSING
COMPUTER SYSTEMS) 4,700 82,838
Network Appliance, Inc.*
(DESIGNER AND MANUFACTURER OF NETWORK DATA
STORAGE DEVICES) 331,600 18,155,100
North Fork Bancorporation, Inc.
(COMMERCIAL AND SAVINGS BANK HOLDING
COMPANY) 15,900 316,013
Quintiles Transnational Corp.*
(PROVIDES FULL-SERVICE CONTRACT RESEARCH,
SALES AND MARKETING SERVICES TO THE
WORLDWIDE PHARMACEUTICAL, BIOTECHNOLOGY
AND MEDICAL DEVICE INDUSTRIES) 21,900 990,975
S & P Mid-Cap 400 Depository Receipts
(SECURITY THAT REPRESENTS OWNERSHIP IN THE
MID-CAP SPDR TRUST) 95,800 6,185,088
Sepracor, Inc.*
(DEVELOPER OF ENHANCED FORMS OF EXISTING
PHARMACEUTICALS) 64,700 4,440,038
Sola International, Inc.*
(MANUFACTURER OF PLASTIC EYEGLASS LENSES) 210,200 4,033,213
Sterling Commerce, Inc.*
(PRODUCER OF ELECTRONIC DATA INTERCHANGE
PRODUCTS AND SERVICES) 307,934 10,854,674
Symbol Technologies Inc.
(MANUFACTURER OF BAR CODE LASER SCANNERS) 111,600 4,994,100
Tiffany & Co.
(RETAILER OF JEWELRY AND GIFT ITEMS) 125,400 4,051,988
Total Renal Care Holdings, Inc.*
(DIALYSIS SERVICES FOR TREATMENT OF
CHRONIC KIDNEY FAILURE) 201,799 4,944,076
VISX, Inc.*
(DEVELOPER OF LASER TECHNOLOGIES AND
SYSTEMS FOR VISION CORRECTION) 117,800 5,904,725
</TABLE>
17
<PAGE> 18
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vincam Group, Inc.*
(PROVIDER OF SOLUTIONS TO COMPLEXITIES AND
COSTS OF EMPLOYMENT AND PERSONNEL) 30,000 474,375
Vitesse Semiconductor Corp.*
(MANUFACTURER OF DIGITAL INTEGRATED
CIRCUITS) 319,000 10,287,750
Wackenhut Corrections Corp.*
(MANAGER OF PRIVATIZED CORRECTIONAL AND
DETENTION FACILITIES) 89,800 2,205,713
Wesley Jessen VisionCare, Inc.*
(MANUFACTURER OF SOFT CONTACT LENSES) 85,100 1,521,163
Wisconsin Central Transportation Corp.*
(OPERATOR OF REGIONAL FREIGHT RAILROAD) 45,700 691,213
---------------------------------------------------------------------------
135,907,236
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $209,541,090) 299,965,302
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $241,472,090)(a) 331,896,302
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $245,698,479. At October 31,
1998, net unrealized appreciation for all securities based on tax cost was
$86,197,823. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $112,778,559 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$26,580,736.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $1,250,332 (.38% 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, 1998 aggregated $1,477,500.
(c) Market value and cost reflect full payment. The remaining installments
which total $369,375 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.
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of October 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------
Investments, at market (identified cost $241,472,090) $331,896,302
- ----------------------------------------------------------------------------
Cash 269
- ----------------------------------------------------------------------------
Receivable for Fund shares sold 1,692,618
- ----------------------------------------------------------------------------
Dividends and interest receivable 102,368
- ----------------------------------------------------------------------------
Foreign taxes recoverable 77,263
- ----------------------------------------------------------------------------
Other assets 18,704
- ----------------------------------------------------------------------------
TOTAL ASSETS 333,787,524
- ----------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------
Payable for investments purchased 2,228,334
- ----------------------------------------------------------------------------
Payable for Fund shares redeemed 1,890,052
- ----------------------------------------------------------------------------
Accrued management fee 326,115
- ----------------------------------------------------------------------------
Other payables and accrued expenses 614,082
- ----------------------------------------------------------------------------
TOTAL LIABILITIES 5,058,583
- ----------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $328,728,941
- ----------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income (4,219,149)
- ----------------------------------------------------------------------------
Unrealized appreciation (depreciation) on:
Investments 90,424,212
- ----------------------------------------------------------------------------
Foreign currency related transactions 3,896
- ----------------------------------------------------------------------------
Accumulated net realized gain (loss) (5,310,945)
- ----------------------------------------------------------------------------
Paid-in capital 247,830,927
- ----------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE $328,728,941
- ----------------------------------------------------------------------------
NET ASSET VALUE
- ----------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($11,317,146/572,228 shares of outstanding shares of
beneficial interest,
$.01 par value, unlimited number of shares authorized) $19.78
- ----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $19.78) $20.99
- ----------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to contingent
deferred sales charge) per share
($5,715,337/290,159 outstanding shares of beneficial
interest,
$.01 par value, unlimited number of shares authorized) $19.70
- ----------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to contingent
deferred sales charge) per share
($2,192,509/111,280 outstanding shares of beneficial
interest,
$.01 par value, unlimited number of shares authorized) $19.70
- ----------------------------------------------------------------------------
CLASS S SHARES
Net asset value, offering and redemption price per share
($309,503,949/15,622,534 outstanding shares of beneficial
interest,
$.01 par value, unlimited number of shares authorized) $19.81
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 1998
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME (LOSS)
- --------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $278,480) $2,978,015
- --------------------------------------------------------------------------
Interest 1,317,528
- --------------------------------------------------------------------------
4,295,543
- --------------------------------------------------------------------------
Expenses:
Management fee 3,960,160
- --------------------------------------------------------------------------
Services to shareholders 1,099,979
- --------------------------------------------------------------------------
Custodian and accounting fees 510,424
- --------------------------------------------------------------------------
Distribution fees 14,995
- --------------------------------------------------------------------------
Administrative service fees 11,813
- --------------------------------------------------------------------------
Directors' fees and expenses 57,103
- --------------------------------------------------------------------------
Reports to shareholders 107,316
- --------------------------------------------------------------------------
Auditing 86,753
- --------------------------------------------------------------------------
Legal 30,107
- --------------------------------------------------------------------------
Registration fees 73,063
- --------------------------------------------------------------------------
Other 31,516
- --------------------------------------------------------------------------
Total expenses before reductions 5,983,229
- --------------------------------------------------------------------------
Expense reductions (13,525)
- --------------------------------------------------------------------------
Expenses, net 5,969,704
- --------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (1,674,161)
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------
Net realized gain (loss) from:
Investments 2,152,524
- --------------------------------------------------------------------------
Foreign currency related transactions (42,492)
- --------------------------------------------------------------------------
2,110,032
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments 2,923,009
- --------------------------------------------------------------------------
Foreign currency related transactions 17,051
- --------------------------------------------------------------------------
2,940,060
- --------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT TRANSACTIONS 5,050,092
- --------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $3,375,931
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------------
1998 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) $ (1,674,161) $ (2,090,766)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment transactions 2,110,032 26,874,290
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investment transactions during the period 2,940,060 12,247,359
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 3,375,931 37,030,883
- ------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income -- Class S (9,815,437) (2,252,537)
- ------------------------------------------------------------------------------------------------------
Net realized gains -- Class S (21,794,909) (14,901,393)
- ------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 203,840,754 129,503,033
- ------------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
reinvestment of distributions 29,399,080 16,335,810
- ------------------------------------------------------------------------------------------------------
Cost of shares redeemed (225,398,432) (167,423,822)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 7,841,402 (21,584,979)
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (20,393,013) (1,708,026)
- ------------------------------------------------------------------------------------------------------
Net assets at beginning of period 349,121,954 350,829,980
- ------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including accumulated
distributions in excess of net investment income of
$4,219,149 and $113,840, respectively) $ 328,728,941 $ 349,121,954
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
------------- ------------- -------------
CLASS A CLASS B CLASS C
------------- ------------- -------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
APRIL 16, APRIL 16, APRIL 16,
1998 1998 1998
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
OF SALE OF OF SALE OF OF SALE OF
CLASS A CLASS B CLASS C
SHARES) SHARES) SHARES)
TO OCTOBER TO OCTOBER TO OCTOBER
31, 31, 31,
1998 1998 1998
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.98 $ 23.98 $ 23.98
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.09) (.18) (.17)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
transactions (4.11) (4.10) (4.11)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (4.20) (4.28) (4.28)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.78 $ 19.70 $ 19.70
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B)(C) (17.51)** (17.85)** (17.85)**
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 11 6 2
- ---------------------------------------------------------------------------------------------------------
Ratio of operating expenses, net to average daily net
assets (%) 1.95* 2.83* 2.80*
- ---------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 2.20* 3.13* 3.23*
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net
assets (%) (1.00)* (1.87)* (1.88)*
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40.6 40.6 40.6
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
22
<PAGE> 23
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>
-------------------------------------------------------------
CLASS S(B)
-------------------------------------------------------------
YEARS ENDED OCTOBER 31,
1998(A) 1997(A) 1996(A) 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $21.64 $20.45 $17.54 $16.27 $16.14
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.10) (.12) (.04) (.03) (.02)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .32 2.30 3.59 1.38 .48
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .22 2.18 3.55 1.35 .46
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.64) (.13) (.20) -- --
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- -- (.18)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gains on investment transactions (1.41) (.86) (.44) (.08) (.15)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (2.05) (.99) (.64) (.08) (.33)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.81 $21.64 $20.45 $17.54 $16.27
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 1.19 11.14 20.97 8.32 2.80(C)
- ----------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 310 349 351 255 256
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses, net to average daily net
assets (%) 1.65 1.63 1.60 1.69 1.70
- ----------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions,
to average daily net assets (%) 1.65 1.63 1.60 1.69 1.76
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets (%) (.45) (.58) (.20) (.12) (.28)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40.6 60.5 63.0 43.7 45.8
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On April 16, 1998 existing shares of the Fund were designated as Class S and
are generally not available to new investors.
(c) Total return would have been lower had certain expenses not been reduced.
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Global Discovery Fund (the "Fund") is a diversified
series of Global/International Fund, Inc. (formerly
known as Scudder Global Fund, Inc.), a Maryland
corporation registered under the Investment Company
Act of 1940, as amended, as an open-end management
investment company.
Effective April 16, 1998, the Fund changed its name
from Scudder Global Discovery Fund to Global
Discovery Fund and an additional three classes of
shares were offered, namely Classes A, B and C.
Existing shares of Global Discovery Fund
outstanding on that date were redesignated Scudder
Shares ("Class S"). Class A shares 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 and Class S 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 and Class S
and a contingent deferred sales charge payable upon
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Class S are generally not available to new
investors and are not subject to initial or
contingent deferred sales charges.
Investment income, realized and unrealized capital
gains and losses, and certain fund-level expenses
and expense reductions, if any, are borne pro rata
on the basis of relative net assets by the holders
of all classes of shares except that each class
bears expenses unique to that class. Each class of
shares differs in its respective distribution,
shareholder services, administrative services and
certain other class-specific expenses and expense
reductions. All shares of the Fund have equal
rights with respect to voting.
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
Stock Market, Inc. ("Nasdaq"), 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
instruments with an original maturity over 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
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
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 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.
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.
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 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
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
shareholders. Accordingly, the Fund paid no federal
income taxes and no federal income tax provision
was required.
At October 31, 1998, the Fund had a net tax basis
capital loss carryforward of approximately
$5,304,000, which may be applied against any
realized net taxable capital gains of each
succeeding year until fully utilized or until
October 31, 2006, the expiration date, whichever
occurs first.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income are made annually. During any
particular year net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not
distributed and, therefore, will be distributed to
shareholders annually. An additional distribution
may be made to the extent necessary to avoid the
payment of a four percent federal excise tax.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. These differences primarily relate to
investments in forward contracts, passive foreign
investment companies, and certain securities sold
at a loss. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
The Fund uses the identified cost method for
determining realized gain or loss on investments
for both financial and federal income tax reporting
purposes.
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.
- --------------------------------------------------------------------------------
2
PURCHASES AND SALES
OF SECURITIES During the year ended October 31, 1998, purchases
and sales of investment securities (excluding
short-term investments) aggregated $135,928,874 and
$174,772,325, respectively.
- --------------------------------------------------------------------------------
3
RELATED PARTIES MANAGEMENT AGREEMENT. Effective December 31, 1997,
Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an
international insurance and financial services
organization, formed a new global investment
organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper
Investments, Inc. As a result of the transaction,
Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the
"Adviser"). The transaction between Scudder and
Zurich resulted in the termination of the Fund's
Investment Management Agreement with Scudder.
However, a new Investment Management Agreement (the
"Agreement") between the Fund and Scudder Kemper
was approved by the Fund's Board of Directors and
by the Fund's Shareholders. The Agreement, which
was effective December 31, 1997, is the same in all
material respects as the corresponding previous
Investment Management Agreement, except that
Scudder Kemper is the new investment adviser to the
Fund.
Under the Agreement with Scudder Kemper, the Fund
pays 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
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
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, 1998,
the fee pursuant to the Agreement amounted to
$3,960,160, of which $326,115 was unpaid at October
31, 1998.
On September 7, 1998, Zurich Insurance Company
("Zurich"), majority owner of the Adviser, entered
into an agreement with B.A.T Industries p.l.c.
("B.A.T") pursuant to which the financial services
businesses of B.A.T were combined with Zurich's
businesses to form a new global insurance and
financial services company known as Zurich
Financial Services. Upon consummation of the
transaction, the Fund's investment management
agreement with Scudder Kemper was deemed to have
been assigned and, therefore, terminated. The Board
of Directors of the Fund has approved a new
investment management agreement with Scudder
Kemper, which is substantially identical to the
former investment management agreement, except for
the dates of execution and termination. The Board
of Directors of the Fund has obtained shareholder
approval of the new investment management
agreement.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the Investment Company Act of
1940, Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, receives a fee of .75%
of average daily net assets of Classes B and C.
Pursuant to the agreement, KDI enters into related
selling group agreements with various firms at
various rates for sales of Class B and C shares.
For the period April 16, 1998 through October 31,
1998, the Distribution Fee was as follows:
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FEES WAIVED UNPAID AT
FEES AGGREGATED BY KDI OCTOBER 31, 1998
------------ ---------- ----------- ----------------
<S> <C> <C> <C>
Class B $11,237 $ 790 $10,447
Class C 3,758 922 2,836
------- ------ -------
$14,995 $1,712 $13,283
======= ====== =======
</TABLE>
UNDERWRITING AGREEMENT AND CONTINGENT DEFERRED
SALES CHARGE. KDI is the principal underwriter for
Classes A, B and C. Underwriting commissions paid
in connection with the distribution of Class A
shares for the period April 16, 1998 through
October 31, 1998 aggregated $133,686, all of which
was paid to other firms.
In addition, KDI receives any contingent deferred
sales charge (CDSC) from Class B share redemptions
occurring within six years of purchase and Class C
share redemptions occurring within one year of
purchase. There is no such charge upon redemption
of any share appreciation or reinvested dividends.
Contingent deferred sales charges are based on
declining rates ranging from 4% to 1% for Class B
and 1% for Class C, of the value of the shares
redeemed. For the period April 16, 1998 through
October 31, 1998, the CDSC for Classes B and C
aggregated $477 and $134, respectively.
ADMINISTRATIVE SERVICE FEES. KDI provides
information and administrative services to Classes
A, B and C shareholders at an annual rate of up to
.25% of average daily net assets for each such
class. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
based upon the assets of shareholder accounts the
firms service. For the period beginning April 16,
1998 through October 31, 1998, the Administrative
Service Fee was as follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE TOTAL FEES WAIVED UNPAID AT
SERVICE FEES AGGREGATED BY KDI OCTOBER 31, 1998
-------------- ---------- ----------- ----------------
<S> <C> <C> <C>
Class A $ 6,815 $ 6,815 $ --
Class B 3,745 3,745 --
Class C 1,253 1,253 --
------- ------- -------
$11,813 $11,813 $ --
======= ======= =======
</TABLE>
SHAREHOLDER SERVICES FEES. Kemper Service Company
("KSC"), an affiliate of the Adviser, is the
transfer, dividend-paying and shareholder service
agent for the Fund's Classes A, B and C Shares. For
the period beginning April 16, 1998 through October
31, 1998, the amount charged to Classes A, B and C
by KSC aggregated $11,105, $7,875 and $3,086,
respectively, of which $8,648 is unpaid at October
31, 1998. Scudder Service Corporation ("SSC"), a
subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for
Class S. For the year ended October 31, 1998, the
amount charged to Class S by SSC for shareholder
services aggregated $734,090, of which $58,838 is
unpaid at October 31, 1998.
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 Class S of the Fund. For
the year ended October 31, 1998, the amount charged
to Class S by STC aggregated $200,043, of which
$17,404 is unpaid at October 31, 1998.
FUND ACCOUNTING FEES. 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, 1998, the amount charged to
the Fund by SFAC aggregated $302,281, of which
$57,863 is unpaid at October 31, 1998.
DIRECTORS FEES. The Fund pays each of its Directors
not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and
committee meetings. For the year ended October 31,
1998, the Directors fees and expenses aggregated
$57,103.
- --------------------------------------------------------------------------------
4 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 1/3 percent of its net assets under the
agreement. In addition, the Fund also maintains an
uncommitted line of credit.
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes capital share and
TRANSACTIONS dollar activity in the Fund:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------------------- ---------------------------
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
SHARES SOLD
-------------------------------------------------------------------------------------
Class A 2,260,575 $ 46,546,836 -- $ --
-------------------------------------------------------------------------------------
Class B 309,368 6,651,125 -- --
-------------------------------------------------------------------------------------
Class C 117,930 2,538,686 -- --
-------------------------------------------------------------------------------------
Class S 6,972,104 148,104,107 6,176,506 129,503,033
-------------------------------------------------------------------------------------
9,659,977 203,840,754 6,176,506 129,503,033
-------------------------------------------------------------------------------------
<CAPTION>
SHARES ISSUED TO SHAREHOLDERS IN REINVESTMENT OF DISTRIBUTIONS
-------------------------------------------------------------------------------------
Class A -- $ -- -- $ --
-------------------------------------------------------------------------------------
Class B -- -- -- --
-------------------------------------------------------------------------------------
Class C -- -- -- --
-------------------------------------------------------------------------------------
Class S 1,514,636 29,399,080 829,650 16,335,810
-------------------------------------------------------------------------------------
1,514,636 29,399,080 829,650 16,335,810
-------------------------------------------------------------------------------------
SHARES REDEEMED
-------------------------------------------------------------------------------------
Class A (1,688,347) $ (34,483,052) -- $ --
-------------------------------------------------------------------------------------
Class B (19,209) (386,029) -- --
-------------------------------------------------------------------------------------
Class C (6,650) (132,763) -- --
-------------------------------------------------------------------------------------
Class S (8,999,114) (190,396,588) (8,023,612) (167,423,822)
-------------------------------------------------------------------------------------
(10,713,320) (225,398,432) (8,023,612) (167,423,822)
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
-------------------------------------------------------------------------------------
Class A 572,228 $ 12,063,784 -- $ --
-------------------------------------------------------------------------------------
Class B 290,159 6,265,096 -- --
-------------------------------------------------------------------------------------
Class C 111,280 2,405,923 -- --
-------------------------------------------------------------------------------------
Class S (512,374) (12,893,401) (1,017,456) (21,584,979)
-------------------------------------------------------------------------------------
461,293 $ 7,841,402 (1,017,456) $ (21,584,979)
-------------------------------------------------------------------------------------
</TABLE>
TAX INFORMATION (UNAUDITED)
Class S paid distributions of $1.41 per share from net long-term capital gains
during the year ended October 31, 1998, of which 89.4% represents 20% rate
gains.
The Fund paid foreign taxes of $278,480 and earned $278,480 of foreign source
income during the year ended October 31, 1998. Pursuant to Section 853 of the
Internal Revenue Code, the Fund designates $.02 per share as foreign taxes paid
and $.02 per share as income earned from foreign sources for the year ended
October 31, 1998.
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 account, please call 1-800-621-1048.
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
DIRECTORS & OFFICERS
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
DANIEL PIERCE KATHRYN L. QUIRK SUSAN E. DAHL
Director and Vice President Director, Vice President Vice President
and Assistant Secretary
NICHOLAS BRATT JERARD K. HARTMAN
President ROBERT W. LEAR Vice President
Honorary Director
PAUL BANCROFT III GARY P. JOHNSON
Director ROBERT G. STONE, JR. Vice President
Honorary Director
SHERYLE J. BOLTON THOMAS W. JOSEPH
Director Vice President
WILLIAM T. BURGIN GERALD J. MORAN
Director Vice President
THOMAS J. DEVINE M. ISABEL SALTZMAN
Director Vice President
KEITH R. FOX THOMAS F. MCDONOUGH
Director Vice President and Secretary
WILLIAM H. GLEYSTEEN, JR. JOHN R. HEBBLE
Director Treasurer
WILLIAM H. LUERS CAROLINE PEARSON
Director Assistant Secretary
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
LEGAL COUNSEL DECHERT, PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
- ----------------------------------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- ----------------------------------------------------------------------------------------------------------
CUSTODIAN BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02110
- ----------------------------------------------------------------------------------------------------------
INDEPENDENT PRICEWATERHOUSECOOPERS LLP
ACCOUNTANTS One Post Office Square
Boston, MA 02109
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
</TABLE>
[KEMPER LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Global Discovery Fund prospectus.
KGDF - 2(12/98) 1061740
