Scudder
Emerging Markets
Income Fund
Annual Report
October 31, 1998
Pure No-Load(TM) Funds
For investors seeking high current income and, secondarily, long-term capital
appreciation through investment primarily in high-yielding debt securities
issued in emerging markets.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Emerging Markets Income Fund
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Date of Inception: 12/31/93 Total Net Assets as of Ticker Symbol: SCEMX
10/31/98: $213.7 million
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o Economic crises in Asia, Russia, and South America buffeted emerging market
bonds during Scudder Emerging Market Income Fund's most recent fiscal year ended
October 31, 1998. During the period, the difference or "spread" between emerging
market bond yields and Treasury yields widened to the largest margin since the
1994 Mexican crisis. In late September and October, the markets regained some
ground as a stabilization package for Brazil was announced.
o Scudder Emerging Markets Income Fund's return for the 12-month period ended
October 31, 1998, was -27.60%. As of October 31, the Fund's 30-day net
annualized yield was 13.06%.
Table of Contents
3 Letter from the Fund's Chairman 17 Financial Highlights
4 Performance Update 18 Notes to Financial Statements
5 Portfolio Summary 23 Report of Independent Accountants
6 Portfolio Management Discussion 24 Tax Information
10 Glossary of Investment Terms 24 Officers and Directors
11 Investment Portfolio 25 Investment Products and Services
14 Financial Statements 26 Scudder Solutions
2 - Scudder Emerging Markets Income Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
Clearly, the most recent 12-month period has been difficult for investors
in emerging market bonds. Assaults on Asian currencies, Russia's ruble
devaluation and short-term debt restructuring, and Brazil's hesitancy to enact
fiscal and political reforms raised emerging market bond yields to levels not
seen since the 1994 Mexican crisis. Scudder Emerging Markets Income Fund's
return of -27.60% over its most recent fiscal year ended October 31, 1998,
reflects the recent downturn.
As stated in the Portfolio Management Discussion that begins on page 6, the
risk level of emerging market bonds has increased, at least in the near term,
but the basis of investing in emerging market bonds is still in place: Over the
long term, emerging market investors should benefit from what we believe will be
the gradually improving creditworthiness of major emerging markets. We are
hopeful that recent actions by the Federal Reserve and other central banks to
boost global liquidity, as well as the higher yields and attractive prospects of
select emerging market countries, will enhance the near-term performance of
emerging market bonds.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
invests in stocks of small U.S. companies. Using a combination of quantitative
and fundamental research, the funds will focus on companies with strong earnings
growth, reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate. Please see page 25 for more information on
Scudder products and services.
As always, please call a Scudder Investor Information representative at
1-800-225-2470 or visit our Web site at www.scudder.com, if you have questions
about your Fund. Thank you for choosing Scudder Emerging Markets Income Fund to
help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder Emerging Markets Income Fund
3 - Scudder Emerging Markets Income Fund
<PAGE>
Performance Update as of October 31, 1998
- ----------------------
Fund Index Comparisons
- ----------------------
Total Return
- ---------------------------------------------------
Period Ended Growth of Average
10/31/98 $10,000 Cumulative Annual
- ---------------------------------------------------
Scudder Emerging Markets Income Fund
- ---------------------------------------------------
1 Year $ 7,240 -27.60% -27.60%
3 Year $ 11,368 13.68% 4.37%
Life of Fund* $ 11,345 13.45% 2.65%
- ---------------------------------------------------
J.P. Morgan Emerging Markets Bond Index Plus**
- ---------------------------------------------------
1 Year $ 8,989 -10.11% -10.11%
3 Year $ 14,394 43.94% 12.90%
Life of Fund* $ 13,424 34.24% 6.28%
- ---------------------------------------------------
J.P. Morgan Composite Emerging Markets
Bond/Latin Eurobond Index
- ---------------------------------------------------
1 Year $ 9,460 -5.40% -5.40%
3 Year $ 14,606 46.06% 13.45%
Life of Fund* $ 13,817 38.17% 6.91%
- ---------------------------------------------------
* The Fund commenced operations on December 31, 1993.
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
<TABLE>
<CAPTION>
J.P. Morgan Composite
J.P. Morgan Emerging Markets Scudder Emerging Emerging Markets Bond/
Bond Index Plus** Markets Income Fund Latin Eurobond Index***
<S> <C> <C> <C> <C>
12/93* 10000 10000 10000
4/94 7734 8962 8314
10/94 8678 9646 8771
4/95 7981 8858 8149
10/95 9326 9980 9460
4/96 11269 12131 11351
10/96 13475 13951 12923
4/97 14856 15567 14408
10/97 14933 15672 14605
4/98 17064 17773 16660
10/98 13424 11345 13817
</TABLE>
**The unmanaged J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) tracks
total returns for traded external debt instruments in the emerging markets.
Included in the index are U.S. dollar and other external-currency-denominated
Brady bonds, loans, Eurobonds, and local market instruments.
***The unmanaged J.P. Morgan Composite Emerging Markets Bond/Latin Eurobond
Index (EMBI/LEI) tracks the performance of U.S. dollar-denominated sovereign
restructured bonds (mostly Brady bonds) and Latin-issued Eurobonds. The
composite includes debt issues from five countries in Latin America, plus
Bulgaria, Nigeria, the Philippines and Poland.
As of January 1, 1998, the Fund has adopted the EMBI+ for its primary
securities market index over the J.P. Morgan Composite Emerging Markets
Bond/Latin Eurobond Index, as the EMBI+ better represents the securities in
which the Fund typically invests.
Index returns assume reinvested dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
1994* 1995 1996 1997 1998
- -------------------------------------------------------------------------------
Net Asset Value $ 11.05 $ 10.26 $ 12.98 $ 12.22 $ 7.04
- -------------------------------------------------------------------------------
Income Dividends $ .51 $ 1.11 $ 1.19 $ 1.10 $ 1.01
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Capital Gains Distributions $ -- $ -- $ -- $ 1.18 $ 1.50
- -------------------------------------------------------------------------------
Fund Total Return (%) -3.54 3.46 39.78 12.34 -27.60
- -------------------------------------------------------------------------------
Index Total Return (%)** -13.22 7.46 44.49 10.82 -10.11
- -------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained the Fund's expenses,
the total return for the three year and life of Fund periods would have been
lower.
4 - Scudder Emerging Markets Income Fund
<PAGE>
Portfolio Summary as of October 31, 1998
- ---------------
Diversification
- ---------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Debt Obligations 94%
Cash Equivalents 6%
-----------------------------------
100%
-----------------------------------
The Fund is largely invested in the income markets of
emerging economies, with a modest 6% cash position.
- ------------------------------
Geographical
(Excludes 6% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Brazil 25%
Mexico 25%
Bulgaria 12%
Argentina 9%
Morocco 8%
Korea 5%
Peru 4%
Ecuador 4%
Russia 3%
Other 5%
-----------------------------------
100%
-----------------------------------
In light of significant market volatility during the period,
we are focusing on countries with sound fiscal policy and
limited refinancing needs, including Bulgaria and Peru.
- ------------------------------
Currency Exposure
(Excludes 6% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
United States 97%
Mexico 2%
Germany 1%
-----------------------------------
100%
-----------------------------------
The Fund invests primarily in dollar-denominated sovereign
issues.
- ------------------------------
Average Life
(Excludes 6% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
0 - 3 years 3%
3 - 5 years 15%
5 - 10 years 35%
10+ years 47%
-----------------------------------
100%
-----------------------------------
Fund assets are invested in instruments with a range of
maturities.
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 Emerging Markets Income Fund
<PAGE>
Portfolio Management Discussion
For a discussion of Scudder Emerging Markets Income Fund's performance and
strategy over the Fund's most recent annual period, we present an interview with
Lead Portfolio Manager Susan E. Dahl and Portfolio Manager M. Isabel Saltzman.
Q: What were the returns for Scudder Emerging Markets Income Fund and its
comparative index over the Fund's most recent fiscal year?
A: The Fund's return over the 12 months was -27.60%, compared with the J.P.
Morgan Emerging Markets Bond Index Plus' return of -10.11% over the same period.
This wide differential traces to the Fund's holdings of U.S. dollar-denominated
Russian bonds whose performance is discussed later in this report.
Q: Obviously, the past 12 months were difficult ones for emerging market
investments. Can you explain some of the key events leading up to and including
the market break that occurred in August and September?
A: Problems in the emerging markets began with the devaluation of the Thai baht
in July of 1997. The so-called "Asian contagion" -- where pressure was exerted
on Asian countries with significant current account deficits and overvalued
currencies to devalue their currencies -- eventually spread to several other
Asian countries, including the Philippines, Singapore, South Korea, and
Indonesia. The International Monetary Fund (IMF) intervened in several of these
countries, promising to buttress currency reserves but demanding stringent
fiscal reforms. With the exception of Indonesia, most Asian currencies
eventually settled into a lower trading range. Currency concerns then shifted
for a time to the Hong Kong dollar peg. But although interest rate spreads
between emerging market and U.S. Treasury bonds widened during this period, they
showed signs of stabilizing as South Korea and Thailand managed to post current
account surpluses while their currencies strengthened. Then, in May, attention
began to focus on the difficulties in Russia.
Q: Please outline the issues concerning Russia.
A: The source of the turmoil in Russia was the country's short-term domestic
debt: Investors became concerned over what portion of their substantial debt
Russian officials would be able to refinance when it came due. A large
percentage of the Russian GKO (short-term domestic debt) market was owned by
investors outside Russia. Most of the growth the country had been able to
sustain was due to inflows of foreign capital. As confidence in the Russian
government's ability to enact economic reforms came into question, foreign
investors began to sell their Russian assets.
Concern then grew over Russia's loss of international reserves. Negotiations
with the IMF produced a stabilization package of $23 billion, with the typical
fiscal stipulations by the IMF. The Russian government failed to fulfill all of
these stipulations, which has made the IMF reluctant to disperse the second
tranche of aid to the Russian government. The two major blows to emerging market
bonds came on August 17th when the Russian government decided to restructure
ruble-denominated debt and to set a new floating exchange rate that allowed
Russia's currency to trade freely. These moves by Russia initiated waves of
selling by emerging market investors, causing the yield spread between emerging
market bonds and Treasuries to widen substantially (the spread eventually
6 - Scudder Emerging Markets Income Fund
<PAGE>
reached almost 18 percentage points, the widest margin since the Mexican crisis
in 1994). Meanwhile, major international banks and investment community members
that had huge stakes in the Russian GKO market attempted to renegotiate with
Russia to obtain more favorable terms from the restructuring. These negotiations
are ongoing.
Q: Was the Fund invested in any of Russia's short-term domestic debt?
A: No. The Fund was not invested in any instrument which was part of the debt
restructuring announced on August 17th. The Fund had not participated in these
markets due to concern that the fiscal situation in Russia was difficult and
these instruments were therefore vulnerable. The Fund did, however, own Russian
"principal loans," longer-term securities that are obligations of the former
Soviet Union and denominated in U.S. dollars. By the close of the Fund's fiscal
year we had sold most of our Russian position, sustaining some losses.
Q: Why did the Russian devaluation take so much of the investment community by
surprise?
A: The devaluation came as a surprise to investors because the Russian problem
was not due to a current account/trade deficit, the usual driver of currency
devaluations. The issue is austerity: The Russian government has been spending
more money than it is taking in. Tax collection has been inadequate and getting
worse. Devaluing the country's currency is not an effective solution to the
sorts of problems that Russia has had. The Russians didn't need to start
exporting more, so they didn't need the currency to become more competitive. And
when you devalue your currency it sparks inflation. The only plausible
explanation for the devaluation is that it makes Russia's outstanding debt that
much less expensive.
Q: Why did problems in Russia have such a dramatic effect on emerging market
bond prices?
A: When short-term Russian securities defaulted and the ruble was devalued, many
of the large hedge funds that had invested in Russian GKOs received margin
calls. The need to meet margin calls sparked further selling, until what you had
was the unwinding of much of the leverage in the emerging market universe. This
selling was indiscriminate across the entire emerging market bond spectrum. We
now believe the majority of this leveraging is out of the system.
Q: What was the effect of the Russian devaluation on other emerging markets?
A: In the aftermath, investors started to ask what other countries have problems
similar to Russia's. In Latin America, the obvious answer is Brazil and
Venezuela. Venezuela was affected first, because with falling oil prices, its
ability to meet fiscal requirements came into question.
Then the major focus came to Brazil, with short-term debt the issue. Debt to GDP
ratios in Brazil are fairly high, 7-8%. During late summer, daily capital flight
of $500 million to $1 billion nearly halved Brazil's currency reserves. And it
was difficult for President Cardoso to pass needed reforms during a presidential
election. Following Cardoso's recent re-election, the IMF, the G-7, and the
World Bank offered a $42 billion stabilization package contingent on passage of
7 - Scudder Emerging Markets Income Fund
<PAGE>
a new round of taxes, expenditure cuts, and fiscal reforms. The market is now
awaiting the results of Brazilian Congressional action. We believe these reforms
need to be approved as soon as possible.
Q: In light of these significant events, where have you increased portfolio
allocations and where have you decreased them?
A: We are currently focusing on countries with what we see as sound fiscal
policy and limited refinancing needs. Countries such as Bulgaria, which has
satisfied its financing requirements through the year 2000, seem very
attractive. There is currently little or no risk of capital flight from Bulgaria
by holders of the country's short-term debt. The country has performed well and
we increased our allocation there to 11% of Fund holdings by the close of the
period. Likewise, we have recently made significant purchases in Peru, which has
almost no short-term debt.
In addition, the Fund is slightly overweight in Mexico, which is more of a
defensive credit. In Brazil, we remain somewhat underweight, waiting to see
whether reforms are pushed through. If they are, we believe Brazilian bonds
should stage a strong rally.
Q: What is your outlook for emerging market bonds going forward?
A: Through the end of this year, emerging markets bond markets will probably
trade within a range. As volatility diminishes, emerging market performance
should improve. Recent moves by European central banks to cut interest rates and
restore global liquidity have been encouraging.
8 - Scudder Emerging Markets Income Fund
<PAGE>
Most emerging countries strive to maintain a positive investment climate
because, for them, foreign direct investment is such an important engine of
economic growth. We know that officials worldwide are anxious to avoid a global
slowdown and to address issues raised by the speed of capital flows in and out
of countries.
If events continue to move in a positive direction, we believe more investors
will return to the emerging markets, further boosting liquidity, in search of
the high yields that are now available. The basis of investing in emerging
markets debt -- the long-term trend of improving creditworthiness in major
emerging markets -- is still in place, although near-term risk levels have
increased. Barring a significant global recession, this trend should continue at
a gradual pace over the next few years. Over the coming months, we will continue
to search for opportunities to provide high current income and long-term capital
appreciation to our shareholders.
Scudder Emerging Markets Income Fund:
A Team Approach to Investing
Scudder Emerging Markets Income 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 Susan E. Dahl assumed responsibility for the Fund's
investment strategies and day-to-day management in 1996. Susan, who has over
seven years of investment experience in emerging markets, joined the Fund's
team in 1994 and has worked at the Adviser since 1987. M. Isabel Saltzman,
Portfolio Manager, assists with the development and execution of investment
strategy. Isabel, who joined the Adviser in 1990, has been involved in foreign
finance and investing since 1979 and contributes special expertise in Latin
America.
9 - Scudder Emerging Markets Income Fund
<PAGE>
Glossary of Investment Terms
BOND An interest-bearing security issued by a government
or a corporation that obligates the issuer to pay the
bondholder a specified amount of interest for a
stated period -- usually a number of years -- and to
repay the face amount of the bond at its maturity
date.
CAPITAL FLOWS The movement of capital from one country to
another in search of investment opportunities and to
accommodate trade.
COUPON The interest rate on a bond the issuer (in the case
of sovereign emerging market bonds a country)
promises to pay to the holder of the bond until
maturity, expressed as a semiannual percentage of
face value. As an example, a bond with a 10% coupon
will pay $100 of $1,000 of the face amount each
year.
INFLATION An overall increase in the prices of goods and
services, as happens when business and consumer
spending increases relative to the supply of goods
available in the marketplace-- in other words, when
too much money is chasing too few goods. High
inflation has a negative impact on the prices of
fixed-income securities.
30-DAY SEC YIELD The standard yield reference for bond funds since
the SEC required all bond funds to quote yields
based on a prescribed formula. This yield
calculation reflects the 30-day average of the net
annualized income earnings capability of every
holding in a given fund's portfolio, assuming each
is held to maturity.
TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return -- annualized or
compounded -- is based on a combination of capital
return plus income and capital gain distributions, if
any, expressed as a percentage gain or loss in value.
YIELD SPREAD The difference in yield between various types of
bonds. An emerging market bond's yield is generally
measured against the yield of a Treasury bond of
similar maturity as a market yardstick. If yield
spreads are "narrow," for example, it often means
that emerging market bond yields have been
declining, and prices rising, compared with Treasury
bonds of similar maturity.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
10 - Scudder Emerging Markets Income Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements 2.0%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/30/1998 at 5.4%,
to be repurchased at $4,050,822 on 11/2/1998, collateralized by a $3,960,000 -----------
U.S. Treasury Note, 3.625%, 7/15/2002 (Cost $4,049,000) ............................ 4,049,000 4,049,000
-----------
U.S. Government Agency Debt Obligations 3.9%
- ------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association, 11/3/1998 (Cost $7,997,822) .................. 8,000,000 7,997,822
-----------
Short-Term Debt 2.3%
- ------------------------------------------------------------------------------------------------------------------------------
Mexico
Certificados de la Tesoreria, 12/31/1998 ............................................. MXP 25,553,470 2,399,673
Certificados de la Tesoreria, 1/7/1999 ............................................... MXP 25,881,760 2,414,720
- ------------------------------------------------------------------------------------------------------------------------------
Total Short Term Investments (Cost $4,832,354) 4,814,393
- ------------------------------------------------------------------------------------------------------------------------------
Bonds 91.8%
- ------------------------------------------------------------------------------------------------------------------------------
Argentina 8.5%
Argentine Republic, 9.25%, 2/23/2001 ................................................. 2,000,000 1,950,000
Argentine Republic, 11%, 10/9/2006 ................................................... 1,700,000 1,683,000
Argentine Republic, Collateralized Discount Bond, Floating Rate Bond,
Series L, 6.625%, 3/31/2023 ........................................................ 2,000,000 1,375,000
Argentine Republic, Collateralized Par Bond, Series L, Step-up Coupon, 5.75%,
3/31/2023 .......................................................................... 4,250,000 2,975,000
Argentine Republic, Floating Rate Bond, Series L, LIBOR plus .8125% (6.1875%),
3/31/2005 .......................................................................... 11,294,100 9,374,103
-----------
17,357,103
-----------
Brazil 23.1%
Federative Republic of Brazil, Eligible Interest, Floating Rate Bond, LIBOR
plus .8125% (6.125%), 4/15/2006 .................................................... 25,699,200 16,640,232
Federative Republic of Brazil, 9.375%, 4/7/2008 ...................................... 7,000,000 4,764,375
Federative Republic of Brazil, "New" Money Bond, Floating Rate Bond, LIBOR
plus .875% (6.1875%), 4/15/2009 .................................................... 15,985,000 8,911,638
Federative Republic of Brazil, Debt Conversion Bond, Series L, LIBOR
plus .875% (6.1875%), 4/15/2012 .................................................... 15,500,000 8,176,250
Federative Republic of Brazil, Collateralized Discount Bond, Floating Rate Bond,
LIBOR plus .8125% (6.125%), 4/15/2024 .............................................. 15,080,000 8,972,600
-----------
47,465,095
-----------
Bulgaria 11.3%
Republic of Bulgaria, Interest Arrears Bond, LIBOR plus .8125% (6.6875%),
7/28/2011 .......................................................................... 15,900,000 10,494,000
Republic of Bulgaria, Collateralized Floating Rate Interest Reduction Bond, "A",
Step-up Coupon, 2.5%, 7/28/2012 .................................................... 6,125,000 3,368,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Emerging Markets Income Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Republic of Bulgaria, Collateralized Discount Bond, Tranche A, LIBOR plus .8125%
(6.6875%), 7/28/2024 ............................................................... 13,210,000 9,247,000
-----------
23,109,750
-----------
Ecuador 3.5%
Republic of Ecuador, Past Due Interest Bond, 3.25% with 3.375% capitalization,
6.625%, 2/27/2015 .................................................................. 2,953,605 1,277,434
Republic of Ecuador, Collateralized Discount Bond, Floating Rate Bond, LIBOR
plus .8125% (6.625%), 2/28/2025 .................................................... 6,350,000 3,254,375
Republic of Ecuador, Collaterized Global Par Bond, Step-up Coupon, 3.5%, 2/28/2025 ... 6,000,000 2,730,000
-----------
7,261,809
-----------
Ivory Coast 1.0%
Republic of the Ivory Coast, Floating Rate Interest Reduction Bond, Step-up
Coupon, 2%, 3/29/2018 .............................................................. 8,500,000 1,955,000
-----------
Jamaica 1.8%
Government of Jamaica, 10.875%, 6/10/2005 ............................................ 4,900,000 3,675,000
-----------
Korea 4.5%
Republic of Korea, 8.875%, 4/15/2008 ................................................. 10,045,000 9,241,400
-----------
Mexico 21.0%
Petroleos Mexicanos S.A., 9.5%, 9/15/2027 ............................................ 9,250,000 7,538,750
United Mexican States Global Bond, 11.375%, 9/15/2016 ................................ 14,500,000 14,355,000
United Mexican States, Floating Rate Discount Note (Detachable Oil Priced
Indexed Value Recovery Rights), Series C, LIBOR plus .8125% (6.617%),
12/31/2019 ......................................................................... 2,500,000 1,959,375
United Mexican States, Floating Rate Discount Note (Detachable Oil Priced
Indexed Value Recovery Rights), Series B, LIBOR plus .8125% (6.477%),
12/31/2019 ......................................................................... 1,000,000 783,750
United Mexican States, Collateralized Floating Rate Discount Bond (Detachable
Oil Priced Indexed Value Recovery Rights), Series A, LIBOR plus .8125%
(6.116%), 12/31/2019 ............................................................... 4,250,000 3,330,938
United Mexican States, Collateralized Floating Rate Discount Bond (Detachable
Oil Priced Indexed Value Recovery Rights), Series D, LIBOR plus .8125%
(6.602%), 12/31/2019 ............................................................... 3,750,000 2,939,063
United Mexican States, Collateralized Par Bond (Detachable Oil Priced Indexed
Value Recovery Rights), Series A, 6.25%, 12/31/2019 ................................ 16,100,000 12,115,250
-----------
43,022,126
-----------
Morocco 7.2%
Kingdom of Morocco, Restructuring and Consolidation Agreement, Tranche A,
Floating Rate Bond, LIBOR plus .8125% (6.5625%), 1/1/2009 .......................... 18,100,000 13,575,000
SNAP Limited, Morocco Repackaged Euro Note, Kingdom of Morocco, Morocco Loan
Tranche A, 11.5%, 1/29/2009 ........................................................ DEM 2,520,834 1,294,962
-----------
14,869,962
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Emerging Markets Income Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Panama 1.9%
Republic of Panama, Interest Reduction Bond, Step-up Coupon, 4%, 7/17/2014 ........... 5,250,000 3,819,375
-----------
Peru 3.8%
Republic of Peru, Floating Rate Interest Reduction Bond, 3.25%, 3/7/2017 ............. 8,600,000 4,343,000
Republic of Peru, Past Due Interest Bond, 4%, 3/7/2017 ............................... 6,200,000 3,503,000
-----------
7,846,000
-----------
Russia 3.0%
Russian Federation Principal Loan, Floating Rate Bond, LIBOR plus .8125%
(6.625%), 12/15/2020 ............................................................... 83,280,000 6,141,900
Russian IAN, Floating Rate Bond, LIBOR plus .8125% (6.625%), 12/15/2015 .............. 1,157,494 115,749
-----------
6,257,649
-----------
Venezuela 1.2%
Republic of Venezuela, Debt Conversion Bond, Floating Rate Bond, Series DL,
LIBOR plus .875% (6.625%), 12/18/2007 .............................................. 4,071,420 2,483,566
- ------------------------------------------------------------------------------------------------------------------------------
Total Bonds (Cost $236,819,972) 188,363,835
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $253,699,148) (a) 205,225,050
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $268,804,137. At October 31,
1998, net unrealized depreciation for all securities based on tax cost was
$63,579,087. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,956,477 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$66,535,564.
(b) Principal amount is stated in U.S. dollars unless otherwise noted.
Currency Abbreviations
DEM Deutsche Mark
MXP Mexican Peso
The accompanying notes are an integral part of the financial statements.
13 - Scudder Emerging Markets Income Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $253,699,148) ................. $ 205,225,050
Cash .................................................................. 384,818
Receivable for investments sold ....................................... 6,799,291
Interest receivable ................................................... 5,135,767
Receivable for Fund shares sold ....................................... 3,753,701
Deferred organization expenses ........................................ 2,645
----------------
Total assets .......................................................... 221,301,272
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 6,620,392
Payable for Fund shares redeemed ...................................... 574,691
Accrued management fee ................................................ 169,469
Other payables and accrued expenses ................................... 197,487
----------------
Total liabilities ..................................................... 7,562,039
-------------------------------------------------------------------------------------------
Net assets, at market value $ 213,739,233
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation (depreciation) on:
Investments ........................................................ (48,474,098)
Foreign currency related transactions .............................. (1,503)
Accumulated net realized gain (loss) .................................. (75,988,419)
Paid-in capital ....................................................... 338,203,253
-------------------------------------------------------------------------------------------
Net assets, at market value $ 213,739,233
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($213,739,233 / 30,361,903 shares of capital stock ----------------
outstanding, $.01 par value, 100,000,000 shares authorized) ......... $7.04
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Emerging Markets Income Fund
<PAGE>
Statement of Operations
year ended October 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Interest .............................................................. $ 35,189,346
----------------
Expenses:
Management fee ........................................................ 3,051,240
Services to shareholders .............................................. 963,635
Directors' fees and expenses .......................................... 60,665
Custodian and accounting fees ......................................... 369,781
Auditing .............................................................. 81,326
Reports to shareholders ............................................... 93,908
Legal ................................................................. 24,520
Registration fees ..................................................... 48,889
Amortization of organization expense .................................. 15,312
Other ................................................................. 51,777
----------------
4,761,053
-------------------------------------------------------------------------------------------
Net investment income 30,428,293
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................................... (78,871,966)
Futures ............................................................... 850,331
Foreign currency related transactions ................................. (714,686)
----------------
(78,736,321)
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................... (30,599,364)
Foreign currency related transactions ................................. 562,135
----------------
(30,037,229)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (108,773,550)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (78,345,257)
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Emerging Markets Income 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 ......................................... $ 30,428,293 $ 28,598,154
Net realized gain (loss) from investment transactions ......... (78,736,321) 39,491,939
Net unrealized appreciation (depreciation) on
investment transactions during the period ................... (30,037,229) (31,999,926)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .................................................. (78,345,257) 36,090,167
---------------- ----------------
Distributions to shareholders from:
Net investment income ......................................... (29,195,726) (29,393,701)
---------------- ----------------
Net realized gains ............................................ (40,190,416) (27,924,210)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ..................................... 208,978,681 316,479,213
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 60,819,849 49,926,221
Cost of shares redeemed ....................................... (231,955,980) (326,157,592)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ................................................ 37,842,550 40,247,842
---------------- ----------------
Increase (decrease) in net assets ............................. (109,888,849) 19,020,098
Net assets at beginning of period ............................. 323,628,082 304,607,984
Net assets at end of period (including undistributed
net investment income of $1,595,671 on October 31, ---------------- ----------------
1997) ....................................................... $ 213,739,233 $ 323,628,082
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ..................... 26,485,043 23,465,219
---------------- ----------------
Shares sold ................................................... 21,734,209 24,276,198
Shares issued to shareholders in reinvestment of
distributions ............................................... 5,912,049 3,969,587
Shares redeemed ............................................... (23,769,398) (25,225,961)
---------------- ----------------
Net increase (decrease) in Fund shares ........................ 3,876,860 3,019,824
---------------- ----------------
Shares outstanding at end of period ........................... 30,361,903 26,485,043
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Emerging Markets Income Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
December 31,
1993
(commencement
Years Ended October 31, of operations) to
October 31,
1998(a) 1997(a) 1996(a) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------
Net asset value, beginning of period ............................. $ 12.22 $ 12.98 $ 10.26 $ 11.05 $ 12.00
----------------------------------------------------------------
Income from investment operations:
Net investment income ............................................ 1.04 1.06 1.20 1.14 0.60
Net realized and unrealized gain (loss) on investments ........... (3.71) .46 2.71 (.82) (1.04)
----------------------------------------------------------------
Total from investment operations ................................. (2.67) 1.52 3.91 .32 (.44)
----------------------------------------------------------------
Less distributions from:
Net investment income .......................................... (1.01) (1.10) (1.19) (1.11) (.51)
Net realized gain on investment transactions ................... (1.50) (1.18) -- -- --
----------------------------------------------------------------
Total distributions .............................................. (2.51) (2.28) (1.19) (1.11) (.51)
----------------------------------------------------------------
----------------------------------------------------------------
Net asset value, end of period ................................... $ 7.04 $ 12.22 $ 12.98 $ 10.26 $ 11.05
----------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................................. (27.60) 12.34 39.78(b) 3.46(b) (3.54)(b)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................... 214 324 305 169 95
Ratio of operating expenses, net, to average daily net
assets (%) ..................................................... 1.56 1.49 1.44 1.50 1.50*
Ratio of operating expense, before expense reductions, to
average daily net assets (%) ................................... 1.56 1.49 1.45 1.68 2.23*
Ratio of net investment income to average daily net
assets (%) ..................................................... 9.97 8.03 10.05 12.83 9.17*
Portfolio turnover rate (%) ...................................... 239.7 409.5 430.0 302.2 180.6*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns are higher due to maintenance of Fund expenses.
* Annualized
** Not annualized
17 - Scudder Emerging Markets Income Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Emerging Markets Income Fund (the "Fund") is a non-diversified series of
the Global/International Fund, Inc. (the "Corporation") (formerly Scudder Global
Fund, Inc.), a Maryland corporation registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities with original maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Corporation, whose quotations reflect broker/dealer-supplied valuations and
electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market investments having an original maturity
of sixty days or less are valued at amortized cost. All other securities are
valued at their fair value as determined in good faith by the Valuation
Committee of the Board of Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least the repurchase price.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased interest rate futures to manage the duration of the portfolio.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased call options on securities as a temporary substitute
for purchasing selected investments.
18 - Scudder Emerging Markets Income Fund
<PAGE>
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised, the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii)purchases and sales of investment securities, interest income and
certain expenses at the daily rates of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the accrual and payment dates on interest
and foreign withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
19 - Scudder Emerging Markets Income Fund
<PAGE>
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
When-issued and Forward Delivery Securities. The Fund may purchase securities on
a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time.
At the time the Fund makes the commitment to purchase a security on a
when-issued basis or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. During the
period between purchase and settlement, no payment is made by the Fund to the
issuer and no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price. The
Fund will establish a segregated account in which it will maintain cash and/or
liquid debt securities equal in value to commitments for when-issued or forward
delivery securities.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, 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 $60,900,000, 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.
Distribution of Income and Gains. Distributions of net investment income are
made quarterly. During any particular year, net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences relate primarily to foreign denominated investments and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the specific identified cost method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are being
amortized on a straight-line basis over a five-year period.
20 - Scudder Emerging Markets Income Fund
<PAGE>
Other. Investment security transactions are accounted for on a trade date basis.
Distributions of net realized gains to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All
discounts are amortized/accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
For the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $657,899,149 and
$638,067,559, respectively.
The aggregate face value of futures contracts opened during the period ended
October 31, 1998 was $38,526,334.
C. Related Parties
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 "Management Agreement") between the Fund and Scudder Kemper was
approved by the Corporation's Board of Directors and by the Fund's Shareholders.
The Management 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 Management Agreement with Scudder Kemper, 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 Management Agreement. The
management fee payable under the Management Agreement is equal to an annual rate
of 1.00% of the Fund's average daily net assets, computed and accrued daily and
payable monthly. For the year ended October 31, 1998, the fee pursuant to these
agreements amounted to $3,051,240, of which $169,469 is 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 Management Agreement with Scudder Kemper was deemed to
have been assigned and, therefore, terminated. The Board of Directors of the
Corporation has approved a new investment management agreement with Scudder
Kemper, which is substantially identical to the former 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.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended October 31,
1998, the amount charged to the Fund by STC aggregated $41,122, of which $3,828
is unpaid at October 31, 1998.
21 - Scudder Emerging Markets Income Fund
<PAGE>
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $225,422, of
which $26,626 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 Fund. For the
year ended October 31, 1998, the amount charged to the Fund by SSC aggregated
$556,145, of which $40,242 is unpaid at October 31, 1998.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. For the year ended October 31,
1998, the Special Servicing Agreement expense charged to the Fund amounted to
$134,794.
The Corporation pays each Director not affiliated with the Adviser an annual
retainer, plus specified amounts for attended board and committee meetings. For
the year ended October 31, 1998, Directors' fees and expenses aggregated
$60,665.
D. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in these markets may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
As a result of recent occurrences in Russia, the Fund wrote down interest
receivable of approximately $1.2 million from the Russian Federation Principal
Loan on December 2, 1998.
E. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 25 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
22 - Scudder Emerging Markets Income Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Global/International Fund, Inc. and to the
Shareholders of Scudder Emerging Markets Income 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 Scudder Emerging Markets Income
Fund (the "Fund") at October 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the 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
23 - Scudder Emerging Markets Income Fund
<PAGE>
Tax Information
The Fund paid distributions of $0.03 per share from net long-term capital gains
during its year ended October 31, 1998, of which 100% represents 20% rate gains.
Please consult a tax adviser if you have any 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 1-800-225-5163.
Officers and Directors
Daniel Pierce*
Chairman of the Board, Director
and Vice President
Nicholas Bratt*
President
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; 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.
24 - Scudder Emerging Markets Income Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
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
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Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
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Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
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Retirement Programs
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Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
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Education IRA
UGMA/UTMA
Closed-End Funds#
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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.
25 - Scudder Emerging Markets Income Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
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<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:
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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
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26 - Scudder Emerging Markets Income Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 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
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27 - Scudder Emerging Markets Income 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
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