Scudder
International
Bond Fund
Annual Report
October 31, 1998
Pure No-Load(TM) Funds
For investors seeking an easy and low-cost way to broaden their income-oriented
investments beyond U.S. borders. Invests primarily in high-grade bonds
denominated in foreign currencies.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder International Bond Fund
- --------------------------------------------------------------------------------
Date of Inception: 7/6/88 Total Net Assets as of Ticker Symbol: SCIBX
10/31/98: $149.9 million
- --------------------------------------------------------------------------------
o Turbulence in the emerging markets and the prospect of a slowing global
economy provided a boost to the bond markets of developed countries,
particularly in the third quarter of the twelve-month period of this report. The
collapse in the value of the dollar against major currencies also helped Fund
performance.
o Scudder International Bond Fund provided an 8.72% total return for the
twelve-month period through October.
o The Fund employed a three-pronged strategy of managing currency risk, focusing
on high-quality bond markets, and using a research-driven approach to find
undervalued bonds.
Table of Contents
3 Letter from the Fund's Chairman 16 Financial Highlights
4 Performance Update 17 Notes to Financial Statements
5 Portfolio Summary 23 Report of Independent Accountants
6 Portfolio Management Discussion 24 Officers and Directors
9 Glossary of Investment Terms 25 Investment Products and Services
10 Investment Portfolio 26 Scudder Solutions
13 Financial Statements
2 - Scudder International Bond Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
We are pleased to present the annual report for Scudder International Bond
Fund for the fiscal year ended October 31, 1998.
The past twelve months have been a period of extraordinary volatility in the
financial markets. As the economic crisis that began in Asia spread across the
globe, investors staged a "flight to quality" into assets with a lower perceived
level of risk. While the search for relative safety led to substantial
corrections in global equity markets and higher-yielding bonds, it provided a
significant lift to the government bond markets of the world's established
economies. By utilizing a rigorous process of fundamental research and risk
management, while focusing primarily on bonds from developed countries, Scudder
International Bond Fund was well positioned for this tumultuous period.
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 analyzing the tax implications of
portfolio transactions and seeking to offset capital gains by realizing losses
when appropriate.
Thank you for your continued investment in Scudder International Bond Fund.
If you have any questions about your investment, please call Scudder Investor
Relations at 1-800-225-2470, or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder International Bond Fund
3 - Scudder International Bond 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 International Bond Fund
- ---------------------------------------------------
1 Year $ 10,872 8.72% 8.72%
5 Year $ 10,961 9.61% 1.85%
10 Year $ 21,936 119.36% 8.17%
- ---------------------------------------------------
Salomon Brothers Non-U.S. Dollar World Government
Bond Index
- ---------------------------------------------------
1 Year $ 11,279 12.79% 12.79%
5 Year $ 14,858 48.58% 8.24%
10 Year $ 23,391 133.91% 8.86%
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Salomon Brothers Non-U.S.
Dollar World Government Scudder International
Bond Index Bond Fund
'88 10000 10000
'89 9502 10374
'90 11120 12931
'91 12046 14881
'92 14157 17437
'93 15743 20012
'94 17130 18668
'95 19729 19683
'96 20804 20629
'97 20738 20176
'98 23391 21936
Yearly periods ended October 31
The unmanaged Salomon Brothers Non-U.S. Dollar World Government Bond Index
consists of worldwide fixed-rate government bonds with remaining maturities
greater than one year. Index returns assume reinvestment of dividends, and
unlike Fund returns, do not reflect any fees or expenses.
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
Yearly periods ended June 30
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1998(a)(b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 12.08 $ 12.35 $ 13.68 $ 13.57 $ 11.97 $ 11.43 $ 10.98 $ 10.52 $ 9.92 $ 10.70
- -----------------------------------------------------------------------------------------------------------------------------------
Income Dividends $ 1.09 $ 1.21 $ 1.09 $ 1.04 $ .91 $ .98 $ .73 $ .58 $ .61 $ .18
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .29 $ .81 $ .62 $ .39 $ -- $ -- $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 17.59 14.88 28.25 12.24 -2.83 3.92 2.59 .94 .10 9.76
- -----------------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 7.25 9.84 27.29 9.74 9.46 22.71 -1.70 2.16 .88 14.55
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. If the Adviser had not maintained the Fund's
expenses, the total return for the one year, five year and ten year periods
would have been lower.
(a) For the four months ended October 31, 1998.
(b) On September 15, 1998, the Board of Directors of the Fund changed the fiscal
year end from June 30 to October 31.
4 - Scudder International Bond Fund
<PAGE>
Portfolio Summary as of October 31, 1998
- ---------------------
Geographical Exposure
- ---------------------
United States 22.9%
United Kingdom 18.7%
Spain 13.3%
Canada 9.1%
France 8.3%
Denmark 5.3%
Norway 5.1%
Australia 4.3%
Japan 4.0%
Italy 3.9%
Greece 3.4%
Other 1.7%
---------------------------------------------
100.0%
---------------------------------------------
The majority of the Fund's assets were invested in the
largest, most stable countries of the developed world.
- ----------------------
Interest Rate Exposure
- ----------------------
United Kingdom 26.2%
Spain 13.3%
United States 12.4%
Japan 8.5%
France 8.3%
Denmark 5.3%
Norway 5.1%
Canada 4.6%
New Zealand 4.5%
Australia 4.3%
Italy 3.9%
Greece 3.4%
Mexico 0.2%
---------------------------------------------
100.0%
---------------------------------------------
The Fund increased its position in short-term bonds from the
United Kingdom, and decreased its exposure to Japan.
- ---------------------
Currency Exposure (a)
- ---------------------
Japan 32.3%
Germany 18.5%
United States 8.6%
France 8.2%
United Kingdom 7.8%
Spain 5.8%
Denmark 5.2%
Italy 3.8%
Greece 3.3%
Australia 2.7%
New Zealand 2.2%
Canada 1.1%
Hungary 0.4%
Mexico 0.4%
Norway -0.3%
---------------------------------------------
100.0%
---------------------------------------------
Fund management strives to minimize risk by pursuing a
hedging strategy designed to limit the short-term impact of
foreign currency fluctuations.
(a) Currency exposure after taking into account the effects of foreign currency
options, futures, and forward contracts.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder International Bond Fund
<PAGE>
Portfolio Management Discussion
In the following interview, Gary P. Johnson, Lead Portfolio Manager of Scudder
International Bond Fund, discusses the Fund's current investment strategy and
the current market environment for
international fixed income securities.
Q: How did the Fund perform in the twelve month period ended October 31, 1998?
A: The 8.72% return of Scudder International Bond Fund trailed the 12.79% return
of its unmanaged benchmark, the Salomon Brothers Non-U.S. World Government Bond
Index, but performed near the average of 8.80% for the 54 funds in the
international bond fund peer group, as calculated by Lipper Analytical Services.
In a time period where currency fluctuations are unusually dramatic, as they
have been throughout 1998, the relative performance of the benchmark is skewed
by the fact that while most international bond funds actively hedge against
currency risk, the index does not. In other words, a U.S. investor holding an
unhedged overseas position will receive a greater benefit from periods of
weakness in the dollar than an investor who is hedged.
Q: How would you characterize the market conditions in this period?
A: For several years, bonds have been out of favor with many investors due to
strong economic growth and unusually high returns from global stock markets. In
1998, this sentiment began to change as the intensifying crisis in the emerging
markets sparked fears of a global recession. The prolonged drop in equities and
high-risk bonds drove rallies in the sovereign debt of more financially sound
nations, particularly the United States, as investors sought the "safe haven" of
investments considered to be free of credit risk. In addition, the crisis
eliminated the inflation fears that had been hurting bond performance since
1994. Bond prices, which are sensitive to the interest rate decisions of the
world's central banks, tend to rise when the banks are lowering rates, and fall
when the banks are raising rates. Since a slowdown often leads central banks to
stimulate growth by cutting rates, bonds become an attractive investment in
periods of economic turmoil. Hopes for lower rates were validated in October
when the U.S. Federal Reserve twice cut the Federal Funds rate by one-quarter of
a percentage point. With growth showing signs of slowing throughout Europe, this
decision fueled speculation that foreign central banks would soon follow the Fed
in cutting rates, lending additional positive sentiment to the global bond
markets.
Q: What was your strategy for the Fund?
A: We utilize a three-pronged strategy designed to maximize risk-adjusted
returns in all market conditions, although our approach worked particularly well
in the unsettled environment of the past year. The first aspect of our strategy
is to invest the majority of the Fund's assets in the largest, most stable
countries in the developed world; specifically, the twenty largest
industrialized nations. While we seek to add diversification and higher yield to
the portfolio by investing a small percentage of assets in the emerging markets,
the Fund held only a very limited position there as of October 31. By
concentrating our investments in the more established markets, we were able to
6 - Scudder International Bond Fund
<PAGE>
benefit from the "flight to quality" that drove bond market performance for much
of this year.
Second, we strive to minimize risk by pursuing a hedging strategy that is
designed to limit the short-term impact of foreign currency fluctuations.
Changes in currencies can have a significant impact on U.S. holders of foreign
bonds. When the value of the U.S. dollar rises against the currency in which an
investment is held, the value of the position decreases. We employ a
quantitative approach to currency exposure designed to keep the impact of
fluctuating currencies within a relatively narrow range, while also seeking to
minimize the expense of managing currency risk. In the twelve-month period, this
strategy provided protection from the surge in the value of the dollar through
the first half of 1998, but also reduced the extent to which the Fund benefited
from the dollar's third quarter collapse.
The third aspect of the Fund's strategy is to use intensive fundamental research
to construct a portfolio that is heavily weighted in the countries that we
believe offer the best value within the developed markets. For example, we feel
that the New Zealand economy will be adversely affected by the fallout from the
Asian crisis, creating a favorable climate for falling interest rates. Since New
Zealand's bonds still offer a high relative yield, we have established an
overweighted position there to benefit from both the higher income and the
potential for capital appreciation. Greece, like New Zealand, was another
country that offered high relative yields despite solid fundamentals, allowing
the Fund to benefit from higher income while avoiding excessive risk.
Q: Please discuss other positions the Fund has taken as a result of your
strategy.
A: Our position in 2- to 3-year government bonds from the United Kingdom is
another example of our search for strong relative values. Despite increasing
signs of a slowing economy, the Bank of England had not been aggressive in
cutting rates; instead, they were still raising them as late as June 4, 1998.
The disparity between the actions of the central bank and the sentiment of
market participants led to an inverted yield curve, which means that investors
could receive higher rates by investing their money for shorter periods of time.
Normally, longer term bonds provide higher yields. Using fundamental research,
we determined that these shorter-term bonds offered excellent value, so we
established a position and locked in the higher rates.
An example of a country we underweighted was Japan, since the extended collapse
of their economy has sent yields under 1% on all bonds with maturities of ten
years or less. The poor value offered by this paltry income stream led us to cut
our position in Japanese government bonds by nearly 50% from the beginning of
the calendar year.
Q: Can you give us examples of investments that did not fare well?
A: Yes. Although the majority of our assets remained invested in AAA-rated
government debt, we also sought to augment the Fund's yield through investments
in mortgage-backed securities, corporate bonds, and the emerging markets. In an
environment that was characterized by a swift flight from higher-risk assets,
the poor performance of some of these holdings detracted from the Fund's returns
7 - Scudder International Bond Fund
<PAGE>
throughout the summer months. We took advantage of the subsequent rebound in the
emerging markets to trim our exposure, based on our analysis that in many cases
the ongoing risks were not sufficiently outweighed by the higher yields. The
Fund was also hurt by exposure to the Australian and Canadian dollars, which
fell on lower commodity prices and recession fears.
Q: What is your strategy going forward?
A: Looking ahead, it is reasonable to expect that returns on international debt
will be somewhat muted, since yields are already extremely low by historical
standards. Given the continued instability in the global economy, however, we
feel that Scudder International Bond Fund should continue to hold an important
place in investors' portfolios by providing meaningful diversification. As one
of the few asset classes that stands to benefit from continued turmoil, high
quality international bonds can provide crucial balance to investors whose
portfolios are heavily weighted in other areas. We will continue to pursue our
strategy of managing currency risk, investing in high quality bonds, and using
fundamental research to uncover exceptional values overseas.
Scudder International
Bond Fund:
A Team Approach to Investing
Scudder International Bond 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 Gary P. Johnson assumed responsibility for the Fund's
day-to-day management and investment strategies in February 1997. Gary, who has
17 years of investment industry experience, joined the Adviser in 1987.
Portfolio Manager Adam M. Greshin specializes in global and international bond
investments. Adam was involved in the original design of Scudder International
Bond Fund and has been a portfolio manager of the Fund since its inception in
1988.
8 - Scudder International Bond Fund
<PAGE>
Glossary of Investment Terms
FUNDAMENTAL RESEARCH Analysis of a security based on the projected
economic health of the issuer. To determine whether
a government bond is attractively priced,
information such as inflation, gross domestic
product, and money flows in to and out of the
country will be analyzed. Distinct from technical
analysis, which evaluates the attractiveness of a
security based on historical price and trading
volume movements, rather than the financial results
of the underlying issuer.
HEDGING A strategy used to offset investment risk.
Investment managers frequently hedge their exposure
to currency changes by buying or selling futures or
options contracts. For example, an investor who
wishes to buy British bonds but feels that the value
of the pound will fall versus the U.S. dollar may
buy futures or options on the pound to offset the
projected decline in the currency.
INVERTED YIELD CURVE An unusual situation where short-term interest rates
are higher than long-term interest rates. An
inverted curve results when a surge in demand for
short-term credit drives up short-term rates, while
long-term rates move up more slowly since borrowers
are not willing to commit themselves to pay high
rates for many years. This scenario is often
indicative of negative sentiment concerning a
country's economic health.
30-DAY SEC YIELD The standard yield reference for bond funds, based
on a formula prescribed by the SEC. This annualized
yield calculation reflects the 30-day average of the
income earnings capability of every holding in a
given fund's portfolio, net of expenses, assuming
each is held to maturity.
TOTAL RETURN The most common yardstick to measure the performance
of a fund or investment. Total return-- annualized
or compounded-- is based on a combination of share
price changes plus income and capital gain
distributions, if any, expressed as a percentage
gain or loss in value.
YIELD CURVE A graph plotting the yields of all bonds of the
same quality with maturities ranging from the
shortest to the longest available. The resulting
curve shows the relationship between short-,
intermediate-, and long-term interest rates.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
9 - Scudder International Bond Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 3.4%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/30/1998 at 5.4%,
to be repurchased at $4,935,220 on 11/2/1998, collateralized by $4,825,000 U.S. ------------
Treasury Note, 3.625%, 7/15/2002 (Cost $4,933,000) .................................. 4,933,000 4,933,000
------------
Short-Term Notes 2.1%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 4/29/1999 (b) ..................................................... 100,000 97,918
Federal Home Loan Mortgage Association, 4.9%*, 11/3/1998 .............................. 3,000,000 2,999,183
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Notes (Cost $3,096,632) 3,097,101
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association 1.3%
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 7.00%, 7/15/2028 (Cost ------------
$1,948,452) ......................................................................... 1,914,058 1,959,517
------------
Foreign Denominated Debt Obligations 87.6%
- ------------------------------------------------------------------------------------------------------------------------------
Australian Dollars 4.3%
New South Wales Treasury Corp., 7%, 4/1/2004 .......................................... 9,200,000 6,264,747
------------
British Pounds 26.3%
Federal Home Loan Bank, 5.625%, 6/10/2003 ............................................. 1,970,000 3,291,678
Federal National Mortgage Association Global Issue, 7.125%, 8/10/1999 ................. 2,700,000 4,538,560
General Electric Capital Corp., 8%, 12/29/2000 ........................................ 1,800,000 3,107,075
United Kingdom Treasury Bond, 6%, 8/10/1999 ........................................... 7,900,000 13,214,679
United Kingdom Treasury Bond, 8%, 6/10/2003 ........................................... 7,450,000 13,978,683
------------
38,130,675
------------
Canadian Dollars 4.5%
Government of Canada, 6%, 6/1/2008 .................................................... 3,000,000 2,077,761
Molson Breweries Co., Ltd., 9.1%, 3/11/2013 ........................................... 925,000 746,623
Newcourt Credit Group, Inc., 6.2%, 9/1/2004 ........................................... 2,850,000 1,663,977
PanCanadian Petroleum Ltd., 8.75%, 11/9/2005 .......................................... 3,000,000 2,245,334
------------
6,733,695
------------
Danish Kroner 5.3%
Nykredit A/S, 7%, 10/1/2026 ........................................................... 47,990,000 7,685,571
------------
French Francs 8.3%
Government of France STRIP (Principal Only), 10/25/2019 ............................... 209,000,000 12,011,096
------------
Greek Drachmas 3.4%
Deutsche Bank Time Deposit, 11.375%, 11/19/1998 ....................................... 101,866,253 362,204
Republic of Greece, 8.9%, 4/1/2003 .................................................... 1,290,000,000 4,573,069
------------
4,935,273
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder International Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Italian Lire 3.9%
Republic of Italy, 8.5%, 1/1/2004 ..................................................... 7,680,000,000 5,647,687
------------
Japanese Yen 8.5%
Federal National Mortgage Association Global Issue, 2.125%, 10/9/2007 ................. 680,000,000 6,480,431
Japan Development Bank, 2.875%, 12/20/2006 ............................................ 590,000,000 5,839,259
------------
12,319,690
------------
Mexican Pesos 0.2%
Certificados de la Tesoreria, Zero Coupon, 7/8/1999 ................................... 3,786,340 303,149
------------
New Zealand Dollars 4.5%
Government of Canada, 6.625%, 10/3/2007 ............................................... 12,000,000 6,520,534
------------
Norwegian Kroner 5.1%
Kingdom of Norway, 6.75%, 1/15/2007 ................................................... 50,000,000 7,344,325
------------
Spanish Pesetas 13.3%
Kingdom of Spain, 6.75%, 4/15/2000 .................................................... 1,190,000,000 8,839,154
Kingdom of Spain, 5.25%, 1/31/2003 .................................................... 1,390,000,000 10,452,168
------------
19,291,322
- ------------------------------------------------------------------------------------------------------------------------------
Total Foreign Denominated Debt Obligations (Cost $123,184,493) 127,187,764
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Dollar Denominated Debt Obligations 5.0%
- ------------------------------------------------------------------------------------------------------------------------------
Cedulas Hipotecarias, LIBOR plus .29% (8.699%), 9/1/2000 .............................. 1,368,000 1,214,505
General Motors Acceptance Corp., 5.33%, 10/20/2000 .................................... 5,000,000 5,017,500
Republic of Panama, Past Due Interest Bond, LIBOR plus .8125, 4% with 2.688%
interest capitalization (6.688%), 7/17/2016 ......................................... 1,328,959 976,785
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Dollar Denominated Debt Obligations (Cost $7,449,319) 7,208,790
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost $140,611,896) 144,386,172
- ------------------------------------------------------------------------------------------------------------------------------
Purchased Options 0.6%
- ------------------------------------------------------------------------------------------------------------------------------
Put on New Zealand Dollars, strike price .508, expires 11/25/1998 .....................NZD 5,700,000 14,683
Put on New Zealand Dollars, strike price .5252, expires 11/18/1998 ....................NZD 6,500,000 40,495
<CAPTION>
Number of
Contracts
-----------
<S> <C> <C>
Call on 5 year U.S. Treasury Note, strike price 110, expires 11/20/1998 ............... 175 812,109
- ------------------------------------------------------------------------------------------------------------------------------
Total Purchased Options (Cost $181,370) 867,287
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $140,793,266) (a) 145,253,459
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder International Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
* Annualized yield at time of purchase; not a coupon rate. (Unaudited)
(a) The cost for federal income tax purposes was $140,793,266. At October 31,
1998, net unrealized appreciation for all securities based on tax cost was
$4,460,193. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $6,316,429 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,856,236.
(b) At October 31, 1998, these securities, in whole or in part, were pledged
to cover initial margin requirements on open future contracts.
At October 31, 1998, open future contracts sold short were as follows:
<TABLE>
<CAPTION>
Expiration Aggregate Market
Futures Date Contracts Face Value ($) Value ($)
- ---------------------------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5 year U.S. Treasury Note 12/22/1998 175 20,176,898 20,062,110
------------
Total net unrealized appreciation on open futures contracts sold short ................... 114,788
============
</TABLE>
At October 31, 1998 outstanding written options were as follows:
<TABLE>
<CAPTION>
Principal
Amount Expiration Strike Market
Call Options (000's) Date Price Value ($)
- ---------------------------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NZD 6,500 11/18/1998 NZD .547 15,600
NZD 5,700 11/25/1998 NZD .5291 54,646
---------
Total outstanding written options (Premiums received $72,471) ............................ 70,246
=========
</TABLE>
Currency Abbreviation
AUD Australian Dollar HUF Hungarian Forints
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc MXP Mexican Peso
DEM Deutsche Mark NOK Norwegian Kroner
ESP Spanish Peseta NZD New Zealand Dollar
GBP British Pounds PSS Peruvian Sol
GRD Greek Drachma USD U.S. Dollar
The accompanying notes are an integral part of the financial statements.
12 - Scudder International Bond Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $140,611,896) ................. $ 144,386,172
Purchased options, at value (identified cost $181,370) ................ 867,287
Cash and foreign currency holdings, at value (identified
cost $1,207) ........................................................ 1,943
Interest receivable ................................................... 2,766,316
Receivable for Fund shares sold ....................................... 101,459
Receivable for daily variation margin on open futures contracts ....... 117,219
Unrealized appreciation on forward currency exchange contracts ........ 3,282,078
----------------
Total assets .......................................................... 151,522,474
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed ...................................... 179,563
Net payable on closed forward foreign currency contracts .............. 263,971
Dividends payable ..................................................... 95,525
Written options, at market (premiums received $72,471) ................ 70,246
Unrealized depreciation on forward currency exchange contracts ........ 596,371
Accrued management fee ................................................ 116,041
Other payables and accrued expenses ................................... 268,304
----------------
Total liabilities ..................................................... 1,590,021
-------------------------------------------------------------------------------------------
Net assets, at market value $ 149,932,453
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income .......... (2,545,416)
Net unrealized appreciation (depreciation) on:
Investments ........................................................... 3,774,275
Futures contracts ..................................................... 114,788
Options ............................................................... 688,143
Foreign currency related transactions ................................. 2,711,577
Accumulated net realized gain (loss) .................................. (71,981,846)
Paid-in capital ....................................................... 217,170,932
-------------------------------------------------------------------------------------------
Net assets, at market value $ 149,932,453
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($149,932,453 / 14,014,543 shares of capital stock
outstanding, $.01 par value, 200,000,000 shares of capital ----------------
stock authorized) ................................................... $10.70
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder International Bond Fund
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
Four Months
Ended
October 31,
1998 Year Ended
Investment Income (Note F) June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest (net of foreign taxes withheld of $23,927 and $0,
respectively) ........................................................ $ 3,252,635 $ 13,741,814
---------------- ----------------
Expenses:
Management fee ......................................................... 412,417 1,554,588
Services to shareholders ............................................... 189,322 793,101
Custodian and accounting fees .......................................... 88,395 293,713
Directors' fees and expenses ........................................... 12,547 59,693
Reports to shareholders ................................................ 2,776 98,807
Auditing ............................................................... 52,002 89,715
Registration fees ...................................................... 4,024 32,871
Other .................................................................. 3,444 66,524
---------------- ----------------
Total expenses before reductions ....................................... 764,927 2,989,012
Expense reductions ..................................................... (37,131) (110,285)
---------------- ----------------
Expenses, net .......................................................... 727,796 2,878,727
---------------------------------------------------------------------------------------------------------------
Net investment income 2,524,839 10,863,087
---------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................ (1,502,972) (6,324,588)
Options ................................................................ (949,916) (673,238)
Futures contracts ...................................................... (18,144) (805,446)
Foreign currency related transactions .................................. 1,727,351 (662,384)
---------------- ----------------
(743,681) (8,465,656)
---------------- ----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................ 7,807,878 (2,224,152)
Options ................................................................ 722,816 (41,828)
Futures contracts ...................................................... 146,246 (31,458)
Foreign currency related transactions .................................. 2,921,123 (114,905)
---------------- ----------------
11,598,063 (2,412,343)
---------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 10,854,382 (10,877,999)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 13,379,221 $ (14,912)
---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder International Bond Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Four Months
Ended
October 31, Years Ended June 30,
1998
Increase (Decrease) in Net Assets (Note F) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income ..................................... $ 2,524,839 $ 10,863,087 $ 19,109,198
Net realized gain (loss) from investment
transactions ............................................ (743,681) (8,465,656) (16,656,519)
Net unrealized appreciation (depreciation) on
investment transactions during the period ............... 11,598,063 (2,412,343) 4,833,059
---------------- ---------------- ----------------
Net increase (decrease) in net assets resulting
from operations ......................................... 13,379,221 (14,912) 7,285,738
---------------- ---------------- ----------------
Distributions to shareholders:
From net investment income ................................ -- -- (19,109,198)
---------------- ---------------- ----------------
Tax return of capital ..................................... (2,524,839) (10,863,087) --
---------------- ---------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................. 15,356,428 44,825,847 53,550,698
Net asset value of shares issued to shareholders
in reinvestment of distributions ........................ 2,041,754 8,732,391 13,116,739
Cost of shares redeemed ................................... (24,138,878) (132,854,657) (334,293,130)
---------------- ---------------- ----------------
Net increase (decrease) in net assets from Fund
share transactions ...................................... (6,740,696) (79,296,419) (267,625,693)
---------------- ---------------- ----------------
Increase (decrease) in net assets ......................... 4,113,686 (90,174,418) (279,449,153)
Net assets at beginning of period ......................... 145,818,767 235,993,185 515,442,338
Net assets at end of period (including
accumulated distributions in excess of net investment
income of $2,545,416, $8,174,452, and $23,214,640, ---------------- ---------------- ----------------
respectively) ........................................... $ 149,932,453 $ 145,818,767 $ 235,993,185
---------------- ---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................. 14,697,049 22,435,381 46,922,766
---------------- ---------------- ----------------
Shares sold ............................................... 1,491,084 4,361,357 4,932,206
Shares issued to shareholders in reinvestment of
distributions ........................................... 201,162 856,845 1,206,004
Shares redeemed ........................................... (2,374,752) (12,956,534) (30,625,595)
---------------- ---------------- ----------------
Net increase (decrease) in Fund shares .................... (682,506) (7,738,332) (24,487,385)
---------------- ---------------- ----------------
Shares outstanding at end of period ....................... 14,014,543 14,697,049 22,435,381
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder International Bond Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period (b) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Four
Months Ended
October 31,
1998 Years Ended June 30,
(Note F) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net asset value, beginning of period .................. $ 9.92 $ 10.52 $ 10.98 $ 11.43 $ 11.97 $ 13.57
--------------------------------------------------------------------------
Income from investment operations:
Net investment income ................................. .18 .61 .58 .73 .98 .92
Net realized and unrealized gain (loss) on
investment transactions ............................. .78 (.60) (.46) (.45) (.54) (1.22)
--------------------------------------------------------------------------
Total from investment operations ...................... .96 .01 .12 .28 .44 (.30)
--------------------------------------------------------------------------
Less distributions:
From net investment income ............................ -- -- (.58) (.12) -- (.91)
From net realized gains on investment
transactions ........................................ -- -- -- -- -- --
In excess of net realized gains on investment
transactions ........................................ -- -- -- -- -- (.39)
Tax return of capital ................................. (.18) (.61) -- (.61) (.98) --
--------------------------------------------------------------------------
Total distributions ................................... (.18) (.61) (.58) (.73) (.98) (1.30)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net asset value, end of period ........................ $ 10.70 $ 9.92 $ 10.52 $ 10.98 $ 11.43 $ 11.97
--------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ...................................... 9.76(a)** .10(a) .94 2.59 3.92 (2.83)(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 150 146 236 515 910 1,231
Ratio of operating expenses, net to average
daily net assets (%) ................................ 1.50* 1.56 1.36 1.26 1.30 1.27
Ratio of operating expenses before expense
reductions, to average daily net assets (%) ......... 1.58* 1.62 1.36 1.26 1.30 1.29
Ratio of net investment income to average daily
net assets (%) ...................................... 5.20* 5.91 5.28 6.50 8.52 6.86
Portfolio turnover rate (%) ........................... 303.5* 190.1 298.2 275.7 318.5 232.9
</TABLE>
(a) Total returns for certain periods would have been lower had certain
expenses not been reduced.
(b) Based on monthly average of shares outstanding during the period.
* Annualized
** Not annualized
16 - Scudder International Bond Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder International Bond Fund (the "Fund") is a non-diversified series of
Global/International Fund, Inc. (the "Corporation"), 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 other than money market
instruments with an original maturity over 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
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other debt 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.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased put options and wrote call options on securities and
currencies primarily as a hedge against potential adverse price movements in the
value of portfolio assets. In addition, during the period, the Fund purchased
call options and wrote put options on securities and currencies to lock in the
exchange rate component of the purchase price of securities expected to be
purchased in the near future and to enhance potential gain.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium 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 price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
17 - Scudder International Bond Fund
<PAGE>
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased interest rate futures to manage the duration of the portfolio. In
addition, the Fund sold interest rate futures to hedge against declines in the
value of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and
certain expenses at the rates of exchange prevailing on the respective
dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
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
18 - Scudder International Bond Fund
<PAGE>
utilized forward contracts as a hedge in connection with portfolio purchases and
sales of securities denominated in foreign currencies and as a hedge against
changes in exchange rates relating to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes, and no federal
income tax provision was required. At October 31, 1998, the Fund had a net tax
basis capital loss carryforward of approximately $71,000,000, which may be
applied against any realized net taxable capital gains of each succeeding year
until fully utilized or until June 30, 2003 ($64,300,000), June 30, 2004
($6,100,000), and October 31, 2006 ($600,000), the respective expiration dates,
whichever occurs first.
Distribution of Income and Gains. Distribution of net investment income is
declared as a dividend to shareholders of record as of the close of business
each day and is distributed to shareholders monthly. During any particular year
net realized gains and certain unrealized gains (which for federal income tax
reporting purposes may be considered realized) from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed and, therefore, will be distributed to shareholders. An
additional distribution may be made to the extent necessary to avoid the payment
of a four percent federal excise tax. Distributions of net realized gains to
shareholders are recorded on the ex-dividend date.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences relate primarily to investments in options, futures, forward
contracts, 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 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.
Interest income is recorded on the accrual basis. All discounts are accreted for
both tax and financial reporting purposes.
B. Purchases and Sales of Securities
For the four months ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $124,151,226 and $142,384,007, respectively. Purchases and sales of
U.S. Government obligations aggregated $3,051,094 and $3,215,625, respectively.
19 - Scudder International Bond Fund
<PAGE>
The aggregate face value of futures contracts opened and closed during the four
months ended October 31, 1998 was $26,889,682 and $12,140,691, respectively.
Transactions in written options for the four months ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Option Contracts Options on Currencies (000 omitted)
----------------------------- ---------------------------------------------
Number of Premiums Premiums
Contracts Received ($) AUD CAD Received ($)
----------------------------- ---------------------------- ----------------
<S> <C> <C> <C> <C>
Beginning of
Period...... -- -- 5,220 6,540 $ 80,898
Written....... 380 372,099 5,100 33,990 189,970
Closed........ (380) (372,099) -- (20,240) (90,829)
Exercised..... -- -- -- (6,850) (31,466)
Expired....... -- -- (10,320) (13,440) (148,573)
------------ ------------ ---------- ----------- -----------
End of
Period...... -- -- -- -- $ --
============ ============ ========== =========== ===========
----------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------
Options on Currency (000 omitted) (continued)
-----------------------------------------------------------------
Premiums
DEM GBP/DEM NZD Received ($)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning of
Period...... -- 5,000 17,100 $ 234,524
Written....... 54,720 -- 12,200 220,970
Closed........ -- (1,000) -- (18,519)
Exercised..... -- -- -- --
Expired....... (54,720) (4,000) (17,100) (364,504)
----------- ------------ ----------- -----------
End of
Period...... -- -- 12,200 $ 72,471
=========== ============ =========== ===========
-----------------------------------------------------------------
</TABLE>
C. Related Parties
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser"), entered
into an agreement with B.A.T Industries PLC ("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 the Adviser 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
20 - Scudder International Bond Fund
<PAGE>
investment management agreement, except for the dates of
execution, termination, and breakpoints in the fee structure. The Board of
Directors of the Fund has obtained shareholder approval of the new investment
management agreement.
Under the investment management agreement with Scudder Kemper, the Fund has
agreed to pay to the Adviser a fee equal to an annual rate of 0.85% of the first
$1,000,000,000 of average daily net assets and 0.80% of such net assets in
excess of $1,000,000,000, computed and accrued daily and payable monthly. 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
investment management agreement. Effective January 1, 1998, the Adviser has
agreed not to impose a portion of its management fee until February 28, 1999,
and during such period to maintain the annualized expenses of the Fund at not
more than 1.50% of the Fund's average daily net assets. For the four months
ended October 31, 1998, the Adviser did not impose a portion of its management
fee aggregating $37,131 and the amount imposed aggregated $375,286, which was
equivalent to an annual effective rate of 0.77% of the Fund's average daily net
assets. For the year ended June 30, 1998, the Adviser did not impose a portion
of its management fee aggregating $110,285 and the amount imposed aggregated
$1,444,303, which was equivalent to an annual effective rate of 0.79% of the
Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
four months ended October 31, 1998, the amount charged by SSC aggregated
$119,561, of which $29,578 is unpaid at October 31, 1998. For the year ended
June 30, 1998, the amount charged by SSC aggregated $462,449.
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 four months ended October
31, 1998, the amount charged to the Fund by STC aggregated $25,953, of which
$6,499 is unpaid at October 31, 1998. For the year ended June 30, 1998, the
amount charged to the Fund by STC aggregated $80,418.
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 four months
ended October 31, 1998, the amount charged to the Fund by SFAC aggregated
$42,020, of which $21,295 is unpaid at October 31, 1998. For the year ended June
30, 1998, the amount charged to the Fund by SFAC aggregated $154,342.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At October 31, 1998 and June
30, 1998, the Special Servicing Agreement expense charged to the Fund amounted
to $7,165 and $9,985, respectively.
The Corporation pays each Director not affiliated with the Adviser an annual
retainer plus specified amounts for attended board and committee meetings. For
the four months ended October 31, 1998 and the year ended June 30, 1998,
Directors' fees and expenses aggregated $12,547 and $59,693, respectively.
21 - Scudder International Bond Fund
<PAGE>
D. Commitments
As of October 31, 1998 the Fund had entered into the following forward currency
exchange contracts resulting in net unrealized appreciation of $2,685,707.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
Contracts to Deliver In Exchange For Settlement Date (U.S.$)
-------------------------- ------------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
GBP 10,750,000 DEM 30,551,500 11/5/1998 469,631
GBP 5,108,000 DEM 14,446,267 11/5/1998 180,437
USD 4,525,629 JPY 611,865,000 11/5/1998 747,168
NOK 56,922,250 JPY 990,646,378 11/9/1998 789,309
CAD 11,000,000 JPY 888,855,000 11/9/1998 536,141
USD 233,805 MXP 2,443,260 11/16/1998 7,214
ESP 1,000,000,000 JPY 845,487,212 11/19/1998 189,505
ESP 500,000,000 JPY 419,255,570 11/19/1998 64,634
AUD 3,582,000 USD 2,123,302 11/19/1998 (113,229)
GRD 22,612,000 USD 80,000 11/20/1998 (185)
USD 5,027,439 JPY 573,128,000 11/24/1998 (75,055)
USD 64,000 PSS 196,928 11/27/1998 (310)
USD 572,824 HUF 125,551,589 11/30/1998 762
USD 2,491,000 NZD 5,000,000 12/14/1998 158,647
USD 2,947,891 NZD 5,681,586 12/14/1998 62,949
NZD 3,849,586 USD 1,946,735 12/14/1998 (93,273)
NZD 6,832,000 USD 3,381,840 12/14/1998 (238,638)
USD 10,583,000 CHF 14,297,633 1/5/1999 75,681
CHF 14,297,633 USD 10,583,000 1/5/1999 (75,681)
------------
2,685,707
============
</TABLE>
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 33 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
F. Year End Change
On September 15, 1998, the Board of Directors of the Portfolio changed the
fiscal year end from June 30 to October 31.
22 - Scudder International Bond Fund
<PAGE>
Report of Independent Accountants
To the Directors of Global/International Fund, Inc. and to the Shareholders of
Scudder International Bond 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 International Bond Fund
(the "Fund") at October 31, 1998, the results of its operations, 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
December 23, 1998 PricewaterhouseCoopers LLP
23 - Scudder International Bond Fund
<PAGE>
Officers and Directors
Daniel Pierce*
Chairman of the Board, Director
and Vice President
Nicholas Bratt*
President and Director
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; Consultant
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
Robert G. Stone, Jr.
Honorary Director; Chairman
of the Board and Director, Kirby
Corporation
Susan E. Dahl*
Vice President
Jerard K. Hartman*
Vice President
Gary P. Johnson*
Vice President
Thomas W. Joseph*
Vice President
Gerald J. Moran*
Vice President
Isabel Saltzman*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Treasurer
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
24 - Scudder International Bond Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
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.
25 - Scudder International Bond Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which 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
- ------------------------------------------------------------------------------------------------------------------------------
26 - Scudder International Bond Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 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>
27 - Scudder International Bond 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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