SCUDDER
INVESTMENTS (SM)
[LOGO]
REPORT
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BOND/GLOBAL
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Scudder International
Bond Fund
Fund #018
Semiannual Report
April 30, 2000
The fund seeks to provide income. As a secondary objective, the fund seeks
protection and possible enhancement of principal.
A no-load fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
17 Glossary of Investment Terms
18 Investment Portfolio
22 Financial Statements
25 Financial Highlights
26 Notes to Financial Statements
35 Officers and Directors
36 Investment Products and Services
38 Scudder Solutions
2
<PAGE>
Scudder International Bond Fund
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ticker symbol SCIBX fund number 018
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Date of Inception: o Scudder International Bond Fund provided a total
7/6/88 return of -5.84% for the six-month period ended April
30, 2000, outperforming the -6.86% return of the
Salomon Brothers World Government Bond Index ex-U.S.
Total Net Assets as
of 4/30/00: o The strength of the U.S. dollar versus the euro and the
$86.3 million yen was a major contributor to volatility in global
bond markets during the period.
o The fund's U.S. exposure contributed to performance, as
yields in the United States, as well as other
dollar-bloc countries such as Canada and Australia have
been the highest in the Salomon Index. The strong
dollar has also made holding U.S. bonds attractive for
investors outside of the United States.
3
<PAGE>
Letter from the Fund's President
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Dear Shareholders,
Over the past six months, global bond markets have experienced above-average
volatility, particularly due to significant swings in currency values against
the U.S. dollar. The yen moved in a 10% range, and the euro fell by over 10%
during the period. In this environment Scudder International Bond Fund provided
a total return of -5.84%, outperforming the -6.86% return of the Salomon
Brothers World Government Bond Index ex-U.S.
As Portfolio Managers Jan Faller and Jeremy Ragus discuss in the interview that
begins on page 10, the fund has benefited from currency hedging and country
selection. The fund maintained hedges on both the yen and the euro, while
remaining underweight in underperforming markets such as Japan. The fund also
benefited from being overweight in the dollar-bloc countries of the United
States and Canada early in the year when these countries were strong performers.
Going forward, we expect that the U.S. dollar will continue to benefit from the
strong U.S. economy, as well as global interest rate differentials. However, the
balance of trade, combined with volatile equity markets, could be less favorable
for the dollar in the medium term. Thus, Scudder International Bond Fund will
continue to rely on rigorous fundamental and quantitative research, combined
with disciplined risk management, to look for opportunities that may develop in
other international markets.
4
<PAGE>
Thank you for your continued investment in Scudder International Bond Fund. If
you have any questions about your investment, please call Scudder Investor
Information at 1-800-SCUDDER (1-800-728-3337), or visit our Web site at
www.scudder.com.
Sincerely,
/s/Nicholas Bratt
Nicholas Bratt
President,
Scudder International Bond Fund
5
<PAGE>
Performance Update
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April 30, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
Scudder International Salomon Brothers Non-U.S. Dollar
Bond Fund World Government Bond Index*
'90 10000 10000
'91 12569 11963
'92 14405 13658
'93 17301 16291
'94 17779 17632
'95 17328 21289
'96 18090 21359
'97 17647 20918
'98 18536 22264
'99 20018 24281
'00 18471 22928
Yearly periods ended April 30
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 4/30/2000 $10,000 Cumulative Annual
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Scudder International Bond Fund
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1 year $ 9,227 -7.73% -7.73%
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5 year $ 10,659 6.59% 1.29%
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10 year $ 18,471 84.71% 6.33%
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Salomon Brothers Non-U.S. Dollar World Government Bond Index*
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1 year $ 9,443 -5.57% -5.57%
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5 year $ 10,769 7.69% 1.49%
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10 year $ 22,928 129.28% 8.64%
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* 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.
6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE SCUDDER
INTERNATIONAL BOND FUND TOTAL RETURN (%) AND SALOMONN BROTHERS NON-U.S. DOLLAR
WORLD GOVERNMENT BOND INDEX* TOTAL RETURN (%)
Yearly periods ended April 30
<TABLE>
<CAPTION>
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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 25.70 14.60 20.10 2.76 -2.53 4.40 -2.45 5.03 8.00 -7.73
-----------------------------------------------------------------------------------------
Index Total
Return (%) 19.63 14.16 19.28 8.23 20.74 .33 -2.07 6.43 9.06 -5.57
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Net Asset Value
($) 12.94 12.77 13.55 12.66 11.31 11.05 10.21 10.12 10.37 9.19
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Dividends ($) 1.20 1.12 1.04 .91 1.02 .75 .59 .55 .53 .39
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Capital Gains
Distributions ($) .29 .81 .62 .39 -- -- -- -- -- --
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</TABLE>
* 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.
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.
7
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Portfolio Summary
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April 30, 2000
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Geographical Exposure
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The fund's U.S. exposure contributed to
performance, as yields in the United States and
other dollar-bloc countries became more
attractive.
United States 29.8%
Canada 15.2%
Norway 12.5%
Germany 8.4%
Spain 8.3%
France 7.4%
United Kingdom 6.8%
Japan 3.6%
Argentina 1.6%
Brazil 1.6%
Mexico 1.5%
Bulgaria 0.6%
Venezuela 0.6%
Turkey 0.5%
Peru 0.4%
South Africa 0.2%
Colombia 0.2%
Jamaica 0.2%
Other 0.6%
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100.0%
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8
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Interest Rate Exposure
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We are currently in a period where interest
rates are moving in response to short-term
factors, which increases volatility.
Euro 27.7%
Japan 20.6%
United States 20.0%
United Kingdom 13.5%
Norway 12.5%
Canada 5.6%
Other 0.1%
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100.0%
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Currency Exposure (a)
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The strength of the dollar versus the euro and
the yen was a major contributor to volatility
in global bond markets.
Euro 40.1%
United States 20.4%
Japan 16.7%
United Kingdom 11.5%
Norway 4.6%
Canada 3.4%
Other 3.3%
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100.0%
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(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 18. A quarterly Fund Summary and Portfolio Holdings are available upon
request.
9
<PAGE>
Portfolio Management Discussion
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April 30, 2000
In the following interview, Lead Portfolio Manager Jan Faller and Portfolio
Manager Jeremy Ragus discuss Scudder International Bond Fund's strategy and the
market environment for the six-month period ended April 30, 2000.
Q: How did the fund perform over the six months ended April 30, 2000?
A: The fund returned -5.84%, outperforming the Salomon Brothers World Government
Bond Index, ex-U.S. (the Salomon Index), which had a -6.86% return over the same
period. A significant portion of this negative return is attributable to the
strength of the dollar versus both the euro and the yen. The euro dropped by
over 15% during the past six months, and the yen fell by over 3.5%. Thus, even
though bonds without the effect of currency provided positive returns over the
past six months, the negative currency returns dominated performance.
Q: How would you characterize market conditions during this period?
A: The market demonstrated volatility in a variety of ways. Currency returns
were not only negative, as noted above, but also very volatile. The value of the
yen against the dollar varied by almost 10% during that time, initially selling
off at the beginning of the calendar year and then going up in value
dramatically as the Japanese repatriated assets for their fiscal year-end in
March. The euro was less volatile simply because it stayed with its downtrend
over the entire period. Emerging markets were also volatile over the past six
months. Initially, Y2K fears kept participants on the sidelines. Once those
fears proved unfounded, emerging markets bonds performed quite well at the
beginning of 2000. More recently, however, rising interest rates around the
globe combined with deteriorating fundamentals in a number of countries led to
negative returns for emerging markets. Also, volatility for emerging markets has
risen notably over the past few months.
Bond markets across the globe were also volatile between countries. Over the
past six months, for example, Japan
10
<PAGE>
has oscillated between being the best and worst performer in different months.
Similarly, the United States also has been among the best and worst performers
in different months. Rather than being in an environment where bond returns are
dominated by long-term business cycle effects, we are currently in a period
where interest rates are moving in response to short-term factors, which
increases volatility.
Q: What were some of the key factors affecting the fund's performance?
A: The two key factors were currency hedging and country selection. The fund
outperformed its benchmark because we maintained hedges on both the yen and the
euro. The hedge on the yen was greater than that on the euro, unfortunately; the
yen fell less in value relative to the dollar. While we do anticipate a turn
over the medium term, we currently have a substantial hedge on our euro position
because capital flows, technical factors, and the struggle by the European
Central Bank to gain market influence all are conspiring to keep the euro low.
Fund performance also benefited from country selection. Year-to-date Japan was
the second-worst performer in the index, and the fund has been consistently
underweight in Japanese government bonds due to unattractive yields and concerns
about the increasing supply of Japanese debt. The fund was overweight in the
United Kingdom early in the year when a limited supply of long-term bonds
prompted a rally in the long end of the curve even though the curve is
significantly inverted. Another benefit was holding an overweight position in
the dollar-bloc countries of the United States and Canada early in the year when
these countries were strong performers.
Q: How has renewed global growth, along with rising prices for such commodities
as oil and gold, affected your strategy?
A: The traditional relationship between growth and inflation, and hence rising
global bond yields, has been
11
<PAGE>
called into question in this market environment. Certainly in the United States,
we have heard much talk of a new paradigm, though more recently we have begun to
see a more vigilant Federal Reserve Bank. The question we are currently
addressing is whether stable growth with little inflation can manifest itself in
the euro-bloc as that area continues to recover. The continued weakness of the
euro causes us some concern, however; currently core inflation remains very low
in that region, nevertheless. We are not fearful that global growth will lead to
rampant inflation in the near term, so we are not particularly bearish in our
outlook for global yields. Economic evidence suggests that inflation is
currently under control around the globe.
Another reason for a relatively positive outlook for bonds, even with renewed
growth, is shrinking supply. With the exception of Japan, every major country is
currently reducing its outstanding debt due to a stable fiscal picture and a
combination of one-time events which are producing income for the governments.
Thus, the environment has led us to pay close attention to the central bank
effort to make sure inflation does not get out of control. This environment also
has caused us to consider factors other than the traditional growth/inflation
relationship that dominates global bond markets.
Renewed global growth has led to rising short-term interest rates around the
globe. This monetary tightening could have negative implications for holdings
with credit exposure in the portfolio such as corporate bonds or emerging
markets debt. Increasing rates tend to decrease risk appetite in the market,
leading to wider spreads. Evidence of this phenomenon is already apparent in
wider swap spreads, emerging markets spreads, and underperformance of U.S.
corporate bonds. We continue to increase the average quality of bonds in the
fund and reduce the overall credit exposure as we believe this is an environment
where risk appetite could deteriorate further.
12
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Q: The European Monetary Union (EMU) has been in existence for over a year. What
effect has the EMU had on European bonds?
A: Certainly the most noticeable effect has been on returns within the euro-bloc
countries. Since the introduction of the single currency, the range of returns
for the major participant countries has been very narrow. Returns differed
across some of the peripheral participant countries due to differences in
business cycle, unusual supply-demand dynamics and other country specific
factors. So far this year, the range of returns across all the participant
countries has been only 0.47%.
While the euro bloc has not dramatically underperformed relative to other
regions around the globe, certainly it has been held back by the weakness of the
euro. The euro weakness makes bonds less attractive for two reasons. First, a
weak currency can potentially be inflationary, which is undesirable for a
bondholder. Second, a falling currency hurts the returns of an unhedged
bondholder. As long as the negative euro trend continues, buyers of
euro-denominated bonds who are taking on currency risk are less likely to be
active in the market.
The single currency has helped European corporate issuers reach a broader
market. Buyers across all participant countries can now buy corporate debt
without currency risk, which has substantially increased the demand for
euro-denominated corporates. With demand comes supply, and we have seen a
dramatic increase in issuance of corporate debt in the euro bloc over the past
year. Similarly, a high yield corporate market has developed over the past year
and has performed very well as again demand for the high yielding securities has
outstripped supply.
Q: What percentage of the portfolio consists of emerging market bonds, and what
impact have they had on the fund?
A: Over the past six months, the fund has held about 5% in emerging market
bonds, though the amount has varied
13
<PAGE>
somewhat as the outlook for emerging markets evolved during the period. Our
holdings are concentrated in higher quality issues whose credit spreads tend to
be less volatile such as Mexico, Jamaica and Panama. Over the past six months,
the return on the J.P. Morgan EMBI+ Index was over 11%, so the emerging markets
holdings have had a positive impact on the fund's performance. More recently, we
have reduced our emerging markets exposure in light of increased Fed vigilance
and widening swap spreads which reflect a market environment which could put
pressure on emerging markets spreads.
Q: How significant was the fund's U.S. exposure?
A: The fund did have some U.S. exposure during the period. The United States has
been attractive for several reasons. Yields in the United States and other
dollar-bloc countries such as Canada and Australia have been the highest in the
Salomon Index. Even after taking into account inflation, real yields have been
quite attractive in the United States. The strong dollar has also made holding
U.S. bonds attractive for investors outside of the United States. In addition,
the strong dollar has helped keep inflation at bay, preventing yields from
rising significantly. Also helping on the inflation front has been the
relatively vigilant Fed, which increased interest rates three times over the
period, raising the Fed Funds rate from 5.25% to 6.00%.
Further, the budget surplus and Treasury buybacks are putting downward pressure
on the long end of the U.S. yield curve, which has been inverted since
mid-January of this year. The lack of inflationary pressure, combined with
continued buybacks, suggests that we may have an inverted curve in the U.S. for
some time. The United States was one of the best performing markets in the
Salomon Index over the past six months, so owning U.S. bonds helped performance.
14
<PAGE>
Q: Can you discuss some investments that did not fare well?
A: Managing the euro hedge over the past six months has been difficult. The euro
fell further than we anticipated, and in two instances when we thought that it
would turn and recover, we reduced the hedge only to see it continue to fall
further. The pickup in European growth, the increase in interest rates and the
lack of significant inflation in the euro bloc all appeared to indicate that the
currency had potential to rise against the U.S. dollar. Also, it had fallen
below nearly any measure of fair value: using the deutsche mark as a proxy for
the euro, the exchange rate is now lower than it has been since the end of 1986.
Our performance would have been better if we had simply remained more hedged
rather than attempting to call a turn in the currency.
Early this year our active country weights hurt the performance of the fund. We
were underweight in Japan because we were concerned about fiscal spending
leading to supply pressure in that country; indeed, Japan is the only major
country in the index whose outstanding debt is actually increasing. Also, the
weakening yen made it appear that the bond market could significantly
underperform. Instead, in the month of January, Japan was the second best
performing country behind the United States, as the supply was easily absorbed
by local buyers despite yields below 2% on ten-year bonds.
Conversely, we were overweight in the United Kingdom because the lack of supply,
a strong pound and an absence of inflationary pressure made the market appear
attractive. However, substantial changes to the regulations affecting U.K.
pension funds caused a significant sell-off in the long end of that market,
making the United Kingdom the worst performer in January. We felt that
fundamentally the market remained attractive and that the sell-off was more than
what was justified by the news and held the position, which helped performance
in February as the U.K. rebounded to be the third best performer in the Salomon
Index in February.
15
<PAGE>
Q: What is your strategy going forward?
A: For the short term, we continue to expect that the U.S. dollar will remain
quite strong. Continued economic strength in the United States and current
interest rate differentials both favor the dollar. However, the balance of trade
and volatile equity markets could be less favorable for the dollar in the medium
term. Thus, we remain quite hedged currently, but are looking for signs that the
euro will appreciate in value relative to the dollar. Once we see a confirmation
of that trend we will consider reducing the hedge. Interest rate differentials
and slow growth will continue to put pressure on the yen so we anticipate
remaining hedged in that currency for a longer time.
As long as the Fed continues its restrictive monetary policy we feel that credit
spreads will remain under pressure. Growth continues to be strong in the United
States and at least two more rate hikes by the Fed are expected. Thus we are
continuing to opportunistically reduce our exposure to corporate debt and
emerging markets. We will continue to emphasize a heavier weighting in
government bonds until we see clear indications that the risk aversion now
characterizing the market has passed.
16
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Glossary of Investment Terms
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<TABLE>
<S> <C>
Currency Devaluation A significant decline of a currency's value relative to
other currencies, such as the U.S. dollar, typically
resulting from the cessation of a country's central bank
intervention in the currency markets. For U.S. investors who
are investing overseas, a devaluation of a foreign currency
can reduce the total return of their investment.
EMU (European The integration of European economies involving, among other
Monetary Union) changes, a move to a single currency for member nations. To
qualify for EMU membership, nations will be required to meet
certain guidelines concerning total governmental debt and
annual budget deficits, designed to ensure a strong common
currency.
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 An unusual situation where short-term interest rates are
Curve 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.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
Yield Spread The difference in yield between two types of bonds. A
mortgage-backed security's yield is often measured against
the yield of a Treasury bond of similar maturity as a market
yardstick. If GNMA yield spreads are "narrow," for example,
it typically means that GNMA yields have been declining and
prices rising, compared with Treasury bonds of similar
maturities.
</TABLE>
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
17
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<TABLE>
<CAPTION>
Investment Portfolio as of April 30, 2000 (Unaudited)
------------------------------------------------------------------------------------
Principal
Amount Value ($)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Repurchase Agreements 1.7%
------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette, 5.68%, to be repurchased
at $1,392,659 on 5/1/2000* (Cost $1,392,000) ........ 1,392,000 1,392,000
------------------------------------------------------------------------------------
U.S. Government & Agencies 10.4%
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U.S. Treasury Bond, 7.5%, 11/15/2016 ................... 2,075,000 2,324,332
U.S. Treasury Bond, 8.5%, 2/15/2020 .................... 1,015,000 1,265,106
U.S. Treasury Note, 5.625%, 12/31/2002 ................. 1,420,000 1,384,940
U.S. Treasury Note, 6.5%, 10/15/2006 ................... 3,500,000 3,492,335
Total U.S. Government & Agencies (Cost $8,482,885) ...... 8,466,713
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Federal National Mortgage Association 11.0%
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Federal National Mortgage Association, 2.125%, 10/9/2007
(Cost $7,772,948) ................................... 930,000,000 8,900,471
------------------------------------------------------------------------------------
Foreign Denominated Debt Obligations 69.1%
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British Pounds 13.5%
General Motors Acceptance Corp., 6.875%, 9/9/2004 ...... 3,530,000 5,477,231
United Kingdom Treasury Bond, 5.75%, 12/7/2009 ......... 1,500,000 2,423,141
United Kingdom Treasury Bond, 9%, 7/12/2011 ............ 1,500,000 3,067,230
-----------
10,967,602
-----------
Canadian Dollars 5.6%
Government of Canada, 8.5%, 4/1/2002 ................... 6,500,000 4,563,118
-----------
Costa Rican Colon 0.1%
Citibank Time Deposit, 14.5%, 8/1/2000 ................. 15,969,461 52,419
-----------
Euro 27.7%
Caisse D'Amort Dette Cades, 3.375%, 7/12/2004 .......... 4,650,000 3,951,295
Depfa Pfandbrief Bank, 4.75%, 7/15/2008 ................ 2,350,000 2,008,857
Federal Republic of Germany, 6.25%, 1/4/2024 ........... 4,880,000 4,772,540
French Treasury Note, 4.5%, 7/12/2003 .................. 2,300,000 2,065,666
Kingdom of Spain, 4.5%, 7/30/2004 ...................... 7,620,000 6,771,581
Tokyo Electric Power Co., 4.375%, 5/14/2009 ............ 3,600,000 2,910,451
-----------
22,480,390
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Principal
Amount Value ($)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Japanese Yen 9.6%
Province of Ontario, 1.875%, 1/25/2010 ..................... 847,000,000 7,811,900
-----------
Norwegian Kroner 12.4%
Kingdom of Norway, 7%, 5/31/2001 ........................... 90,200,000 10,111,391
-----------
Turkish Lire 0.2%
J.P. Morgan Time Deposit, 28%, 5/17/2000 ................... 42,374,463,406 69,324
J.P. Morgan Time Deposit, 32%, 5/30/2000 ................... 40,206,154,786 65,777
-----------
135,101
-----------
Total Foreign Denominated Debt Obligations (Cost $62,449,430) 56,121,921
-----------------------------------------------------------------------------------------------
U.S. Dollar Denominated Debt Obligations 7.8%
-----------------------------------------------------------------------------------------------
Argentine Republic, 11%, 12/4/2005 ......................... 230,000 224,825
Argentine Republic, 11.75%, 4/7/2009 ....................... 140,000 137,375
Argentine Republic, 12%, 2/1/2020 .......................... 705,000 697,245
Argentine Republic, Collateralized Par Bond, Series L,
Step-up Coupon, 6%, 3/31/2023 ........................... 380,000 265,525
Banco Nacional de Comercio Exterior S.N.C., 7.25%,
2/2/2004 ................................................ 115,000 109,681
Federative Republic of Brazil, 11.625%, 4/15/2004 .......... 300,000 297,900
Federative Republic of Brazil, 12.75%, 1/15/2020 ........... 705,000 675,743
Federative Republic of Brazil, "New" Money Bond,
Floating Rate Bond, LIBOR plus .875% (7.4375%),
4/15/2009 ............................................... 180,000 148,950
Federative Republic of Brazil Global Bond, 10.125%,
5/15/2027 ............................................... 170,000 132,600
Government of Jamaica, 10.875%, 6/10/2005 .................. 170,000 167,450
Government of Malaysia, 8.75%, 6/1/2009 .................... 20,000 20,525
Petroliam Nasional BHD, 8.875%, 8/1/2004 ................... 125,000 126,745
Republic of Bulgaria, Collateralized Floating Rate Interest
Reduction Bond, Series A, Step-up Coupon, 2.75%,
7/28/2012 ............................................... 390,000 271,050
Republic of Bulgaria, Floating Rate Interest Arrears Bond,
LIBOR plus .8125% (7.0625%), 7/28/2011 .................. 300,000 226,500
Republic of Colombia, 7.625%, 2/15/2007 .................... 90,000 65,700
Republic of Colombia, 9.75%, 4/23/2009 ..................... 130,000 102,700
Republic of Panama, Interest Reduction Bond,
Step-up Coupon, 4.25%, 7/17/2014 ........................ 170,000 133,875
Republic of Peru, Floating Rate Interest Reduction Bond,
3.75%, 3/7/2017 ......................................... 545,000 331,769
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Principal
Amount Value ($)
---------------------------------------------------------------------------------------------
<S> <C> <C>
Republic of South Africa, 8.5%, 6/23/2017 ..................... 200,000 174,760
Republic of Turkey, 9.875%, 2/23/2005 ......................... 240,000 235,800
Republic of Venezuela, 9.25%, 9/15/2027 ....................... 254,000 162,243
Republic of Venezuela, Debt Conversion Floating
Rate Bond, Series DL, LIBOR plus .875% (7%),
12/18/2007 ................................................. 380,950 298,093
Republic of the Philippines, 9.875%, 1/15/2019 ................ 145,000 127,963
Slovak Republic, 9.5%, 5/28/2003 .............................. 150,000 152,063
United Mexican States, 11.375%, 9/15/2016 ..................... 160,000 181,000
United Mexican States, 11.5%, 5/15/2026 ....................... 300,000 353,625
United Mexican States, Floating Rate Discount Bond
(Detachable Oil Priced Indexed Value Recovery Rights),
Series D, LIBOR plus .8125% (6.902%), 12/31/2019 ........... 550,000 538,313
---------------------------------------------------------------------------------------------
Total U.S. Dollar Denominated Debt Obligations (Cost $6,340,209) 6,360,018
---------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $86,437,472) (a) 81,241,123
---------------------------------------------------------------------------------------------
</TABLE>
* Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $86,437,472. At April 30,
2000, net unrealized depreciation for all securities based on tax cost was
$5,196,349. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$1,366,830 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $6,563,179.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
At April 30, 2000, open futures contracts purchased were as follows:
Aggregate Unrealized
Expiration Face Appreciation
Futures Date Contracts Value ($) Value ($) (Depreciation)
----------------- ------------ --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Euro Bond 6/8/2000 60 5,771,500 5,730,227 (41,273)
At April 30, 2000, open futures contracts sold were as follows:
Aggregate Unrealized
Expiration Face Appreciation
Futures Date Contracts Value ($) Value ($) (Depreciation)
----------------- ------------ --------- ----------- ----------- ------------
Japanese 10-Year
Bond TSE 6/9/2000 7 8,472,536 8,562,454 (89,918)
Total net unrealized depreciation on open futures contracts ....... (131,191)
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Currency Abbreviation
----------------------------------------------------------------------------
ARA Argentine Peso JPY Japanese Yen
BRC Brazilian Real KRW South Korean Won
CAD Canadian Dollar MXP Mexican Peso
CLP Chilean Peso NOK Norwegian Kroner
CNR Chinese Renminbi PHP Philippine Pesos
COP Colombian Peso PLZ Polish Zlotys
EUR Euro SGD Singapore Dollars
GBP British Pound SKK Slovakian Koruna
GRD Greek Drachma THB Thai Bahts
HUF Hungarian Forints USD U.S. Dollar
ILS Israeli Shekel ZAR South African Rands
IND Indonesian Rupiahs
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of April 30, 2000 (Unaudited)
---------------------------------------------------------------------------------------------
Assets
---------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $86,437,472) ...................... $ 81,241,123
Cash ........................................................................ 222,247
Receivable for investments sold ............................................. 4,069,353
Interest receivable ......................................................... 1,942,902
Receivable for Fund shares sold ............................................. 15,621
Receivable for daily variation margin on open futures contracts ............. 45,748
Unrealized appreciation on forward currency exchange contracts .............. 1,042,104
Other assets ................................................................ 69,153
-------------
Total assets ................................................................ 88,648,251
Liabilities
---------------------------------------------------------------------------------------------
Payable for investments purchased ........................................... 75,587
Dividends payable ........................................................... 277,559
Payable for Fund shares redeemed ............................................ 533,116
Payable for daily variation margin on open futures contracts ................ 31,242
Unrealized depreciation on forward currency exchange contracts .............. 851,033
Accrued management fee ...................................................... 59,519
Accrued reorganization costs ................................................ 86,961
Accrued Directors' fees and expenses ........................................ 36,284
Other accrued expenses and payables ......................................... 420,050
-------------
Total liabilities ........................................................... 2,371,351
---------------------------------------------------------------------------------------------
Net assets, at value $ 86,276,900
---------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income (1,277,358) Net
unrealized appreciation (depreciation) on:
Investments ............................................................... (5,196,349)
Futures ................................................................... (131,191)
Foreign currency related transactions ..................................... 21,180
Accumulated net realized gain (loss) ........................................ (72,482,247)
Paid-in capital ............................................................. 165,342,865
---------------------------------------------------------------------------------------------
Net assets, at value $ 86,276,900
---------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------
NetAsset Value, offering and redemption price per share ($86,276,900 /
9,383,053 shares of capital stock outstanding, $.01 par value, 200,000,000 -------------
shares of capital stock authorized) ...................................... $ 9.19
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the six months ended April 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Interest ....................................................... $ 2,733,662
-----------
Expenses:
Management fee ................................................. 429,966
Services to shareholders ....................................... 207,307
Custodian and accounting fees .................................. 108,938
Auditing ....................................................... 36,898
Legal .......................................................... 4,226
Directors' fees and expenses ................................... 71,563
Reports to shareholders ........................................ 29,994
Registration fees .............................................. 9,077
Reorganization ................................................. 98,616
Other .......................................................... 23,769
-----------
Total expenses, before reductions .............................. 1,020,354
Expense reductions ............................................. (134,528)
-----------
Total expenses, after expense reductions ....................... 885,826
Net investment income (loss) ................................... 1,847,836
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... (1,686,432)
Written options ................................................ 8,505
Futures ........................................................ 628,192
Foreign currency related transactions .......................... (32,850)
-----------
(1,082,585)
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (6,413,485)
Written options ................................................ (68,448)
Futures ........................................................ (131,191)
Foreign currency related transactions .......................... (15,088)
-----------
(6,628,212)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions (7,710,797)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(5,862,961)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Statements of Changes in Net Assets
------------------------------------------------------------------------------------
Six Months
Ended Year Ended
April 30, 2000 October 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................... $ 1,847,836 $ 5,792,155
Net realized gain (loss) on investment transactions (1,082,585) (3,612,013)
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... (6,628,212) (5,966,930)
------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................ (5,862,961) (3,786,788)
------------- -------------
Distributions to shareholders from:
Net investment income ............................. (1,928,047) (270,659)
------------- -------------
Tax return of capital ............................. -- (5,521,496)
------------- -------------
Fund share transactions:
Proceeds from shares sold ......................... 4,291,023 42,572,195
Reinvestment of distributions ..................... 1,552,489 4,745,145
Cost of shares redeemed ........................... (27,245,101) (72,201,353)
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (21,401,589) (24,884,013)
------------- -------------
Increase (decrease) in net assets ................. (29,192,597) (34,462,956)
Net assets at beginning of period ................. 115,469,497 149,932,453
Net assets at end of period (including accumulated
distributions in excess of net investment income ------------- -------------
of $1,277,358 and $1,197,147, respectively) .... $ 86,276,900 $ 115,469,497
------------- -------------
Other Information
------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 11,597,052 14,014,543
------------- -------------
Shares sold ....................................... 444,245 4,149,793
Shares issued to shareholders in reinvestment of
distributions .................................. 162,465 461,026
Shares redeemed ................................... (2,820,709) (7,028,310)
------------- -------------
Net increase (decrease) in Fund shares ............ (2,213,999) (2,417,491)
------------- -------------
Shares outstanding at end of period ............... 9,383,053 11,597,052
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<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>
-------------------------------------------------------------------------------------------------
2000(a) 1999(d) 1998(c) 1998(b) 1997(b) 1996(b) 1995(b)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.96 $10.70 $ 9.92 $10.52 $10.98 $11.43 $11.97
-------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------------------
Net investment
income (loss) .18 .46 .18 .61 .58 .73 .98
-------------------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investment
transactions (.77) (.74) .78 (.60) (.46) (.45) (.54)
---------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Total from
investment
operations (.59) (.28) .96 .01 .12 .28 .44
-------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income (.18) (.02) -- -- (.58) (.12) --
-------------------------------------------------------------------------------------------------
Tax return of
capital -- (.44) (.18) (.61) -- (.61) (.98)
---------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Total distributions (.18) (.46) (.18) (.61) (.58) (.73) (.98)
-------------------------------------------------------------------------------------------------
Net asset value, end
of period $ 9.19 $ 9.96 $10.70 $ 9.92 $10.52 $10.98 $11.43
---------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Total Return (%) (5.84)(e)* (2.70)(e) 9.76(e)** .10(e) .94 2.59 3.92
-------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------------------
Net assets, end of 86 115 150 146 236 515 910
period ($ millions)
-------------------------------------------------------------------------------------------------
Ratio of expenses 1.87(f)* 1.63 1.58* 1.62 1.36 1.26 1.30
before expense
reductions (%)
-------------------------------------------------------------------------------------------------
Ratio of expenses 1.63(f)* 1.50 1.50* 1.56 1.36 1.26 1.30
after expense
reductions (%)
-------------------------------------------------------------------------------------------------
Ratio of net 3.79* 4.44 5.20* 5.91 5.28 6.50 8.52
investment income
(loss) (%)
-------------------------------------------------------------------------------------------------
Portfolio turnover 121.4* 193.7 303.5* 190.1 298.2 275.7 318.5
rate (%)
-------------------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended April 30, 2000 (Unaudited).
(b) For the years ended June 30.
(c) For the four months ended October 31, 1998. On September 15, 1998, the
Board of Directors of the Fund changed the fiscal year end from June 30 to
October 31.
(d) For the year ended October 31, 1999.
(e) Total returns for certain periods would have been lower had certain
expenses not been reduced.
(f) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.71% and
1.50%, respectively.
* Annualized
** Not annualized
25
<PAGE>
Notes to Financial Statements (Unaudited)
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder International Bond Fund (the "Fund") is a non-diversified series of
Global/International Fund, Inc. (the "Corporation") which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company organized as a Maryland Corporation trust.
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. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Portfolio debt securities
purchased with an original maturity greater than sixty days are valued by
pricing agents approved by the officers of the Corporation, whose quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees/Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, 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 is equal to at least the
principal amount of the repurchase price plus accrued interest.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts
26
<PAGE>
and foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
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 on currencies and wrote call options on
currencies as a hedge against potential adverse price movements in the value of
portfolio assets. In addition, during the period, the Fund purchased call
options on securities as a temporary substitute for purchasing selected
investments and to enhance potential gain.
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
prices 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. Gain or loss is recognized when the
option contract expires or is closed.
If 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 above the exercise price. If the
Fund writes a put option it accepts the risk of a decline in the market value of
the underlying security 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.
27
<PAGE>
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of a financial
instrument at a specified price on a specific date (settlement date). During the
period, the Fund purchased interest rate futures to manage the duration of the
portfolio and as a temporary substitute for purchasing selected investments. In
addition, the Fund also sold interest rate futures to hedge against declines in
the value of portfolio securities and as a hedge against currency exchange rate
fluctuations on securities held.
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 dependent upon
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 the changes in the value of
the securities or currencies hedged. When utilizing futures contracts to hedge,
the Fund gives up the opportunity to profit from favorable price movements in
the hedged positions during the term of the contract.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract ("forward contract") is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge against changes in the 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. Sales and
purchases of 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 a forward contract to buy
28
<PAGE>
and a 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, 1999, the Fund had a net tax
basis capital loss carryforward of approximately $73,227,000 which may be
applied against any realized net taxable capital gains of each succeeding year
until fully utilized or until October 31, 2002 ($64,329,000), October 31, 2003
($6,093,000), October 31, 2006 ($494,000) and October 31, 2007 ($2,311,000), the
respective expiration dates.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a daily dividend and is distributed to shareholders monthly. Net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not distributed, and, therefore,
will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investment in options, futures, forward foreign
currency exchange 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis.
29
<PAGE>
All premiums and original issue discounts are amortized/accreted for both tax
and financial reporting purposes.
B. Plan of Reorganization
On February 7, 2000 the Trustees of the Fund approved an Agreement and Plan of
Reorganization (the "Plan") between the Fund and Scudder Global Bond Fund,
pursuant to which Scudder Global Bond Fund would acquire all or substantially
all of the assets and liabilities of the Fund in exchange for shares of Scudder
Global Bond Fund. The proposed transaction is part of Scudder Kemper
Investments, Inc.'s ("Scudder Kemper") initiative to restructure and streamline
the management and operations of the funds it advises. Costs incurred in
connection with this reorganization initiative are being borne jointly by
Scudder Kemper and certain funds and are included as reorganization expense in
the Statement of Operations of the Fund. These costs principally include
printing, proxy meeting expenses and professional fees. All funds under the
reorganization initiative are subject to an allocated charge of such costs
except for certain funds not expected to realize a reduction in the operating
expense ratio. The Plan can be consummated only if, among other things, it is
approved by a majority vote of the shareholders of the Fund. A special meeting
(the "Meeting") of the shareholders of the Fund to approve the Plan will be held
on or about July 13, 2000.
As a result of the Plan, each shareholder of Scudder International Bond Fund
will become a shareholder of the shares of Scudder Global Bond and would hold,
immediately after the closing of the Plan (the "Closing"), that number of full
and fractional voting shares of Scudder Global Bond Fund having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
held in the Fund as of the close of business on the business day preceding the
Closing. The Closing is expected to take place during the third quarter of 2000.
In the event the shareholders of the Fund fail to approve the Plan, the Fund
will continue to operate and the Fund's Board may resubmit the Plan for
shareholder approval or consider other proposals.
C. Purchases and Sales of Securities
For the six months ended April 30, 2000, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $48,627,554 and $74,557,155, respectively. Purchases and sales of
U.S. Government obligations aggregated $8,862,883 and $4,066,031, respectively.
30
<PAGE>
The aggregate face value of futures contracts opened and closed during the six
months ended April 30, 2000 was $11,367,221 and $18,450,934, respectively.
Transactions in written options for the six months ended April 30, 2000 are
summarized as follows:
Over-the-Counter
Options on Currencies
(000 omitted)
-----------------------
JPY Premiums
----------------------- -----------------
Beginning of Period ....... 601,000 $ 78,130
Written ................... 601,000 63,105
Closed .................... (601,000) (78,130)
Exercised ................. -- --
Expired ................... (601,000) (63,105)
End of Period ............. -- $ --
D. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), 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
Agreement. In addition, the Adviser has agreed not to impose a portion of its
management fee until February 28, 2001, 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. Certain expenses incurred in connection with the
reorganization are excluded from the expense limitation. For the six months
ended April 30, 2000, the Adviser did not impose a portion of its management fee
aggregating $106,076 and the amount imposed aggregated $323,890, which was
equivalent to an annual effective rate of 0.64% 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
31
<PAGE>
six months ended April 30, 2000, the amount charged by SSC aggregated $134,829,
of which $21,092 is unpaid at April 30, 2000.
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 six months ended April 30,
2000, the amount charged to the Fund by STC aggregated $33,388, of which $4,676
is unpaid at April 30, 2000.
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 six months
ended April 30, 2000, the amount charged to the Fund by SFAC aggregated $49,801,
of which $7,735 is unpaid at April 30, 2000.
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 April 30, 2000, the Special
Servicing Agreement expense charged to the Fund amounted to $8,736.
The Corporation pays each Director not affiliated with the Adviser an annual
retainer plus specified amounts for attended board and committee meetings. For
the six months ended April 30, 2000, Directors' fees and expenses aggregated
$14,660. In addition, a one-time fee of $56,903 was accrued for payment to those
Directors not affiliated with the Adviser who are not standing for re-election,
under the reorganization discussed in Note B. Inasmuch as the Adviser will also
benefit from administrative efficiencies of a consolidated Board, the Adviser
has agreed to bear $28,452 of such costs.
32
<PAGE>
E. Commitments
As of April 30, 2000 the Fund had entered into the following forward currency
exchange contracts resulting in net unrealized appreciation of $191,071.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
USD 33,686 ARA 35,000 2/23/2001 295
USD 67,908 COP 134,118,438 5/8/2000 (1,162)
USD 63,503 HUF 17,029,546 5/8/2000 (3,615)
USD 35,392 ILS 144,765 5/9/2000 408
USD 67,908 COP 134,118,438 5/10/2000 (1,173)
USD 88,796 KRW 99,007,520 5/10/2000 425
USD 38,079 PLZ 160,152 5/10/2000 (2,348)
USD 69,773 SGD 119,117 5/10/2000 16
COP 134,118,438 USD 67,908 5/10/2000 1,173
USD 1,860,000 GBP 1,174,420 5/15/2000 (36,688)
USD 64,497 IND 491,144,198 5/15/2000 (2,602)
USD 8,370,000 JPY 886,583,880 5/15/2000 (160,119)
GBP 2,333,936 USD 3,763,238 5/15/2000 139,754
JPY 1,254,334,601 USD 11,673,658 5/15/2000 58,358
NOK 57,619,430 USD 7,075,077 5/15/2000 630,702
USD 35,376 CNR 293,172 5/17/2000 (6)
USD 45,975 ILS 186,244 5/17/2000 51
USD 34,460 THB 1,304,657 5/22/2000 (159)
USD 53,043 COP 106,404,258 5/24/2000 (162)
USD 70,827 ILS 288,465 5/24/2000 418
USD 96,572 PHP 3,964,281 5/24/2000 (727)
USD 33,689 SGD 57,028 5/24/2000 (276)
USD 52,123 CLP 26,869,407 5/26/2000 (132)
USD 72,099 IND 574,629,349 5/30/2000 209
USD 58,836 KRW 65,190,288 5/30/2000 (80)
USD 45,268 PHP 1,883,149 5/30/2000 238
USD 158,366 ZAR 1,082,271 5/30/2000 754
USD 62,591 ARA 62,660 5/31/2000 51
USD 58,038 GRD 21,484,906 6/2/2000 (11)
CAD 2,708,067 USD 1,860,000 6/12/2000 30,311
USD 62,196 GRD 21,563,211 6/20/2000 (4,000)
USD 149,904 PLZ 628,921 6/20/2000 (11,458)
USD 32,169 SKK 1,383,272 6/20/2000 (2,014)
EUR 46,140 USD 45,000 6/21/2000 2,900
33
<PAGE>
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
--------------------------------------------------------------------------------------
USD 73,000 BRC 140,525 6/23/2000 3,551
USD 75,796 BRC 138,706 6/23/2000 (236)
USD 109,750 THB 4,138,673 6/23/2000 (836)
USD 166,443 SKK 7,244,265 6/26/2000 (8,570)
USD 81,683 HUF 22,011,118 6/27/2000 (4,753)
USD 12,716,650 EUR 13,261,014 6/30/2000 (609,905)
EUR 2,892,091 USD 2,790,000 6/30/2000 149,643
USD 73,385 CLP 38,784,163 7/24/2000 1,225
USD 95,075 CNR 799,043 7/24/2000 900
USD 17,000 MXP 187,808 9/15/2000 2,279
USD 34,351 ARA 34,732 10/6/2000 29
USD 70,000 ARA 75,495 10/26/2000 4,581
USD 100,000 MXP 1,123,000 10/31/2000 13,832
191,071
</TABLE>
F. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
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, pro rata based upon net assets, 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.
34
<PAGE>
Officers and Directors
--------------------------------------------------------------------------------
Nicholas Bratt*
o President
Sheryle J. Bolton
o Director; Chief Executive Officer,
Scientific Learning Corporation
William T. Burgin
o Director; General Partner,
Bessemer Venture Partners
Keith R. Fox
o Director; General Partner,
The Exeter Group of Funds
William H. Luers
o Director; Chairman and President,
U.N. Association of America
Kathryn L. Quirk*
o Director, Vice President and
Assistant Secretary
Joan E. Spero
o Director; President, Doris Duke
Charitable Foundation
Paul Bancroft III
o Honorary Director; Consultant
Thomas J. Devine
o Honorary Director; Consultant
William H. Gleysteen, Jr.
o Honorary Director; Consultant;
Guest Scholar, Brookings
Institution
Robert G. Stone, Jr.
o Honorary Director; Chairman
Emeritus of the Board and
Director, Kirby Corporation
Susan E. Dahl*
o Vice President
Jan C. Faller*
o Vice President
Ann M. McCreary*
o Vice President
Gerald J. Moran*
o Vice President
M. Isabel Saltzman*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
35
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
The Scudder Family of Funds+++
--------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund***
Prime Reserve Shares* Scudder Small Company Value Fund
Premium Shares* Scudder Micro Cap Fund
Managed Shares*
Growth
Tax Free Money Market+ Scudder Classic Growth Fund***
Scudder Tax Free Money Fund Scudder Large Company Growth Fund***
Scudder California Tax Free Money Fund** Scudder Select 1000 Growth Fund
Scudder New York Tax Free Money Fund** Scudder Development Fund
Scudder 21st Century Growth Fund
Tax Free+
Scudder Limited Term Tax Free Fund Global Equity
Scudder Medium Term Tax Free Fund Worldwide
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder High Yield Tax Free Fund Scudder International Value Fund
Scudder California Tax Free Fund** Scudder International Growth and
Scudder Massachusetts Limited Term Income Fund
Tax Free Fund** Scudder International Fund++
Scudder Massachusetts Tax Free Fund** Scudder International Growth Fund
Scudder New York Tax Free Fund** Scudder Global Discovery Fund***
Scudder Ohio Tax Free Fund** Scudder Emerging Markets Growth Fund
Scudder Gold Fund
U.S. Income
Scudder Short Term Bond Fund Regional
Scudder GNMA Fund Scudder Greater Europe Growth Fund
Scudder Income Fund Scudder Pacific Opportunities Fund
Scudder Corporate Bond Fund Scudder Latin America Fund
Scudder High Yield Bond Fund The Japan Fund, Inc.
Global Income Industry Sector Funds
Scudder Global Bond Fund Choice Series
Scudder International Bond Fund Scudder Financial Services Fund
Scudder Emerging Markets Income Fund Scudder Health Care Fund
Scudder Technology Fund
Asset Allocation
Scudder Pathway Conservative Portfolio Preferred Series
Scudder Pathway Balanced Portfolio Scudder Tax Managed Growth Fund
Scudder Pathway Growth Portfolio Scudder Tax Managed Small Company Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund***
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
</TABLE>
36
<PAGE>
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Closed-End Funds#
-----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ 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
Kemper Investment's insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder Kemper Investment'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.
37
<PAGE>
Scudder Solutions
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
38
<PAGE>
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
39
<PAGE>
About the Fund's Adviser
SCUDDER
INVESTMENTS (SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services 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 Financial Services Group. The Zurich Financial Services 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.
