Scudder
International
Bond Fund
Annual Report
June 30, 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
6/30/98: $145.8 million
- --------------------------------------------------------------------------------
o The world's developed markets provided solid gains over the past year, spurred
by low inflation, moderate economic growth, and heightened volatility in the
emerging markets. The U.S. dollar advanced against most currencies, however,
capping gains for U.S. investors overseas.
o Scudder International Bond Fund provided a 5.52% 30-day SEC yield as of June
30, 1998, and a 0.10% total return for the 12-month period through June.
o The Fund continued to focus its investment strategy in Europe, where the
coming monetary union is creating opportunities for potential income and capital
appreciation. Meanwhile, careful investment in the emerging markets provided a
boost to the Fund's yield.
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 Investment Portfolio 25 Investment Products and Services
13 Financial Statements 26 Scudder Solutions
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 June 30, 1998.
The period was marked by generally declining interest rates globally and
rising bond prices. The surging strength of the U.S. dollar against many of the
world's currencies, however, detracted from returns for international
fixed-income securities. The Fund's managers took advantage of opportunities
where they were available, particularly by focusing on Europe. Longer term, we
believe the Fund's approach to managing currency risk and modest exposure to
emerging markets will benefit performance. For more detail on the events of the
past 12 months and the outlook for the year ahead, please turn to the discussion
beginning on page 6.
For those of you interested in new Scudder products and services, we would
like to take this opportunity to highlight two upcoming additions to our
international category, both of which are scheduled to begin operations on
September 1st. Scudder International Growth Fund will seek long-term capital
appreciation by investing primarily in the equity securities of non-U.S.
companies with high earnings growth potential, and Scudder International Value
Fund will seek long-term capital appreciation by investing primarily in
undervalued foreign equity securities. For further information on these new
funds, please call 1-800-225-2470.
Thank you for choosing Scudder International Bond Fund to help meet your
investment needs. If you have any questions regarding your investment, or any of
the Scudder Funds, please do not hesitate to call a Scudder representative, or
visit our Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder International Bond Fund
3 - Scudder International Bond Fund
<PAGE>
PERFORMANCE UPDATE as of June 30, 1998
- -----------------------------------------------------------------
FUND INDEX COMPARISONS
- -----------------------------------------------------------------
Total Return
--------------
Period Growth
Ended of Average
6/30/98 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER INTERNATIONAL BOND FUND
- --------------------------------------------
1 Year $ 10,010 .10% .10%
5 Year $ 10,468 4.68% .92%
Life of Fund* $ 20,796 107.96% 7.61%
- --------------------------------------------
SALOMON BROTHERS NON-U.S. DOLLAR WORLD
GOVERNMENT BOND INDEX
- --------------------------------------------
1 Year $ 10,088 .88% .88%
5 Year $ 13,606 36.06% 6.35%
Life of Fund* $ 22,007 120.07% 8.28%
- --------------------------------------------
* The Fund commenced operations on July 6, 1988. Index
comparisons begin July 31, 1988.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended June 30
SCUDDER INTERNATIONAL BOND FUND
Year Amount
- ---------------------------
7/88* $10,000
'89 $10,216
'90 $12,013
'91 $13,800
'92 $17,699
'93 $19,865
'94 $19,304
'95 $20,061
'96 $20,581
'97 $20,775
'98 $20,796
SALOMON BROTHERS NON-U.S. DOLLAR WORLD
GOVERNMENT BOND INDEX
Year Amount
- ---------------------------
7/88* $10,000
'89 $ 9,829
'90 $10,544
'91 $11,581
'92 $14,741
'93 $16,175
'94 $17,704
'95 $21,724
'96 $21,354
'97 $21,815
'98 $22,007
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
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended June 30
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------
NET ASSET VALUE... $11.27 $12.08 $12.35 $13.68 $13.57 $11.97 $11.43 $10.98 $10.52 $ 9.92
INCOME DIVIDENDS.. $ 1.00 $ 1.09 $ 1.21 $ 1.09 $ 1.04 $ .91 $ .98 $ .73 $ .58 $ .61
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .29 $ .81 $ .62 $ .39 $ -- $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 2.16 17.59 14.88 28.25 12.24 -2.83 3.92 2.59 .94 .10
INDEX TOTAL
RETURN (%)........ -1.69 7.25 9.84 27.29 9.74 9.46 22.71 -1.70 2.16 .88
</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 life of Fund
periods would have been lower.
4 - Scudder International Bond Fund
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1998
- ---------------------------------------------------------------------------
GEOGRAPHICAL EXPOSURE
- ---------------------------------------------------------------------------
United Kingdom 13.0%
Denmark 12.8%
Sweden 12.3%
United States 11.8%
Canada 7.9%
France 7.7%
Australia 6.9%
New Zealand 5.3%
Italy 4.3%
Japan 3.2%
Korea 2.8%
Peru 2.5%
Panama 1.8%
Argentina 1.5%
Norway 1.3%
Poland 1.0%
Other 3.9%
------
100.0%
======
As the 12-month period progressed
we took profits on the Fund's
positions in Italy, Spain, and
Germany, and increased exposure to
Sweden and Denmark, which
currently offer relatively higher
yields.
- ---------------------------------------------------------------------------
INTEREST RATE EXPOSURE
- ---------------------------------------------------------------------------
United Kingdom 20.3%
Denmark 12.8%
Sweden 12.3%
New Zealand 9.3%
United States 9.0%
France 7.7%
Australia 6.9%
Japan 6.7%
Italy 4.3%
Canada 3.7%
Norway 1.3%
Poland 1.0%
Other 4.6%
------
100.0%
======
The Fund is cautiously
positioned with respect to
interest rate risk.
- ---------------------------------------------------------------------------
CURRENCY EXPOSURE (a)
- ---------------------------------------------------------------------------
United States 33.7%
United Kingdom 14.2%
Denmark 12.9%
Japan 11.8%
France 7.7%
Sweden 7.3%
Italy 4.3%
New Zealand 2.3%
Norway 1.3%
Poland 1.0%
Philippines 0.9%
Brazil 0.8%
Mexico 0.7%
Hungary 0.7%
Korea 0.6%
Turkey 0.4%
Australia 0.3%
Czech Republic 0.3%
Greece 0.3%
Indonesia 0.2%
Thailand 0.2%
Hong Kong 0.1%
Argentina 0.1%
South Africa 0.1%
Canada -0.1%
Germany -2.1%
------
100.0%
======
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.
(a) Currency exposure after taking into account the effects of foreign
currency options, futures, and forward contracts.
For more complete details about the Fund's investment portfolio, see page 9.
A monthly Investment Portfolio Summary and quarterly 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 market environment and the Fund's current
investment strategy.
Q: How did the Fund perform during the year ended June 30, 1998?
A: Despite a period of generally declining interest rates globally, Scudder
International Bond Fund provided a 30-day SEC yield of 5.52% on June 30, 1998.
The Fund's yield benefited both from an emphasis on Europe and careful
investment in some of the world's developing markets. The Fund's 0.10% total
return for the fiscal year ended June 30, 1998, reflects the effect of a sharply
rising U.S. dollar, which diminished gains in Europe and produced negative
results in markets such as New Zealand, Australia, and Japan. The Fund's return
compares with a 0.88% total return for the unmanaged and unhedged Salomon
Brothers Non-U.S. World Government Bond Index.
Q: How would you describe the Fund's strategy?
A: Our ongoing strategy has three components: We seek to own bonds in markets
that are rallying, limit the Fund's overall currency risk, and invest in select
emerging-market bonds to enhance the Fund's yield.
The Fund's emphasis on Europe helped boost its total return. However, the mix of
markets that comprise the Fund's roughly 60% European exposure changed
substantially over the course of the year. For example, we began the period with
large weightings in Spain and Italy. Our holdings in Italy alone amounted to 20%
of the portfolio on June 30, 1997. In order to participate in European Monetary
Union (EMU), these countries were required to trim deficits and align interest
rates with Europe's larger markets. As a result of these activities, Italy and
Spain provided strong returns in the first half of the period. As the year
progressed, we took profits on these positions and the Fund's holdings in
Germany, where economic growth is now accelerating and further rate cuts are
unlikely. With the proceeds from these sales, we increased exposure to Sweden
and Denmark (12% and 13% of the portfolio, respectively, on June 30, 1998).
These countries are not included in the first round of EMU and as such offer
relatively higher yields. We also increased the Fund's weighting in the U.K.
market, where talk of eventual British participation in EMU led to a dramatic
rally in long-term bonds during the year. By the end of June, the Fund's U.K.
position was 20% of assets, compared with 6% at the start of the period.
Q: You mentioned limiting the Fund's overall currency risk. Can you explain?
A: Throughout the period, we sought to limit the short-term impact of
fluctuating foreign currencies. Changes in currency exchange rates can have a
significant impact on returns to U.S. holders of foreign bonds. When the value
of the U.S. dollar rises versus the currency in which your investment is held,
the gain you may have received "on paper" from that investment is reduced and
can be turned into a loss. 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.
Despite our efforts, the strength of the U.S. dollar hurt overall Fund
performance during the year. The economic crisis in Southeast Asia put pressure
6 - Scudder International Bond Fund
<PAGE>
on the currencies of other Pacific nations that trade in the region, including
Australia and New Zealand. In Australia, for example, a 12% gain in local
currency was turned into a 7% loss for the year when translated into U.S.
dollars. In Japan, ultra-low interest rates, a confirmed recession, and a
hobbled banking sector with over $550 billion in bad bank loans facilitated an
outflow of Japanese capital in search of higher-yielding and more creditworthy
investments. An eroding yen turned a 13% local currency gain into a 12% loss in
U.S. dollar terms. Although we seek to limit currency risk, we do not intend to
eliminate it. When the dollar finally begins to weaken, the Fund's exposure to
foreign currencies should benefit performance.
Q: Were there other disappointments?
A: In Denmark, we purchased mortgage-backed securities, which provided higher
yields than the country's government bonds but underperformed due to prepayment
concerns. As in the United States, many Danish homeowners have opted to
refinance or prepay their mortgages to take advantage of falling interest rates.
Prepayment forces investors in those mortgages to reinvest their money at lower
prevailing rates and can dampen the performance of those securities in the
secondary market.
Q: The Asian financial crisis exacerbated volatility in developing markets
around the world. What was the Fund's strategy in this arena?
A: The Fund's relatively small (less than 10%) emerging-markets exposure was
designed to take advantage of the tremendous yields provided by short-term
7 - Scudder International Bond Fund
<PAGE>
government paper. With the Asian financial crisis in full bloom, developing
markets in other parts of the world were forced to raise short-term interest
rates to attract capital and maintain currency stability. For example, South
Africa offered yields in excess of 25% on bonds maturing in less than one year.
Turkey's short-term yields exceeded 70%. Although small, the Fund's allocation
to these high-yielding markets provided an important boost to its overall yield
during the year. The Fund's net asset value suffered, however, as investors
abandoned the emerging markets in a general flight to quality.
Q: What is the Fund's strategy going forward?
A: In the coming months, we expect to continue to hold emerging market bonds as
our primary trade on improving country fundamentals. Poland and Hungary, in
particular, stand to benefit from a unified European market and are likely to
receive credit rating upgrades. We also expect to take advantage of
opportunities in select emerging markets that we believe are now oversold as a
result of the turmoil in Southeast Asia.
In Europe, we intend to continue to emphasize the peripheral markets, such as
Denmark and Sweden, at the expense of the larger, principal markets. As these
countries attempt to make their markets attractive relative to the EMU block, we
believe there will be opportunities for additional gains.
With a stake in the world's developed and developing markets and a cautious eye
toward the future direction of interest rates, we believe Scudder International
Bond Fund is well positioned to make the most of the fixed-income opportunities
that lie ahead.
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 who each play an important
role in the Fund's management process. Team members work together to develop
investment strategies and select securities for the Fund's portfolio. They are
supported by 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. Mr. Johnson,
who has 16 years of investment industry experience, joined the Adviser in
1987. Portfolio Manager Adam M. Greshin specializes in global and
international bond investments. Mr. Greshin 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>
Investment Portfolio as of June 30, 1998
<TABLE>
<CAPTION>
Principal Market
Amount Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 0.9%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at 5.75%, to be
repurchased at $1,270,203 on 7/1/1998, collateralized by a $791,000 U.S. Treasury Bond, -----------
13.25%, 5/15/2014 (Cost $1,270,000) ................................................... 1,270,000 1,270,000
-----------
U.S. Treasury Obligations 0.1%
- ------------------------------------------------------------------------------------------------------------------------------
-----------
U.S. Treasury Bill, 4/29/1999 (Cost $95,697) (b) ........................................ 100,000 95,713
-----------
Foreign Denominated Debt Obligations 90.6%
- ------------------------------------------------------------------------------------------------------------------------------
Argentinean Pesos 0.2%
J.P. Morgan & Co. Currency Linked Note, 8.56%, 9/14/1998 ................................ 209,790 210,061
-----------
Australian Dollars 6.8%
Commonwealth of Australia, 10%, 10/15/2007 .............................................. 4,530,000 3,689,697
New South Wales Treasury Corp., 7%, 4/1/2004 ............................................ 9,200,000 6,062,452
-----------
9,752,149
-----------
British Pounds 20.3%
Federal National Mortgage Association Global Issue, 7.125%, 8/10/1999 ................... 2,700,000 4,481,722
General Electric Capital Corp., 8%, 12/29/2000 .......................................... 3,600,000 6,081,876
United Kingdom Treasury Bond, 9%, 3/3/2000 .............................................. 7,900,000 13,549,114
United Kingdom Treasury Bond, 8%, 12/7/2000 ............................................. 3,045,000 5,200,198
-----------
29,312,910
-----------
Canadian Dollars 3.6%
Molson Breweries Co., Ltd., 9.1%, 3/11/2013 ............................................. 925,000 808,344
Newcourt Credit Group, Inc., 6.2%, 9/1/2004 ............................................. 2,850,000 1,946,725
PanCanadian Petroleum Ltd., 8.75%, 11/9/2005 ............................................ 3,000,000 2,399,264
-----------
5,154,333
-----------
Czech Koruna 0.3%
Chase Manhattan Bank Time Deposit, 14.66%, 7/8/1998 ..................................... 14,082,500 430,989
-----------
Danish Kroner 12.8%
Nykredit A/S, 7%, 10/1/2026 ............................................................. 54,728,000 8,136,285
Nykredit A/S, 7%, 10/1/2029 ............................................................. 69,854,000 10,293,740
-----------
18,430,025
-----------
French Francs 7.7%
Government of France STRIP (Principal only), 10/25/2019 ................................. 209,000,000 11,095,700
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - Scudder International Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greek Drachmas 0.3%
Deutsche Bank Time Deposit, 11.75%, 7/6/1998 ............................................ 40,979,900 134,501
Deutsche Bank Time Deposit, 12.5%, 8/18/1998 ............................................ 97,649,217 320,498
-----------
454,999
-----------
Hungarian Forints 0.7%
Chase Manhattan Bank Time Deposit, 16.8%, 7/7/1998 ...................................... 119,840,000 546,560
Chase Manhattan Bank Time Deposit, 16.63%, 7/16/1998 .................................... 93,645,400 427,546
-----------
974,106
-----------
Indonesian Rupiahs 0.2%
Chase Manhattan Bank Currency Linked Note, 29.26%, 7/8/1998 ............................. 2,415,000,000 164,199
Chase Manhattan Bank Currency Linked Note, 30.81%, 7/15/1998 ............................ 2,342,236,896 158,259
-----------
322,458
-----------
Italian Lire 4.3%
Republic of Italy, 8.5%, 1/1/2004 ....................................................... 9,380,000,000 6,202,415
-----------
Japanese Yen 6.7%
Federal National Mortgage Association Global Issue, 2.125%, 10/9/2007 ................... 680,000,000 5,084,057
Japan Development Bank, 2.875%, 12/20/2006 .............................................. 590,000,000 4,642,665
-----------
9,726,722
-----------
Korean Won 0.6%
Chase Manhattan Bank Time Deposit, 26.62%, 7/27/1998 .................................... 1,218,724,075 887,636
-----------
Mexican Pesos 0.7%
Chase Manhattan Bank Time Deposit, 19.41%, 7/6/1998 ..................................... 4,954,788 552,308
Chase Manhattan Bank Time Deposit, 20.7%, 7/15/1998 ..................................... 2,246,750 250,530
J.P. Morgan & Co. Currency Linked Note, 23%, 8/31/1998 .................................. 1,618,200 180,442
-----------
983,280
-----------
New Zealand Dollars 9.3%
Government of Canada, 6.625%, 10/3/2007 ................................................. 12,000,000 6,099,988
Government of New Zealand, 8%, 4/15/2004 ................................................ 13,398,000 7,361,380
-----------
13,461,368
-----------
Norwegian Kroner 1.3%
Kingdom of Norway, 9.5%, 10/31/2002 ..................................................... 12,400,000 1,859,353
-----------
Philippine Pesos 0.9%
ING Currency Linked Note, Zero Coupon, 2/12/1999 ........................................ 1,300,000 1,342,250
-----------
Polish Zlotys 1.0%
Morgan Guaranty Trust Co. Currency Linked Note, 21.1%, 9/28/1998 ........................ 5,099,833 1,462,527
-----------
</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>
South African Rands 0.1%
Bankers Trust Co. Time Deposit, 20.5%, 7/15/1998 ........................................ 1,109,885 184,213
-----------
Swedish Kronor 12.3%
Kingdom of Sweden, 10.25%, 5/5/2000 ..................................................... 70,000,000 9,658,722
Kingdom of Sweden, 6%, 2/9/2005 ......................................................... 60,000,000 8,004,377
-----------
17,663,099
-----------
Thai Bahts 0.2%
Chase Manhattan Bank Currency Linked Note, 40.06%, 7/20/1998 ............................ 13,058,842 310,186
-----------
Turkish Lire 0.3%
J.P. Morgan & Co. Time Deposit, 75%, 7/13/1998 .......................................... 138,740,000,000 520,874
- ------------------------------------------------------------------------------------------------------------------------------
Total Foreign Denominated Debt Obligations (Cost $135,319,527) 130,741,653
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Dollar Denominated Debt Obligations 7.9%
- ------------------------------------------------------------------------------------------------------------------------------
Cedulas Hipotecarias, 8.79%, 9/1/2000 ................................................... 1,976,000 1,945,131
Republic of Korea, 8.875%, 4/15/2008 .................................................... 3,500,000 3,202,500
Republic of Panama, Past Due Interest Bond, 6.563%, 7/17/2016 ........................... 1,316,848 1,009,035
Republic of Panama, 8.875%, 9/30/2027 ................................................... 1,750,000 1,649,375
Republic of Peru, Past Due Interest Bond, 4%, 3/7/2017 .................................. 5,750,000 3,550,625
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Dollar Denominated Debt Obligations (Cost $10,812,411) 11,356,666
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost $147,497,635) 143,464,032
- ------------------------------------------------------------------------------------------------------------------------------
Purchased Options 0.5%
- ------------------------------------------------------------------------------------------------------------------------------
Put on Australian Dollars, strike price .6493, expires 7/10/98 ....................... AUD 5,800,000 174,058
Put on Canadian Dollars, strike price 1.436, expires 7/2/98 .......................... CAD 7,940,000 118,462
Put on British Pounds, strike price 2.909, expires 8/4/98 ............................ GBP 18,100,000 37,250
Put on Deutsche Marks, strike price 1.824, expires 7/17/98 ........................... DEM 54,720,000 110,050
Put on New Zealand Dollars, strike price .526, expires 8/11/98 ....................... NZD 19,000,000 280,440
- ------------------------------------------------------------------------------------------------------------------------------
Total Purchased Options (Cost $906,340) 720,260
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $148,403,975) (a) 144,184,292
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $148,403,975. At June 30,
1998, net unrealized depreciation for all securities based on tax cost was
$4,219,683. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $756,753 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $4,976,436.
(b) At June 30, 1998, these securities, in whole or in part, were pledged to
cover initial margin requirements on open future contracts.
The accompanying notes are an integral part of the financial statements.
11 - Scudder International Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
At June 30, 1998, open future contracts sold short were as follows:
<TABLE>
<CAPTION>
Expiration Aggregate Market
Futures Date Contracts Face Value ($) Value ($)
- ---------------------------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
French 10 year Bond 9/15/98 62 5,427,907 5,459,365
------------
Total net unrealized depreciation on open futures contracts sold short ....................... 31,458
============
</TABLE>
At June 30, 1998 outstanding written options were as follows:
<TABLE>
<CAPTION>
Principal
Amount Expiration Strike Market
Call Options (000's) Date Price Value ($)
- ---------------------------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AUD ..................... 5,220 7/10/98 AUD 0.6704 --
CAD ..................... 6,540 7/2/98 CAD 1.41 --
GBP/DEM ................. 5,000 8/4/98 GBP 2.968 139,904
NZD ..................... 17,100 8/11/98 NZD 0.5435 24,111
---------
Total outstanding written options (Premiums received $315,422) .............................. 164,015
=========
</TABLE>
Currency Abbreviation
ARA Aregentine Peso
AUD Australian Dollar
BRC Brazilian Real
CAD Canadian Dollar
CNR Chinese Renminbi
DEM Deutsche Mark
GBP British Pound
HKD Hong Kong Dollar
IEP Irish Punt
ITL Italian Lire
JPY Japanese Yen
NZD New Zealand Dollar
SEK Swedish Krona
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 June 30, 1998
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $147,497,635) ............... $ 143,464,032
Purchased options, at value (identified cost $906,340) .............. 720,260
Receivable for investments sold ..................................... 751,852
Interest receivable ................................................. 2,685,377
Receivable for Fund shares sold ..................................... 46,257
Unrealized appreciation on forward currency exchange contracts ...... 5,007
Other assets ........................................................ 5,144
----------------
Total assets ........................................................ 147,677,929
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed .................................... 233,048
Payable for investments purchased ................................... 836,210
Dividends payable ................................................... 143,528
Payable for daily variation margin on open futures contracts ........ 4,116
Written options at market (premiums received $315,422) .............. 164,015
Unrealized depreciation on forward currency exchange contracts ...... 189,857
Accrued management fee .............................................. 71,490
Other payables and accrued expenses ................................. 216,898
----------------
Total liabilities ................................................... 1,859,162
--------------------------------------------------------------------------------------------
Net assets, at market value $ 145,818,767
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income ........ (8,174,452)
Net unrealized appreciation (depreciation) on:
Investments ......................................................... (4,033,603)
Futures contracts ................................................... (31,458)
Options ............................................................. (34,673)
Foreign currency related transactions ............................... (209,546)
Accumulated net realized loss ....................................... (70,492,096)
Paid-in capital ..................................................... 228,794,595
--------------------------------------------------------------------------------------------
Net assets, at market value $ 145,818,767
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($145,818,767 / 14,697,049 shares of capital stock outstanding, ----------------
$.01 par value, 200,000,000 shares of capital stock authorized) .. $9.92
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder International Bond Fund
<PAGE>
Statement of Operations
year ended June 30, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Interest ............................................................ $ 13,741,814
----------------
Expenses:
Management fee ...................................................... 1,554,588
Services to shareholders ............................................ 793,101
Custodian and accounting fees ....................................... 293,713
Directors' fees and expenses ........................................ 59,693
Reports to shareholders ............................................. 98,807
Auditing ............................................................ 89,715
Legal ............................................................... 20,030
Registration fees ................................................... 32,871
Other ............................................................... 46,494
----------------
Total expenses before reductions .................................... 2,989,012
Expense reductions .................................................. (110,285)
----------------
Expenses, net ....................................................... 2,878,727
--------------------------------------------------------------------------------------------
Net investment income 10,863,087
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................................... (6,324,588)
Options ............................................................. (673,238)
Futures contracts ................................................... (805,446)
Foreign currency related transactions ............................... (662,384)
----------------
(8,465,656)
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... (2,224,152)
Options ............................................................. (41,828)
Futures contracts ................................................... (31,458)
Foreign currency related transactions ............................... (114,905)
----------------
(2,412,343)
--------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (10,877,999)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (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>
Years Ended June 30,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 10,863,087 $ 19,109,198
Net realized gain (loss) from investment transactions . (8,465,656) (16,656,519)
Net unrealized appreciation (depreciation) on
investment transactions during the period .......... (2,412,343) 4,833,059
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ......................................... (14,912) 7,285,738
---------------- ----------------
Distributions to shareholders:
From net investment income ............................ -- (19,109,198)
---------------- ----------------
Tax return of capital ................................. (10,863,087) --
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................. 44,825,847 53,550,698
Net asset value of shares issued to shareholders in
reinvestment of distributions ...................... 8,732,391 13,116,739
Cost of shares redeemed ............................... (132,854,657) (334,293,130)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ....................................... (79,296,419) (267,625,693)
---------------- ----------------
Increase (decrease) in net assets ..................... (90,174,418) (279,449,153)
Net assets at beginning of period ..................... 235,993,185 515,442,338
Net assets at end of period (including accumulated
distributions in excess of net investment income of ---------------- ----------------
$8,174,452 and $23,214,640, respectively) .......... $ 145,818,767 $ 235,993,185
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ............. 22,435,381 46,922,766
---------------- ----------------
Shares sold ........................................... 4,361,357 4,932,206
Shares issued to shareholders in reinvestment of
distributions ...................................... 856,845 1,206,004
Shares redeemed ....................................... (12,956,534) (30,625,595)
---------------- ----------------
Net increase (decrease) in Fund shares ................ (7,738,332) (24,487,385)
---------------- ----------------
Shares outstanding at end of period ................... 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 and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996 1995 1994(b)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
Net asset value, beginning of period .......................... $ 10.52 $ 10.98 $ 11.43 $ 11.97 $ 13.57
-----------------------------------------------------------
Income from investment operations:
Net investment income ......................................... .61 .58 .73 .98 .92
Net realized and unrealized gain (loss) on investment
transactions ................................................ (.60) (.46) (.45) (.54) (1.22)
-----------------------------------------------------------
Total from investment operations .............................. .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 ......................................... (.61) -- (.61) (.98) --
-----------------------------------------------------------
Total distributions ........................................... (.61) (.58) (.73) (.98) (1.30)
-----------------------------------------------------------
-----------------------------------------------------------
Net asset value, end of period ................................ $ 9.92 $ 10.52 $ 10.98 $ 11.43 $ 11.97
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) .......................................... .10 .94 2.59 3.92 (2.83)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 146 236 515 910 1,231
Ratio of operating expenses, net to average daily net
assets (%) .................................................. 1.56 1.36 1.26 1.30 1.27
Ratio of operating expenses before expense reductions,
to average daily net assets (%) ............................. 1.62 1.36 1.26 1.30 1.29
Ratio of net investment income to average daily net
assets (%) .................................................. 5.91 5.28 6.50 8.52 6.86
Portfolio turnover rate (%) ................................... 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.
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. (formerly Scudder Global 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 100.5% of 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.
Indexed Securities. Indexed securities held by the Fund are investments whose
value is indexed to another financial instrument, index, currency, or commodity
(the "reference instrument"). For principal indexed securities, the principal
amount payable at maturity may be more or less than the amounts shown depending
on fluctuations in the value of the reference instrument. For coupon indexed
securities, the principal amount payable at maturity is fixed. However, the
coupon is indexed to the reference instrument. The price sensitivity of these
securities may be greater than that of non-indexed securities with similar
maturities.
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.
18 - Scudder International Bond Fund
<PAGE>
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the accrual and payment dates on interest
and foreign withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies and as a
hedge against changes in exchange rates relating to foreign currency denominated
assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes, and no federal
income tax provision was required. At June 30, 1998, the Fund had a net tax
basis capital loss carryforward of approximately $70,400,000, 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), and June 30, 2004
($6,100,000), the respective expiration dates, whichever occurs first. In
addition, from November 1, 1997 through June 30, 1998, the Fund incurred
approximately $8,288,000 of realized currency losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
arising in the year ending June 30, 1999.
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.
19 - Scudder International Bond Fund
<PAGE>
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 year ended June 30, 1998, purchases and sales of investment securities
(excluding short-term investments) aggregated $312,609,273 and $373,893,572,
respectively.
The aggregate face value of futures contracts opened and closed during the year
ended June 30, 1998 was $261,819,389 and $256,391,482, respectively.
Transactions in written options for the year ended June 30, 1998 are summarized
as follows:
<TABLE>
<CAPTION>
Option Contracts Options on Currencies (000 omitted)
----------------------------- ------------------------------------------ ----------------
Number of Premiums AUD GBP ITL Premiums
Contracts Received ($) Received ($)
----------------------------- ------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of
Period........ 161 260,719 12,000 -- -- $ 45,000
Written....... 553 472,151 62,212 56,750 123,594,625 1,853,776
Closed........ (370) (382,947) (41,000) (40,000) (123,594,625) (1,483,148)
Exercised..... (344) (349,923) -- -- -- --
Expired........ -- -- (27,992) (16,750) -- (366,038)
------------ ------------ ---------- ----------- ------------ -----------
End of
Period........ -- -- 5,220 -- -- $ 49,590
============ ============ ========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Options on Currencies (000 omitted) (continued)
-------------------------------------------------------------------------------------------------
NZD SEK GBP/DEM CAD IEP Premiums
Received ($)
-------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of
Period........ 16,099 -- 7,275 -- -- $ 186,375
Written....... 135,248 75,000 25,300 12,400 4,000 1,455,484
Closed........ (45,242) (75,000) (14,000) (5,860) (4,000) (670,586)
Exercised..... (19,318) -- (7,275) -- -- (174,366)
Expired....... (69,687) -- (6,300) -- -- (531,075)
----------- ----------- ----------- ----------- ------------ -----------
End of
Period........ 17,100 -- 5,000 6,540 -- $ 265,832
=========== =========== =========== =========== ============ ===========
</TABLE>
20 - Scudder International Bond Fund
<PAGE>
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 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
Management Agreement. Effective January 1, 1998, the Adviser has agreed not to
impose a portion of its management fee until October 31, 1998, 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 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
year ended June 30, 1998, the amount charged by SSC aggregated $462,449, of
which $31,045 is unpaid at June 30, 1998.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended June 30, 1998,
the amount charged to the Fund by STC aggregated $80,418, of which $6,644 is
unpaid at June 30, 1998.
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
June 30, 1998, the amount charged to the Fund by SFAC aggregated $154,342, of
which $10,687 is unpaid at June 30, 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
21 - Scudder International Bond Fund
<PAGE>
invested in the Underlying Funds. At June 30, 1998, the Special Servicing
Agreement expense charged to the Fund amounted to $9,985.
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 June 30, 1998, Directors' fees and expenses aggregated $59,693.
D. Commitments
As of June 30, 1998 the Fund had entered into the following forward currency
exchange contracts resulting in net unrealized depreciation of $184,850.
<TABLE>
<CAPTION>
Contracts to Deliver In Exchange For Settlement Date Net Unrealized
Appreciation
(Depreciation)
(U.S.$)
------------------------- ------------------------- -------------------- ----------------
------------------------- ------------------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
USD 210,000 ARA 210,252 7/3/98 269
NZD 6,832,000 USD 3,463,824 7/13/98 (70,193)
USD 107,500 HKD 839,521 7/15/98 759
USD 315,000 CNR 2,625,494 7/20/98 1,527
USD 570,505 BRC 665,038 7/24/98 380
USD 570,158 BRC 670,848 8/19/98 2,072
AUD 9,672,000 USD 5,877,094 8/19/98 (109,110)
SEK 58,000,000 JPY 1,001,167,000 9/2/98 (10,554)
------------
(184,850)
</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.
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 portfolio of investments, 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 June 30, 1998, the results of its operations for the year then
ended and 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 five years in the
period then ended, 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 June
30, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
August 14, 1998
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 --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
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Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
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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
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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
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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
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 International Bond Fund
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Scudder Solutions
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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 -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
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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 International Bond Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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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
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with 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
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Additional Information on How to Contact Scudder:
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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 International Bond Fund
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About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 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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