SCUDDER
INVESTMENTS(SM)
[LOGO]
----------------------------
RISK MANAGED
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Class AARP and Class S Shares
Scudder GNMA Fund
July 17, 2000 As Revised October 1, 2000
Scudder Managed Municipal
Bonds October 1, 2000
Scudder Growth and Income
Fund
April 12, 2000 As Revised October 1, 2000
Scudder Capital Growth Fund
July 17, 2000 As Revised October 1, 2000
Scudder Small Company Stock Fund
July 17, 2000 As Revised October 1, 2000
Scudder Global Fund
January 1, 2000 As Revised October 1, 2000
Prospectus
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
Scudder Risk Managed
How the funds work
2 Scudder GNMA Fund
6 Scudder Managed Municipal Bonds
11 Scudder Growth and Income Fund
16 Scudder Capital Growth Fund
20 Scudder Small Company Stock Fund
24 Scudder Global Fund
29 Other Policies and Risks
30 Who Manages and Oversees the Funds
35 Financial Highlights
How to invest in the funds
43 How to Buy, Sell and Exchange
Class AARP Shares
45 How to Buy, Sell and Exchange
Class S Shares
47 Policies You Should Know About
51 Understanding Distributions and Taxes
<PAGE>
How the funds work
On the next few pages, you'll find information about each fund's investment
goal, the main strategies it uses to pursue that goal and the main risks that
could affect its performance.
Whether you are considering investing in a fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.
This prospectus offers two classes of shares for each of the funds described.
Class AARP shares have been created especially for AARP members. Class S shares
are available to all investors. Unless otherwise noted, all information in this
prospectus applies to both classes.
You can find prospectuses on the Internet for Class AARP shares at
aarp.scudder.com and for Class S shares at www.scudder.com.
<PAGE>
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ticker symbol | Class AARP AGNMX fund number | Class AARP 193
| Class S SGINX | Class S 393
Scudder GNMA Fund
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Investment Approach
The fund seeks to produce a high level of income while actively seeking to
reduce downside risk compared with other GNMA mutual funds. It does this by
investing at least 65% of net assets in "Ginnie Maes": mortgage-backed
securities that are issued or guaranteed by the Government National Mortgage
Association (GNMA). The fund also invests in U.S. Treasury securities. With both
types of securities, the timely payment of interest and principal is guaranteed
by the full faith and credit of the U.S. government. In addition, the fund does
not invest in securities issued by tobacco-producing companies.
In deciding which types of securities to buy and sell, the portfolio managers
first consider the relative attractiveness of Ginnie Maes compared to Treasuries
and decide on allocations for each. Their decisions are generally based on a
number of factors, including changes in supply and demand within the bond
market.
In choosing individual bonds, the managers review each fund's bond
characteristics and compare the yields of shorter maturity bonds to those of
longer maturity bonds.
The managers use analytical tools to actively monitor the risk profile of the
portfolio as compared to comparable funds and appropriate benchmarks and peer
groups. In seeking to reduce downside risk, the managers will generally maintain
a shorter duration than other GNMA funds (duration is a measure of sensitivity
to interest rate movements).
While the fund is permitted to use various types of derivatives (contracts whose
value is based on, for example, indices, currencies or securities), the managers
don't intend to use them as principal investments, and might not use them at
all.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests at least 65% of total assets in Ginnie Maes (and
typically more than that). To the extent that it does buy other securities, they
generally carry the same "full faith and credit" guarantee of the U.S.
Government.
This guarantee doesn't protect the fund against market-driven declines in the
prices or yields of these securities, nor does it apply to shares of the fund
itself. But it does guard against the risk of payment default of principal or
interest with respect to securities that are guaranteed.
2 | Scudder GNMA Fund
<PAGE>
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[ICON] This fund may interest investors who can accept moderate
volatility and are seeking higher yield than Treasuries, yet
don't want to sacrifice credit quality.
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Main Risks to Investors
There are several risk factors that could reduce the yield you get from the
fund, cause you to lose money or make the fund perform less well than other
investments.
As with most bond funds, the most important factor is market interest rates. A
rise in interest rates generally means a fall in bond prices -- and, in turn, a
fall in the value of your investment. (As a general rule, a 1% rise in interest
rates means a 1% fall in value for every year of duration.) An increase in its
duration would make the fund more sensitive to this risk.
Ginnie Maes carry additional risks and may be more volatile than many other
types of debt securities. Any unexpected behavior in interest rates could hurt
the performance of these securities. For example, a large fall in interest rates
could cause these securities to be paid off earlier than expected, forcing the
fund to reinvest the money at a lower rate. Another example: if interest rates
rise or stay high, these securities could be paid off later than expected,
forcing the fund to endure low yields. In both of these examples, changes in
interest rates may involve the risk of capital losses. The result for the fund
could be an increase in the volatility of its share price and yield.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
issuers, industries or other matters
o the fund's risk management strategies could make long-term performance
somewhat lower than it would have been without these strategies
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
3 | Scudder GNMA Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how
it will do in the future, it can be valuable for an investor to
know. This page looks at fund performance two different ways:
year by year and over time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the returns of the fund's Class AARP shares have varied
from year to year, which may give some idea of risk. The table shows average
annual total returns of the fund's Class AARP shares and a broad-based market
index (which, unlike the fund, does not have any fees or expenses). The
performance of both the fund and the index varies over time. All figures on this
page assume reinvestment of dividends and distributions. On July 17, 2000, the
fund changed its name from AARP GNMA and U.S. Treasury Fund to Scudder GNMA
Fund. At the same time, the fund changed its strategy to eliminate investment
requirements in U.S. Treasury securities. Consequently, the fund's past
performance may have been different if the current strategy had been in place.
Also at this time, shares of AARP GNMA and U.S. Treasury Fund were redesignated
Class AARP of Scudder GNMA Fund. The performance of Class AARP in the bar chart
and performance table reflects the performance of AARP GNMA and U.S. Treasury
Fund.
------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class AARP
------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'90 9.72
'91 14.38
'92 6.56
'93 5.96
'94 -1.68
'95 12.83
'96 4.44
'97 8.00
'98 6.79
'99 0.59
2000 Total Return as of June 30: 3.73%
Best Quarter: 4.88%, Q3 1991 Worst Quarter: -2.44%, Q1 1994
------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Fund -- Class AARP* 0.59 6.45 6.65
------------------------------------------------------------------------
Index 1.93 8.08 7.87
------------------------------------------------------------------------
Index: Lehman Brothers GNMA Index, an unmanaged market-weighted measure of all
fixed-rate securities backed by mortgage pools of GNMA.
* Performance for Class S shares is not provided because this class does
not have a full calendar year of performance.
4 | Scudder GNMA Fund
<PAGE>
How Much Investors Pay
This fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.
--------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------
Management Fee 0.40%
--------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------
Other Expenses* 0.30%
-------------
--------------------------------------------------------------------------
Total Annual Operating Expenses 0.70%
--------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.30%.
Information in the table has been restated to reflect a new fixed rate
administrative fee which became effective on July 17, 2000.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. The example assumes the expenses remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
$72 $224 $390 $871
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5 | Scudder GNMA Fund
<PAGE>
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ticker symbol | Class AARP AMUBX fund number | Class AARP 166
| Class S SCMBX | Class S 066
Scudder Managed Municipal Bonds
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Investment Approach
The fund seeks income exempt from regular federal income tax while actively
seeking to reduce downside risk as compared with other tax-free income funds. It
does this by investing at least 80% of net assets in securities of
municipalities across the United States and in other securities whose income is
free from regular federal income tax. The fund does not invest in securities
issued by tobacco-producing companies.
The fund can buy many types of municipal securities of all maturities. These may
include revenue bonds (which are backed by revenues from a particular source)
and general obligation bonds (which are typically backed by the issuer's ability
to levy taxes), as well as municipal lease obligations and investments
representing an interest in these.
The portfolio managers look for securities that appear to offer the best total
return potential, and normally prefer those that cannot be called in before
maturity. In making their buy and sell decisions, the managers typically weigh a
number of factors against each other, from economic outlooks and possible
interest rate movements to changes in supply and demand within the municipal
bond market.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
Credit Quality Policies
This fund normally invests at least 65% of net assets in municipal securities of
the top three grades of credit quality.
The fund could put up to 10% of total assets in junk bonds of the fifth and
sixth credit grades (i.e., as low as grade B). Compared to investment-grade
bonds, junk bonds generally pay higher yields and have higher volatility and
higher risk of default on payments of interest or principal.
6 | Scudder Managed Municipal Bonds
<PAGE>
The managers use analytical tools to actively monitor the risk profile of the
portfolio as compared to comparable funds and appropriate benchmarks and peer
groups. The managers use several strategies in seeking to reduce downside risk,
including (i) typically maintaining a high level of portfolio quality, (ii)
keeping the fund's duration generally shorter than comparable mutual funds, and
(iii) primarily focusing on premium coupon bonds, which have lower volatility in
down markets than bonds selling at a discount.
Although the managers may adjust the fund's dollar-weighted average maturity
(the maturity of the fund's portfolio), they generally intend to keep it similar
to that of the Lehman Brothers Municipal Bond Index (13.43 years as of
5/31/2000). Also, while they're permitted to use various types of derivatives
(contracts whose value is based on, for example, indices or securities), the
managers don't intend to use them as principal investments and might not use
them at all.
7 | Scudder Managed Municipal Bonds
<PAGE>
--------------------------------------------------------------------------------
[ICON] Taxpayers who are in a moderate to high tax bracket and who are
looking for current income may want to consider this fund.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could reduce the yield you get from the
fund, cause you to lose money, or make the fund perform less well than other
investments.
As with most bond funds, the most important factor is market interest rates. A
rise in interest rates generally means a fall in bond prices and, in turn, a
fall in the value of your investment. An increase in the fund's dollar-weighted
average maturity could make it more sensitive to this risk.
A second factor is credit quality. If a portfolio security declines in credit
quality or goes into default, it could hurt the fund's yield or share price. The
fact that the fund may emphasize investments in certain geographic regions or
sectors of the municipal market increases this risk, because any factors
affecting these regions or sectors could affect a large portion of the fund's
securities. For example, the fund could invest in illiquid municipal lease
obligations, which are more likely to default or to become difficult to sell
because they carry limited credit backing.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of interest rate trends,
credit quality, or other matters
o some derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them; this risk may be
greater for junk bonds than for investment-grade bonds
o the fund's risk management strategies could make long-term performance
somewhat lower than it would have been without these strategies
o political or legal actions could change the way the fund's dividends
are taxed
8 | Scudder Managed Municipal Bonds
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how
it will do in the future, it can be valuable for an investor to
know. This page looks at fund performance two different ways:
year by year and over time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the returns of the fund's Class S shares have varied
from year to year, which may give some idea of risk. The table shows average
annual total returns of the fund's Class S shares and a broad-based market index
(which, unlike the fund, does not have any fees or expenses). The performance of
both the fund and the index varies over time. All figures on this page assume
reinvestment of dividends and distributions.
------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class S
------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'90 6.77
'91 12.23
'92 8.98
'93 13.32
'94 -6.04
'95 17.12
'96 4.15
'97 9.29
'98 6.23
'99 -1.96
2000 Total Return as of June 30: 3.80%
Best Quarter: 6.69%, Q1 1995 Worst Quarter: -6.17%, Q1 1994
------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Fund -- Class S* -1.96 6.78 6.80
------------------------------------------------------------------------
Index -2.06 6.91 6.89
------------------------------------------------------------------------
Index: Lehman Brothers Municipal Bond Index, a market value-weighted measure of
municipal bonds issued across the United States.
* Performance for Class AARP shares is not provided because this class
does not have a full calendar year of performance.
9 | Scudder Managed Municipal Bonds
<PAGE>
How Much Investors Pay
This fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares you pay them indirectly.
--------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------
Management Fee 0.49%
--------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------
Other Expenses* 0.15%
-----------
--------------------------------------------------------------------------
Total Annual Operating Expenses 0.64%
--------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.15%.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on July 31, 2000.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. The example assumes the expenses remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
$65 $205 $357 $798
------------------------------------------------------------------------
10 | Scudder Managed Municipal Bonds
<PAGE>
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ticker symbol | Class AARP ACDGX fund number | Class AARP 164
| Class S SCDGX | Class S 064
Scudder Growth and Income Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital, current income and growth of income
while actively seeking to reduce downside risk as compared with other growth and
income funds. The fund invests at least 65% of total assets in equities, mainly
common stocks. Although the fund can invest in companies of any size and from
any country, it invests primarily in large U.S. companies. The fund does not
invest in securities issued by tobacco-producing companies.
In choosing stocks for the fund, the portfolio managers consider both yield and
other valuation and growth factors, meaning that they focus the fund's
investments on securities of U.S. companies whose dividend and earnings
prospects are believed to be attractive relative to the fund's benchmark index,
the S&P 500. The fund may invest in dividend paying and non-dividend paying
stocks.
The managers use bottom-up analysis, looking for companies with strong prospects
for continued growth of capital and earnings.
The managers may favor securities from different industries and companies at
different times, while still maintaining variety in terms of the industries and
companies represented in the fund's portfolio.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's investments are common stocks, some may be other types
of equities, such as convertible securities and preferred stocks.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies, or
securities), the managers don't intend to use them as principal investments, and
might not use them at all.
11 | Scudder Growth and Income Fund
<PAGE>
The managers use analytical tools to actively monitor the risk profile of the
portfolio as compared to comparable funds and appropriate benchmarks and peer
groups. The managers use several strategies in seeking to reduce risk,
including: (i) managing risk associated with investment in specific companies by
using fundamental analysis, valuation, and by adjusting position sizes; (ii)
portfolio construction emphasizing diversification, blending stocks with a
variety of different attributes, including value and growth stocks; and (iii)
diversifying across many sectors and industries.
The fund normally will, but is not obligated to, sell a stock if its yield or
growth prospects are expected to be below the benchmark average. It may also
sell a stock when it reaches a target price or when the managers believe other
investments offer better opportunities.
12 | Scudder Growth and Income Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund may make sense for investors who are looking for a
relatively conservative fund to provide growth and some current
income.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform. When stock prices fall, you should expect the value of your
investment to fall as well. Because a stock represents ownership in its issuer,
stock prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies.
To the extent that the fund focuses on a given industry or a particular size of
company, factors affecting that industry or size of company could affect the
value of portfolio securities. For example, a rise in unemployment could hurt
manufacturers of consumer goods, and large company stocks at times may not
perform as well as stocks of smaller companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
industries, companies or other matters
o to the extent that the fund invests for income, it may miss
opportunities in faster-growing stocks
o derivatives could produce disproportionate losses
o the fund's risk management strategies could make long-term performance
somewhat lower than it would have been without these strategies
o at times, it could be hard to value some investments or to get an
attractive price for them
13 | Scudder Growth and Income Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how
it will do in the future, it can be valuable for an investor to
know. This page looks at fund performance two different ways:
year by year and over time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the total returns for the fund's Class S shares have
varied from year to year, which may give some idea of risk. The table shows
average annual total returns for the fund's Class S shares and a broad based
market index (which, unlike the fund, does not have any fees or expenses). The
performance of both the fund and the index vary over time. All figures on this
page assume reinvestment of dividends and distributions.
------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class S
------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'90 -2.33
'91 28.16
'92 9.57
'93 15.59
'94 2.60
'95 31.18
'96 22.18
'97 30.31
'98 6.07
'99 6.15
2000 Total Return as of June 30: 1.06%
Best Quarter: 15.26%, Q2 1997 Worst Quarter: -13.39%, Q3 1998
------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Fund -- Class S* 6.15 18.65 14.36
------------------------------------------------------------------------
Index 21.04 28.54 18.20
------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Total returns for 1992 would have been lower if operating expenses hadn't been
reduced.
* Performance for Class AARP shares is not provided because this class
does not have a full calendar year of performance.
14 | Scudder Growth and Income Fund
<PAGE>
How Much Investors Pay
This fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares you pay them indirectly.
--------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------
Management Fee 0.45%
--------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------
Other Expenses* 0.30%
-----------
--------------------------------------------------------------------------
Total Annual Operating Expenses 0.75%
--------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.30%.
Information in the table has been restated to reflect a new fixed rate
administrative fee which became effective on August 14, 2000.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. The example assumes the expenses remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
$77 $240 $417 $930
------------------------------------------------------------------------
15 | Scudder Growth and Income Fund
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class AARP ACGFX fund number | Class AARP 198
| Class S SCPGX | Class S 398
Scudder Capital Growth Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk compared with other growth mutual funds. The fund invests
at least 65% of total assets in equities, mainly common stocks of U.S.
companies. Although the fund can invest in companies of any size, it generally
focuses on established companies with market values of $3 billion or more. The
fund does not invest in securities issued by tobacco-producing companies.
In choosing stocks, the portfolio managers look for individual companies that
have displayed above-average earnings growth compared to other growth companies
and that have strong product lines, effective management and leadership
positions within core markets. The managers also analyze each company's
valuation, stock price movements and other factors.
The managers use analytical tools to actively monitor the risk profile of the
portfolio as compared to comparable funds and appropriate benchmarks and peer
groups. The managers use several strategies in seeking to reduce downside risk,
including:
o focusing on high quality companies with reasonable valuations
o diversifying broadly among companies, industries and sectors
o limiting the majority of the portfolio to 3.5% in any one issuer (other
funds may invest 5% or more)
Depending on their outlook, the managers may increase or reduce the fund's
exposure to a given industry or company. The fund will normally sell a stock
when the managers believe it is too highly valued, its fundamental qualities
have deteriorated or its potential risks have increased.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's investments are common stocks, some may be other types
of equities, such as convertible securities and preferred stocks.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies, or
securities), the managers don't intend to use them as principal investments, and
might not use them at all.
16 | Scudder Capital Growth Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund may make sense for investors interested in a long-term
investment that seeks to lower its share price volatility
compared with other growth mutual funds.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt fund performance, cause you to
lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the medium and large growth company portions of
the U.S. stock market. When prices of these stocks fall, you should expect the
value of your investment to fall as well. At times, large or medium company
stocks may not perform as well as stocks of smaller companies. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies.
To the extent that the fund focuses on a given industry, any factors affecting
that industry could affect the value of portfolio securities. For example, a
rise in unemployment could hurt manufacturers of consumer goods.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
risk factors or other matters
o growth stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o the fund's risk management strategies could make long-term performance
somewhat lower than it would have been without these strategies
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
17 | Scudder Capital Growth Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how
it will do in the future, it can be valuable for an investor to
know. This page looks at fund performance two different ways:
year by year and over time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the total returns of the fund's Class AARP shares have
varied from year to year, which may give some idea of risk. The table shows
average annual total returns of the fund's Class AARP shares and a broad-based
market index (which, unlike the fund, does not have any fees or expenses). The
performance of both the fund and the index varies over time. All figures on this
page assume reinvestment of dividends and distributions. On July 17, 2000, the
fund was reorganized from AARP Capital Growth Fund, a series of AARP Growth
Trust, into Class AARP of Scudder Capital Growth Fund, a newly created series of
Investment Trust. The performance of Class AARP in the bar chart and performance
table reflects the performance of AARP Capital Growth Fund.
------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class AARP
------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'90 -15.78
'91 40.53
'92 4.72
'93 15.98
'94 -10.04
'95 30.54
'96 20.62
'97 35.08
'98 23.73
'99 35.44
2000 Total Return as of June 30: 3.12%
Best Quarter: 25.83%, Q4 1998 Worst Quarter: -21.27%, Q3 1990
------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Fund -- Class AARP* 35.44 28.94 16.51
------------------------------------------------------------------------
Index 21.04 28.56 18.21
------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), an
unmanaged, capitalization-weighted index that includes 500 large-cap stocks.
* Performance for Class S shares is not provided because this class does
not have a full calendar year of performance.
18 | Scudder Capital Growth Fund
<PAGE>
How Much Investors Pay
This fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.
--------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------
Management Fee 0.58%
--------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------
Other Expenses* 0.30%
-------------
--------------------------------------------------------------------------
Total Annual Operating Expenses 0.88%
--------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.30%.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on July 17, 2000.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. The example assumes the expenses remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
$90 $281 $488 $1,084
-----------------------------------------------------------------------
19 | Scudder Capital Growth Fund
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class AARP ASCSX fund number | Class AARP 139
| Class S SSLCX | Class S 339
Scudder Small Company Stock Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks to provide long-term capital growth while actively seeking to
reduce downside risk as compared with other small company stock funds. It does
this by investing at least 65% of total assets in common stocks of small U.S.
companies with potential for above-average long-term capital growth. The fund
normally focuses on companies whose market capitalizations are below $2 billion.
The fund does not invest in securities issued by tobacco-producing companies.
The portfolio managers use a multi-step process to select small company stocks.
A quantitative stock valuation model ranks stocks, favoring those with strong
potential for growth of earnings, reasonable valuations in light of business
prospects and positive stock price movements.
The managers then assemble the fund's portfolio from among the qualifying
stocks, using a portfolio optimizer -- sophisticated portfolio management
software that analyzes the expected return and risk characteristics of each
stock and the overall portfolio.
The managers use analytical tools to actively monitor the risk profile of the
portfolio as compared to comparable funds and appropriate benchmarks and peer
groups. The managers use several strategies in seeking to reduce downside risk,
including:
o focusing on attractively valued securities
o diversifying broadly among industries and companies (typically over
150)
o limiting the majority of the portfolio to 2% in any one issuer (other
funds may invest 5% or more)
The fund will normally sell a stock when it no longer qualifies as a small
company, when it is no longer considered undervalued or when the managers
believe other investments offer better opportunities.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests primarily in common stocks, it may invest up to 20% of
total assets in U.S. Government securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal investments, and
might not use them at all.
20 | Scudder Small Company Stock Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund is designed for long-term investors who are looking
for a fund that seeks to temper the risks of investing in small
company stocks.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the small company portion of the U.S. market.
When small company stock prices fall, you should expect the value of your
investment to fall as well. Small company stocks tend to be more volatile than
stocks of larger companies, in part because small companies tend to be less
established than larger companies and more vulnerable to competitive challenges
and bad economic news. Because a stock represents ownership in its issuer, stock
prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies.
To the extent that the fund focuses on a given industry, factors affecting that
industry could affect the value of portfolio securities. For example, a rise in
unemployment could hurt manufacturers of consumer goods.
Other factors that could affect performance include:
o value stocks may be out of favor for certain periods
o the managers could be wrong in their analysis of companies
o derivatives could produce disproportionate losses
o the fund's risk management strategies could make long-term performance
somewhat lower than it would have been without these strategies
o at times, it might be hard to value some investments or to get an
attractive price for them
21 | Scudder Small Company Stock Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how
it will do in the future, it can be valuable for an investor to
know. This page looks at fund performance two different ways:
year by year and over time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the total returns of the fund's Class AARP shares have
varied from year to year, which may give some idea of risk. The table shows
average annual total returns of the fund's Class AARP shares and a broad-based
market index (which, unlike the fund, does not have any fees or expenses). The
performance of both the fund and the index varies over time. All figures on this
page assume reinvestment of dividends and distributions. On July 17, 2000, the
fund was reorganized from AARP Small Company Stock Fund, a series of AARP Growth
Trust, into Class AARP of Scudder Small Company Stock Fund, a newly created
series of Investment Trust. The performance of Class AARP in the bar chart and
performance table reflects the performance of AARP Small Company Stock Fund.
------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class AARP
------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'98 -6.24
'99 -3.53
2000 Total Return as of June 30: -1.72%
Best Quarter: 19.49%, Q2 1999 Worst Quarter: -17.20%, Q3 1998
------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
------------------------------------------------------------------------
1 Year Since Inception
------------------------------------------------------------------------
Fund -- Class AARP* -3.53 6.74**
------------------------------------------------------------------------
Index 21.26 12.71***
------------------------------------------------------------------------
Index: Russell 2000 Index, an unmanaged capitalization-weighted measure of
approximately 2,000 small U.S. stocks.
* Performance for Class S shares is not provided because this class does
not have a full calendar year of performance.
** Inception of Fund: 2/1/1997.
*** Index comparison begins 1/31/1997.
In the chart, total returns for 1998 would have been lower if operating expenses
hadn't been reduced.
In the table, total returns from inception through 1998 would have been lower if
operating expenses hadn't been reduced.
22 | Scudder Small Company Stock Fund
<PAGE>
How Much Investors Pay
This fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.
--------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------
Management Fee 0.75%
--------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------
Other Expenses* 0.46%
-------------
--------------------------------------------------------------------------
Total Annual Operating Expenses 1.21%
--------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.45%.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on July 17, 2000.
--------------------------------------------------------------------------------
Expense Example
--------------------------------------------------------------------------------
Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. The example assumes the expenses remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
$123 $384 $665 $1,466
-----------------------------------------------------------------------
23 | Scudder Small Company Stock Fund
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class AARP ACOBX fund number | Class AARP 107
| Class S SCOBX | Class S 007
Scudder Global Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital while actively seeking to reduce
downside risk as compared with other global growth funds. The fund invests at
least 65% of its total assets in U.S. and foreign equities (equities issued by
U.S. and foreign-based companies). Most of the fund's equities are common
stocks. Although the fund can invest in companies of any size and from any
country, it generally focuses on established companies in countries with
developed economies. The fund does not invest in securities issued by
tobacco-producing companies.
In choosing stocks, the portfolio managers use a combination of two analytical
disciplines:
Bottom-up research. The managers look for companies that are industry leaders,
have strong finances and management, and appear able to make the most of local,
regional and global opportunities.
Growth orientation. The managers primarily invest in companies that offer the
potential for sustainable above-average earnings growth and whose market value
appears reasonable in light of their business prospects.
Analysis of global themes. The managers consider global economic outlooks,
seeking to identify industries and companies that are likely to benefit from
social, political and economic changes.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, commodities,
currencies, or securities), the managers don't intend to use them as principal
investments, and might not use them at all.
24 | Scudder Global Fund
<PAGE>
The managers intend to keep the fund's holdings diversified across industries
and geographical areas, although, depending on their outlook, they may increase
or reduce the fund's exposure to a given industry or area.
The managers use analytical tools to actively monitor the risk profile of the
portfolio as compared to comparable funds and appropriate benchmarks and peer
groups. The managers use several strategies in seeking to reduce downside risk,
including: (i) diversifying broadly among companies, industries, countries and
regions; (ii) focusing on high quality companies with reasonable valuations; and
(iii) generally focusing on countries with developed economies.
The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.
25 | Scudder Global Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] Long-term investors who want a fund with a broadly diversified
approach to global investing may want to consider this fund.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform, both in the U.S. and abroad. When stock prices fall, you should
expect the value of your investment to fall as well. Foreign stocks tend to be
more volatile than their U.S. counterparts, for reasons ranging from political
and economic uncertainties to a higher risk that essential information may be
incomplete or wrong. These risks tend to be greater in emerging markets, so to
the extent that the fund invests in emerging markets (such as Latin America and
most Pacific Basin countries), it takes on greater risks. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand, and other business risks. These may affect single
companies as well as groups of companies.
A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
themes, geographical areas or other matters
o derivatives could produce disproportionate losses
o the fund's risk management strategies could make long-term performance
somewhat lower than it would have been without these strategies
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
26 | Scudder Global Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how
it will do in the future, it can be valuable for an investor to
know. This page looks at fund performance two different ways:
year by year and over time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how returns for the fund have varied from year to year,
which may give some idea of risk. The table shows average annual total returns
for the fund and a broad-based market index (which, unlike the fund, does not
have any fees or expenses). The performance of both the fund and the index
varies over time. All figures on this page assume reinvestment of dividends and
distributions.
------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class S
------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'90 -6.40
'91 17.07
'92 4.54
'93 31.10
'94 -4.20
'95 20.53
'96 13.65
'97 17.24
'98 12.59
'99 23.47
2000 Total Return as of June 30: -1.57%
Best Quarter: 15.20%, Q4 1999 Worst Quarter: -13.99%, Q3 1990
------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Fund -- Class S* 23.47 17.42 12.38
------------------------------------------------------------------------
Index 25.34 20.25 11.96
------------------------------------------------------------------------
Index: MSCI World Index, an unmanaged capitalization-weighted measure of global
stock markets including the U.S., Canada, Europe, Australasia and the Far East.
* Performance for Class AARP is not provided because this class does not
have a full calendar year of performance.
27 | Scudder Global Fund
<PAGE>
How Much Investors Pay
This fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares you pay them indirectly.
------------------------------------------------------------------------
Fee Table
------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
------------------------------------------------------------------------
Management Fee 0.94%
------------------------------------------------------------------------
Distribution (12b-1) Fee None
------------------------------------------------------------------------
Other Expenses* 0.38%
----------------
------------------------------------------------------------------------
Total Annual Operating Expenses 1.32%
------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.375%.
Information in the table has been restated to reflect a new fixed rate
administrative fee which became effective on September 11, 2000.
------------------------------------------------------------------------
Expense Example
------------------------------------------------------------------------
Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. The example assumes the expenses remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions, and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------
$134 $418 $723 $1,590
------------------------------------------------------------------------
28 | Scudder Global Fund
<PAGE>
Other Policies and Risks
While the fund-by-fund sections on the previous pages describe the main points
of each fund's strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, each fund's Board could change
that fund's investment goal without seeking shareholder approval. However,
Scudder Managed Municipal Bond's policy for investing at least 80% of its net
assets as described earlier in this prospectus cannot be changed without
shareholder approval.
o As a temporary defensive measure, each fund could shift up to 100% of its
assets into investments such as money market securities. This could prevent
losses, but would mean that the fund was not pursuing its goal.
o Scudder GNMA Fund may trade securities actively. This could raise transaction
costs (thus lowering performance) and could mean higher taxable distributions.
o The investment adviser establishes a security's credit grade when it buys the
security, using independent ratings or, for unrated securities, its own credit
ratings. When ratings don't agree, the fund may use the higher rating. If a
security's credit rating falls, the security will be sold unless the adviser
believes this would not be in the shareholders' best interests.
Euro conversion
Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is already underway. The
investment adviser is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.
For more information
This prospectus doesn't tell you about every policy or risk of investing in the
funds.
If you want more information on the funds' allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (the back cover tells you how
to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
29
<PAGE>
--------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for
managing the funds, takes a team approach to asset management.
--------------------------------------------------------------------------------
Who Manages and Oversees the Funds
The investment adviser
The funds' investment adviser is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds, and currently has more than $290 billion in assets under
management.
Scudder Kemper's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from each fund. Below are the actual rates paid by each fund for
the 12 months through the most recent fiscal year end, as a percentage of each
fund's average daily net assets.
Fund Name Fee Paid
------------------------------------------------------------------------
Scudder GNMA Fund 0.40%*
------------------------------------------------------------------------
Scudder Managed Municipal Bonds 0.52%
------------------------------------------------------------------------
Scudder Growth and Income Fund 0.45%
------------------------------------------------------------------------
Scudder Capital Growth Fund 0.60%**
------------------------------------------------------------------------
Scudder Small Company Stock Fund 0.83%***
------------------------------------------------------------------------
Scudder Global Fund 0.94%
------------------------------------------------------------------------
* Reflects management fee paid by AARP GNMA and U.S. Treasury Fund.
** Reflects management fee paid by AARP Capital Growth Fund.
*** Reflects management fee paid by AARP Small Company Stock Fund.
30
<PAGE>
Each fund has entered into a new investment management agreement with Scudder
Kemper. This table describes the fee rates for each fund and the effective date
of these agreements.
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------
New Investment Management Fee as of July 17, 2000
--------------------------------------------------------------------------
Scudder GNMA Fund
--------------------------------------------------------------------------
first $5 billion 0.400%
--------------------------------------------------------------------------
next $1 billion 0.385%
--------------------------------------------------------------------------
more than $6 billion 0.370%
--------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------
New Investment Management Fee as of July 31, 2000
--------------------------------------------------------------------------
Scudder Managed Municipal Bonds
--------------------------------------------------------------------------
first $2 billion 0.490%
--------------------------------------------------------------------------
next $1 billion 0.465%
--------------------------------------------------------------------------
over $3 billion 0.440%
--------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------
New Investment Management Fee as of August 14, 2000
--------------------------------------------------------------------------
Scudder Growth and Income Fund
--------------------------------------------------------------------------
first $14 billion 0.450%
--------------------------------------------------------------------------
next $2 billion 0.425%
--------------------------------------------------------------------------
next $2 billion 0.400%
--------------------------------------------------------------------------
over $18 billion 0.385%
--------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------
New Investment Management Fee as of July 17, 2000
--------------------------------------------------------------------------
Scudder Capital Growth Fund
--------------------------------------------------------------------------
first $3 billion 0.580%
--------------------------------------------------------------------------
next $1 billion 0.555%
--------------------------------------------------------------------------
more than $4 billion 0.530%
--------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------
New Investment Management Fee as of July 17, 2000
--------------------------------------------------------------------------
Scudder Small Company Stock Fund
--------------------------------------------------------------------------
first $500 million 0.75%
--------------------------------------------------------------------------
next $500 million 0.70%
--------------------------------------------------------------------------
more than $1 billion 0.65%
--------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------
New Investment Management Fee as of September 11, 2000
--------------------------------------------------------------------------
Scudder Global Fund
--------------------------------------------------------------------------
first $500 million 1.000%
--------------------------------------------------------------------------
next $500 million 0.950%
--------------------------------------------------------------------------
next $500 million 0.900%
--------------------------------------------------------------------------
next $500 million 0.850%
--------------------------------------------------------------------------
over $2 billion 0.800%
--------------------------------------------------------------------------
31
<PAGE>
Scudder Kemper has agreed to pay a fee to AARP and/or its affiliates in return
for services relating to investments by AARP members in AARP Class shares of
each fund. This fee is calculated on a daily basis as a percentage of the
combined net assets of the AARP Classes of all funds managed by Scudder Kemper.
The fee rates, which decrease as the aggregate net assets of the AARP Classes
become larger, are as follows: 0.07% for the first $6 billion in net assets,
0.06% for the next $10 billion and 0.05% thereafter.
32
<PAGE>
The portfolio managers
The following people handle the day-to-day management of each fund in
this prospectus.
Scudder GNMA Fund Scudder Capital Growth Fund
Richard L. Vandenberg William F. Gadsen
Lead Portfolio Manager Lead Portfolio Manager
o Began investment career in 1975 o Began investment career in 1981
o Joined the adviser in 1993 o Joined the adviser in 1983
o Joined the fund team in 1998 o Joined the fund team in 1989
Scott E. Dolan Scudder Small Company Stock Fund
o Began investment career in 1989
o Joined the adviser in 1989 James M. Eysenbach
o Joined the fund team in 1997 Lead Portfolio Manager
o Began investment career in 1984
John E. Dugenske o Joined the adviser in 1991
o Began investment career in 1990 o Joined the fund team in 1997
o Joined the adviser in 1998
o Joined the fund team in 2000 Calvin S. Young
o Began investment career in 1988
Scudder Managed Municipal Bonds o Joined the adviser in 1990
o Joined the fund team in 1999
Philip G. Condon
Co-lead Portfolio Manager Scudder Global Fund
o Began investment career in 1978
o Joined the adviser in 1983 William E. Holzer
o Joined the fund team in 1998 Lead Portfolio Manager
o Began investment career in 1977
Ashton P. Goodfield o Joined the adviser in 1980
Co-lead Portfolio Manager o Joined the fund team in 1986
o Began investment career in 1986
o Joined the adviser in 1986 Nicholas Bratt
o Joined the fund team in 1998 o Began investment career in 1976
o Joined the adviser in 1976
Scudder Growth and Income Fund o Joined the fund team in 1993
Kathleen T. Millard
Lead Portfolio Manager
o Began investment career in 1983
o Joined the adviser in 1991
o Joined the fund team in 1991
Gregory S. Adams
Portfolio Manager
o Began investment career in 1987
o Joined the adviser in 1999
o Joined the fund team in 1999
33
<PAGE>
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. The majority of the Board is not affiliated with Scudder Kemper. These
independent members have primary responsibility for assuring that each fund is
managed in the best interests of its shareholders.
The following people comprise each fund's Board.
<TABLE>
<S> <C>
Linda C. Coughlin Joan E. Spero
o Managing Director, Scudder Kemper o President, Doris Duke Charitable
Investments, Inc. Foundation
o President of each fund
Jean Gleason Stromberg
Henry P. Becton, Jr. o Consultant
o President, WGBH Educational Foundation
Jean C. Tempel
Dawn-Marie Driscoll o Managing Director, First Light
o Executive Fellow, Center for Business Capital, LLC (venture capital fund)
Ethics, Bentley College
o President, Driscoll Associates Steven Zaleznick
(consulting firm) o President and Chief Executive
Officer, AARP Services, Inc.
Edgar Fiedler
o Senior Fellow and Economic Counsellor,
The Conference Board, Inc.
(not-for-profit business research
organization)
Keith R. Fox
o General Partner, The Exeter Group of
Funds
</TABLE>
34
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance. The figures in the first part of each table are for a single share.
The total return figures represent the percentage that an investor in a
particular fund would have earned (or lost), assuming all dividends and
distributions were reinvested. Except for the six month periods ended February
29, 2000 and March 31, 2000, this information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each fund's financial
statements, is included in that fund's annual report (see "Shareholder reports"
on the back cover). On July 17, 2000, Scudder Capital Growth Fund and Scudder
Small Company Stock Fund were reorganized from AARP Growth Trust into two newly
created series of Investment Trust. The Financial Highlights provided are for
the AARP Capital Growth Fund and AARP Small Company Stock Fund, both formerly
series of AARP Growth Trust. On July 17, 2000, Scudder GNMA Fund changed its
name from AARP GNMA and U.S. Treasury Fund, a series of AARP Income Trust. The
Financial Highlights provided are for the AARP GNMA and U.S. Treasury Fund. The
existing shares of Scudder Managed Municipal Bonds, Scudder Growth and Income
Fund and Scudder Global Fund were redesignated as Class S on July 31, 2000,
August 14, 2000 and September 11, 2000 respectively.
35
<PAGE>
Scudder GNMA Fund -- Class AARP
<TABLE>
<CAPTION>
Six Months
Ended
March 31, 2000 Years Ended September 30,
------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.61 $15.40 $15.16 $14.91 $15.19 $14.73
-------------------------------------------------------------------------------------
Income from investment operations:
-------------------------------------------------------------------------------------
Net investment
income .47 .94 .99 .98 .99 1.01
-------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investment
transactions (.18) (.79) .24 .25 (.28) .46
---------------------------------------------------------------
-------------------------------------------------------------------------------------
Total from
investment
operations .29 .15 1.23 1.23 .71 1.47
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net investment
income (.47) (.94) (.99) (.98) (.99) (.98)
-------------------------------------------------------------------------------------
Tax return of
capital -- -- -- -- -- (.03)
---------------------------------------------------------------
-------------------------------------------------------------------------------------
Total distributions (.47) (.94) (.99) (.98) (.99) (1.01)
---------------------------------------------------------------
-------------------------------------------------------------------------------------
Net asset value, end
of period $14.43 $14.61 $15.40 $15.16 $14.91 $15.19
---------------------------------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) 2.00(b) 0.99 8.40 8.49 4.79 10.31
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 3,829 4,216 4,593 4,584 4,904 5,252
-------------------------------------------------------------------------------------
Ratio of expenses (%) .73(c) .65 .61 .65 .64 .67
-------------------------------------------------------------------------------------
Ratio of net
investment income (%) 6.45(c) 6.25 6.52 6.51 6.55 6.77
-------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 308(a)(c) 245(a) 160 87 83 70
-------------------------------------------------------------------------------------
</TABLE>
(a) The portfolio turnover rates including mortgage dollar roll
transactions were 363% and 258% for the periods ended March 31, 2000
and September 30, 1999, respectively.
(b) Not annualized
(c) Annualized
36
<PAGE>
Scudder Managed Municipal Bonds -- Class S
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
2000(a) 1999(b) 1998(c) 1997(c) 1996(c) 1995(c)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.98 $ 9.18 $ 9.13 $ 8.84 $ 8.94 $ 8.07
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income .46 .19 .45 .46 .45 .48
-------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions (.51) (.20) .10 .34 (.10) .87
-------------------------------------------------
-------------------------------------------------------------------------------------
Total from investment operations (.05) (.01) .55 .80 .35 1.35
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net investment income (.46) (.19) (.45) (.46) (.45) (.48)
-------------------------------------------------------------------------------------
Net realized gains on investment
transactions (.04) -- (.05) (.05) -- --
-------------------------------------------------
-------------------------------------------------------------------------------------
Total distributions (.50) (.19) (.50) (.51) (.45) (.48)
-------------------------------------------------------------------------------------
Net asset value, end of period $ 8.43 $ 8.98 $ 9.18 $ 9.13 $ 8.84 $ 8.94
-------------------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) (.62) (.17)** 6.23 9.29 4.15 17.12
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 664 713 737 728 737 775
-------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) .66(d) .64* .62 .64 .63 .63
-------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) .65(d) .64* .62 .64 .63 .63
-------------------------------------------------------------------------------------
Ratio of net investment income (%) 5.27 4.92* 4.96 5.12 5.20 5.59
-------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 14* 9 10 12 18
-------------------------------------------------------------------------------------
</TABLE>
(a) For the year ended May 31, 2000.
(b) For the five months ended May 31, 1999. On August 10, 1998 the Board of
Trustees of the Trust changed the fiscal year end of the Fund from
December 31 to May 31.
(c) Years ended December 31.
(d) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were .65%
and .64%, respectively (see Financial Statements).
* Annualized
** Not annualized
37
<PAGE>
Scudder Growth and Income Fund -- Class S
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $26.31 $27.33 $23.23 $20.23 $16.26
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income (loss) .48(a) .62(a) .62(a) .60(a) .55
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions 1.11 1.06 6.26 3.84 4.46
-------------------------------------------
-------------------------------------------------------------------------------------
Total from investment operations 1.59 1.68 6.88 4.44 5.01
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net investment income (.51) (.61) (.58) (.57) (.56)
-------------------------------------------------------------------------------------
Net realized gains on investment
transactions (.70) (2.09) (2.20) (.87) (.48)
-------------------------------------------
-------------------------------------------------------------------------------------
Total distributions (1.21) (2.70) (2.78) (1.44) (1.04)
-------------------------------------------------------------------------------------
Net asset value, end of period $26.69 $26.31 $27.33 $23.23 $20.23
-------------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) 6.15 6.07 30.31 22.18 31.18
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 6,765 7,582 6,834 4,186 3,061
-------------------------------------------------------------------------------------
Ratio of expenses (%) .80 .74 .76 .78 .80
-------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.76 2.20 2.31 2.77 3.10
-------------------------------------------------------------------------------------
Portfolio turnover rate (%) 70 41 22 27 27
-------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
38
<PAGE>
Scudder Capital Growth Fund -- Class AARP
<TABLE>
<CAPTION>
Six Months
Ended
March 31,
2000 Years Ended September 30,
--------------------------------------------------------------------------------------
(Unaudited) 1999(a) 1998(a) 1997(a) 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $62.68 $51.24 $57.84 $43.47 $38.36 $31.74
--------------------------------------------------------------------------------------
Income from investment operations:
--------------------------------------------------------------------------------------
Net investment income
(loss) (.04) .04 .28 .34 .42 .36
--------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investment transactions 17.53 18.19 (2.26) 18.43 5.59 6.91
--------------------------------------------------------
--------------------------------------------------------------------------------------
Total from investment
operations 17.49 18.23 (1.98) 18.77 6.01 7.27
--------------------------------------------------------
--------------------------------------------------------------------------------------
Less distributions from:
--------------------------------------------------------------------------------------
Net investment income (.04) (.24) (.31) (.41) (.39) (.01)
--------------------------------------------------------------------------------------
Net realized gains on
investment transactions (5.40) (6.55) (4.31) (3.99) (.51) (.64)
--------------------------------------------------------
--------------------------------------------------------------------------------------
Total distributions (5.44) (6.79) (4.62) (4.40) (.90) (.65)
--------------------------------------------------------
--------------------------------------------------------------------------------------
Net asset value, end of
period $74.73 $62.68 $51.24 $57.84 $43.47 $38.36
--------------------------------------------------------
--------------------------------------------------------------------------------------
Total Return (%) 28.25(b) 36.83 (3.39) 46.72 15.97 23.47
--------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 2,448 1,735 1,247 1,228 826 692
--------------------------------------------------------------------------------------
Ratio of expenses (%) .90(c) .91 .87 .92 .90 .95
--------------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) (.11)(c) .07 .50 .70 1.05 1.00
--------------------------------------------------------------------------------------
Portfolio turnover rate (%) 79(c) 68 53 39 65 98
--------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Not annualized
(c) Annualized
39
<PAGE>
Scudder Small Company Stock Fund -- Class AARP
<TABLE>
<CAPTION>
For the Period
February 1, 1997
Six Months Ended Years Ended (b) to
March 31, 2000 September 30, September 30,
-------------------------------------------------------------------------------------
(Unaudited) 1999 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $17.89 $16.93 $20.02 $15.00
-------------------------------------------------------------------------------------
Income from investment operations:
-------------------------------------------------------------------------------------
Net investment income
(loss) (a) (.05) .02 .01 .04
-------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investment
transactions .01(g) .96 (2.98) 4.98
-----------------------------------------------------------
-------------------------------------------------------------------------------------
Total from investment
operations (.04) .98 (2.97) 5.02
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net investment income (.02) (.02) (.04) --
-------------------------------------------------------------------------------------
Net realized gains on
investment transactions -- -- (.08) --
-----------------------------------------------------------
-------------------------------------------------------------------------------------
Total distributions (.02) (.02) (.12) --
-----------------------------------------------------------
-------------------------------------------------------------------------------------
Net asset value, end of
period $17.83 $17.89 $16.93 $20.02
-----------------------------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) (0.22)(d) 5.70 (14.91)(c) 33.53(c)(d)
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 52 66 97 50
-------------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 1.93(e)(f) 1.70 1.80 2.79(e)
-------------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 1.88(e)(f) 1.70 1.75 1.75(e)
-------------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) (.43)(e) .13 .07 .40(e)
-------------------------------------------------------------------------------------
Portfolio turnover rate
(%) 56(e) 17 12 5(e)
-------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Commencement of operations.
(c) Total return would have been lower had certain expenses not been
reduced.
(d) Not annualized
(e) Annualized
(f) The annualized ratios of operating expenses excluding reorganization
costs before and after expense reductions were 1.80% and 1.75%,
respectively, for the six months ended March 31, 2000 (see Financial
Statements).
(g) The amount shown may not agree with the change in the aggregate gains
and losses in the portfolio securities for the period because of the
timing of sales and repurchases of the fund's shares in relation to
fluctuating market values for the portfolio.
40
<PAGE>
Scudder Global Fund -- Class S
<TABLE>
<CAPTION>
2000(b) 1999(c) 1999(d) 1998(d) 1997(d) 1996(d) 1995(d)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $31.25 $31.30 $32.41 $33.67 $28.73 $25.64 $23.93
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment
income (loss) .07(a) .02(a) .23(a) .38(a) .17(a) .24 .25
-------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investment
transactions 3.15 (.07) 1.82 3.82 6.58 3.94 1.91
-----------------------------------------------------------------
-------------------------------------------------------------------------------------
Total from
investment
operations 3.22 (.05) 2.05 4.20 6.75 4.18 2.16
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net investment
income (.20) -- (.55) (.88) (.28) (.25) (.11)
-------------------------------------------------------------------------------------
Net realized
gains on
investment
transactions (3.91) -- (2.61) (4.58) (1.53) (.84) (.34)
-----------------------------------------------------------------
-------------------------------------------------------------------------------------
Total
distributions (4.11) -- (3.16) (5.46) (1.81) (1.09) (.45)
-------------------------------------------------------------------------------------
Net asset value,
end of period $30.36 $31.25 $31.30 $32.41 $33.67 $28.73 $25.64
-----------------------------------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) 10.20** (.16)** 7.18 14.93 24.91 16.65 9.11
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 1,591 1,553 1,610 1,766 1,604 1,368 1,168
-------------------------------------------------------------------------------------
Ratio of expenses
(%) 1.37* 1.36* 1.35 1.34 1.37 1.34 1.38
-------------------------------------------------------------------------------------
Ratio of net
investment income
(loss) (%) .43* .44* .79 1.19 .59 .84 1.03
-------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 82* 29* 70 51 41 29 44
-------------------------------------------------------------------------------------
</TABLE>
(a) Per share amounts have been calculated using average shares
outstanding.
(b) For the six months ended February 29, 2000 (Unaudited).
(c) For the two months ended August 31, 1999. On June 7, 1999 the Fund
changed its fiscal year end from June 30 to August 31.
(d) Years ended June 30.
* Annualized
** Not annualized
41
<PAGE>
How to invest in the funds
The following pages tell you how to invest in these funds and what to expect as
a shareholder. If you're investing directly with Scudder, all of this
information applies to you.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.
As noted earlier, there are two classes of shares of each fund available through
this prospectus. The instructions for buying and selling each class are slightly
different.
Instructions for buying and selling Class AARP shares, which have been created
especially for AARP members, are found on the next two pages. These are followed
by instructions for buying and selling Class S shares. Be sure to use the
appropriate table when placing any orders to buy, exchange or sell shares in
your account.
<PAGE>
How to Buy, Sell and Exchange Class AARP Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The AARP Investment Program."
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Class AARP First investment Additional investments
------------------------------------------------------------------------------------
<S> <C> <C>
$1,000 or more for regular $50 minimum with an Automatic
accounts Investment Plan, Payroll
Deduction or Direct Deposit
$500 or more for IRAs
------------------------------------------------------------------------------------
By mail o For enrollment forms, call Send a personalized investment
1-800-253-2277 slip or short note that
includes:
o Fill out and sign an
enrollment form o fund and class name
o Send it to us at the o account number
appropriate address, along
with an investment check o check payable to "The AARP
Investment Program"
------------------------------------------------------------------------------------
By wire o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
------------------------------------------------------------------------------------
By phone -- o Call 1-800-253-2277 for
instructions
------------------------------------------------------------------------------------
With an o Fill in the information o To set up regular investments
automatic required on your enrollment from a bank checking account,
investment plan form and include a voided check call 1-800-253-2277 (minimum
$50)
------------------------------------------------------------------------------------
Payroll Deduction o Select either of these o Once you specify a dollar
or Direct Deposit options on your enrollment form amount (minimum $50),
and submit it. You will receive investments are automatic.
further instructions by mail.
-----------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-253-2277
-----------------------------------------------------------------------------------
On the Internet o Go to "services and forms -- o Call 1-800-253-2277 to ensure
how to open an account" at you have electronic services
aarp.scudder.com
o Register at aarp.scudder.com
o Print out a prospectus and an
enrollment form o Follow the instructions for
buying shares with money from
o Complete and return the your bank account
enrollment form with your check
-----------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
[ICON] Regular mail:
The AARP Investment Program, PO Box 2540, Boston, MA 02208-2540
Express, registered or certified mail:
The AARP Investment Program, 66 Brooks Drive, Braintree, MA
02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
-------------------------------------------------------------------------------
43
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Class AARP Exchanging into another fund Selling shares
-----------------------------------------------------------------------------------
<S> <C> <C>
$1,000 or more to open a new Some transactions, including
account ($500 or more for IRAs) most for over $100,000, can
only be ordered in writing; if
you're in doubt, see page 49
-----------------------------------------------------------------------------------
By phone o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
-----------------------------------------------------------------------------------
Using Easy-Access o Call 1-800-631-4636 and o Call 1-800-631-4636 and
Line follow the instructions follow the instructions
-----------------------------------------------------------------------------------
By mail or fax Your instructions should Your instructions should
(see previous include: include:
page)
o your account number o your account number
o names of the funds, class o name of the fund, class and
andnumber of shares or dollar number of shares or dollar
amount you want to exchange amount you want to redeem
-----------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from an account, call
1-800-253-2277
-----------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-253-2277
-----------------------------------------------------------------------------------
On the Internet o Register at aarp.scudder.com --
o Go to "services and forms"
o Follow the instructions for
making on-line exchanges
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Services For Class AARP Investors
--------------------------------------------------------------------------------
<S> <C>
To reach us: o Web site aarp.scudder.com
o Program representatives 1-800-253-2277, M-F, 8 a.m. - 8 p.m. EST
o Confidential fax line 1-800-821-6234, always open
o TDD line 1-800-634-9454, M-F, 9 a.m. - 5 p.m. EST
Services for o AARP Lump Sum Service For help in making a decision about a lump
participants: sum distribution.
o AARP Legacy Service For organizing financial documents and
planning the orderly transfer of assets to heirs.
o AARP Goal Setting and Asset Allocation Service For allocating
assets and measuring investment progress.
o For more information, please call 1-800-253-2277.
---------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
How to Buy, Sell and Exchange Class S Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Class S First investment Additional investments
-----------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
-----------------------------------------------------------------------------------
By mail or o Fill out and sign an Send a Scudder investment slip
express application or short note that includes:
(see below)
o Send it to us at the o fund and class name
appropriate address, along
with an investment check o account number
o check payable to "The Scudder
Funds"
-----------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
-----------------------------------------------------------------------------------
By phone -- o Call 1-800-SCUDDER for
instructions
-----------------------------------------------------------------------------------
With an automatic o Fill in the information on o To set up regular investments
investment plan your application and include from a bank checking account,
a voided check call 1-800-SCUDDER
-----------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-SCUDDER
-----------------------------------------------------------------------------------
On the Internet o Go to "funds and prices" at o Call 1-800-SCUDDER to ensure
www.scudder.com you have electronic services
o Print out a prospectus and a o Register at www.scudder.com
new account application
o Follow the instructions for
o Complete and return the buying shares with money from
application with your check your bank account
-----------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
--------------------------------------------------------------------------------
45
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Class S Exchanging into another fund Selling shares
-----------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more to open a new Some transactions, including
account ($1,000 or more for most for over $100,000, can
IRAs) only be ordered in writing; if
you're in doubt, see page 49
$100 or more for exchanges
between existing accounts
-----------------------------------------------------------------------------------
By phone or wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
-----------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800-343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
-----------------------------------------------------------------------------------
By mail, Your instructions should Your instructions should
express or fax include: include:
(see previous
page) o the fund, class and account o the fund, class and account
number you're exchanging out number from which you want to
of sell shares
o the dollar amount or number o the dollar amount or number
of shares you want to exchange of shares you want to sell
o the name and class of the o your name(s), signature(s)
fund you want to exchange into and address, as they appear on
your account
o your name(s), signature(s)
and address, as they appear o a daytime telephone number
on your account
o a daytime telephone number
-----------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from a Scudder
account, call 1-800-SCUDDER
-----------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
-----------------------------------------------------------------------------------
On the Internet o Register at www.scudder.com --
o Follow the instructions for
making on-line exchanges
-----------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
--------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder representative between 8
a.m. and 8 p.m. Eastern time on any fund business day by calling
1-800-253-2277 (Class AARP) or 1-800-SCUDDER (Class S).
--------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call
1-800-253-2277 (Class AARP) or 1-800-SCUDDER (Class S).
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 4 p.m. Eastern time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
Ordinarily, your investment in Scudder GNMA Fund and Scudder Managed Municipal
Bonds will start to accrue dividends the next business day after your purchase
is processed.
When selling shares, you'll generally receive the dividend for the day on which
your shares were sold.
47
<PAGE>
--------------------------------------------------------------------------------
[ICON] The Scudder Web site can be a valuable resource for shareholders
with Internet access. To get up-to-date information, review
balances or even place orders for exchanges, go to
aarp.scudder.com (Class AARP) or www.scudder.com (Class S).
--------------------------------------------------------------------------------
Automated phone information is available 24 hours a day. You can use your
automated phone services to get information on Scudder funds generally and on
accounts held directly at Scudder. If you signed up for telephone services, you
can also use this service to make exchanges and sell shares.
For Class AARP Shares
--------------------------------------------------------------------------
Call Easy-Access Line, the AARP Program Automated Information Line, at
1-800-631-4636
--------------------------------------------------------------------------
For Class S Shares
--------------------------------------------------------------------------
Call SAIL(TM), the Scudder Automated Information Line, at 1-800-343-2890
--------------------------------------------------------------------------
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-253-2277
(Class AARP) or 1-800-SCUDDER (Class S).
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The fund
can only accept wires of $100 or more.
Exchanges among Scudder funds are an option for shareholders who bought their
fund shares directly from Scudder and many other investors as well. Exchanges
are a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject purchase orders, for these or
other reasons.
48
<PAGE>
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.
How the funds calculate share price
For each share class of each fund, the share price is the net asset value per
share, or NAV. To calculate NAV, each share class of each fund uses the
following equation:
TOTAL ASSETS - TOTAL LIABILITIES
-------------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, a fund's value for a security is likely to be different from quoted market
prices.
To the extent that a fund invests in securities that are traded primarily in
foreign markets, the value of their holdings could change at a time when you
aren't able to buy or sell fund shares. This is because some foreign markets are
open on days when the funds don't price their shares.
49
<PAGE>
--------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you
can always send us your order in writing.
--------------------------------------------------------------------------------
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o for Class AARP and Class S shareholders, close your account and send
you the proceeds if your balance falls below $1,000; for Class S
shareholders, charge you $10 a year if your account balance falls below
$2,500; in either case, we will give you 60 days' notice so you can
either increase your balance or close your account (these policies
don't apply to retirement accounts, to investors with $100,000 or more
in Scudder fund shares or in any case where a fall in share price
created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving
you marketable securities (which typically will involve brokerage costs
for you to liquidate) rather than cash; generally, the fund won't make
a redemption in kind unless your requests over a 90-day period total
more than $250,000 or 1% of the value of the fund's net assets,
whichever is less
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
50
<PAGE>
--------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is unique, it's always
a good idea to ask your tax professional about the tax
consequences of your investments, including any state and local
tax consequences.
--------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The funds intend to pay dividends and distributions on the following schedule,
and if necessary, may do so at other times as well:
------------------------------------------------------------------------
Scudder GNMA Fund monthly
------------------------------------------------------------------------
Scudder Managed Municipal Bonds monthly
------------------------------------------------------------------------
Scudder Growth and Income Fund quarterly*
------------------------------------------------------------------------
Scudder Capital Growth Fund annually, December
------------------------------------------------------------------------
Scudder Small Company Stock Fund annually, December
------------------------------------------------------------------------
Scudder Global Fund annually, November or December
------------------------------------------------------------------------
* March, June, September and December
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
51
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
--------------------------------------------------------------------------
o short-term capital gains from selling fund shares
--------------------------------------------------------------------------
o taxable income dividends you receive from a fund
--------------------------------------------------------------------------
o short-term capital gains distributions you receive from a fund
--------------------------------------------------------------------------
Generally taxed at capital gains rates
--------------------------------------------------------------------------
o long-term capital gains from selling fund shares
--------------------------------------------------------------------------
o long-term capital gains distributions you receive from a fund
--------------------------------------------------------------------------
Dividends from Scudder Managed Municipal Bonds are generally free from federal
income tax for most shareholders. However, there are a few exceptions:
o a portion of the fund's dividends may be taxable as ordinary income if
it came from investments in taxable securities
o because the fund can invest up to 20% of net assets in securities whose
income is subject to the federal alternative minimum tax (AMT), you may
owe taxes on a portion of your dividends if you are among those
investors who must pay AMT
You may be able to claim a tax credit or deduction for your share of any foreign
taxes Scudder Global Fund pays.
Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before a fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive (except from Scudder GNMA Fund and Scudder Managed
Municipal Bonds).
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Notes
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To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. For more copies, call 1-800-253-2277 (Class
AARP) or 1-800-SCUDDER (Class S).
Statement of Additional Information (SAI) -- This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, please contact Scudder or
the SEC (see below). If you're a shareholder and have questions, please contact
Scudder. Materials you get from Scudder are free; those from the SEC involve a
copying fee. If you like, you can look over these materials at the SEC's Public
Reference Room in Washington, DC or request them electronically at
[email protected].
AARP Investment Program
from Scudder Scudder Funds SEC
PO Box 2540 Boston, MA PO Box 2291 450 Fifth Street,
02208-2540 Boston, MA 02107-2291 N.W. Washington, D.C.
1-800-253-2277 1-800-SCUDDER 20549-0102
aarp.scudder.com www.scudder.com 1-202-942-8090
www.sec.gov
Fund Name SEC File #
------------------------------------------------------------------------
Scudder GNMA Fund 811-4049
------------------------------------------------------------------------
Scudder Managed Municipal Bonds 811-2671
------------------------------------------------------------------------
Scudder Growth and Income Fund 811-43
------------------------------------------------------------------------
Scudder Capital Growth Fund 811-43
------------------------------------------------------------------------
Scudder Small Company Stock Fund 811-43
------------------------------------------------------------------------
Scudder Global Fund 811-4670
------------------------------------------------------------------------
<PAGE>
SCUDDER GLOBAL FUND
A series of Global/International Fund, Inc.
October 1, 2000
SCUDDER EMERGING MARKETS GROWTH FUND
SCUDDER INTERNATIONAL FUND
Class AARP, Class S and Class R Shares
Each a series of Scudder International Fund, Inc.
January 1, 2000
As revised October 1, 2000
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus.
The prospectus of Scudder Global Fund dated October 1, 2000 and of Scudder
Emerging Markets Growth Fund and Scudder International Fund dated January 1,
2000, as amended from time to time, may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
The Annual Report to Shareholders dated August 31, 1999 and the
unaudited Semiannual Report to Shareholders dated February 29, 2000 of Scudder
International Fund and Scudder Global Fund, and the Annual Report to
Shareholders dated October 31, 1999 and the unaudited semiannual Report to
Shareholders dated April 30, 2000 of Scudder Emerging Markets Growth Fund are
incorporated by reference and hereby deemed to be part of this Statement of
Additional Information. The Annual and Semi-Annual Reports may be obtained
without charge by calling 1-800-SCUDDER.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SCUDDER GLOBAL FUND...................................................................................................i
SCUDDER EMERGING MARKETS GROWTH FUND..................................................................................i
THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Scudder Emerging Markets Growth Fund.........................................................................1
Scudder Global Fund..........................................................................................2
Scudder International Fund...................................................................................4
Foreign Investment Risk......................................................................................6
Master/feeder structure......................................................................................6
Interfund Lending Program....................................................................................6
Special Considerations.......................................................................................7
Specialized Investment Techniques............................................................................9
Investment Restrictions.....................................................................................22
PURCHASES............................................................................................................23
Additional Information About Opening An Account.............................................................23
Minimum balances............................................................................................23
Additional Information About Making Subsequent Investments..................................................24
Additional Information About Making Subsequent Investments by QuickBuy......................................24
Checks......................................................................................................25
Wire Transfer of Federal Funds..............................................................................25
Share Price.................................................................................................25
Share Certificates..........................................................................................25
Other Information...........................................................................................26
EXCHANGES AND REDEMPTIONS............................................................................................26
Exchanges...................................................................................................26
Special Redemption and Exchange Information for
Scudder Emerging Markets Growth Fund...................................................................27
Redemption By Telephone.....................................................................................28
Redemption by QuickSell.....................................................................................28
Redemption by Mail or Fax...................................................................................29
Redemption-in-Kind..........................................................................................29
Other Information...........................................................................................29
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................30
The No-Load Concept.........................................................................................30
Internet access.............................................................................................31
Dividends and Capital Gains Distribution Options............................................................31
Transaction Summaries.......................................................................................32
Reports to Shareholders.....................................................................................32
THE SCUDDER FAMILY OF FUNDS..........................................................................................32
SPECIAL PLAN ACCOUNTS................................................................................................35
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................35
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals..............................................................................36
Scudder IRA: Individual Retirement Account..................................................................36
Scudder 403(b) Plan.........................................................................................36
Automatic Withdrawal Plan...................................................................................36
Group or Salary Deduction Plan..............................................................................37
Automatic Investment Plan...................................................................................37
Uniform Transfers/Gifts to Minors Act.......................................................................37
i
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Scudder Roth IRA: Individual Retirement Account.............................................................37
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................38
PERFORMANCE INFORMATION..............................................................................................39
Average Annual Total Return.................................................................................39
Cumulative Total Return.....................................................................................39
Total Return................................................................................................40
Comparison of Fund Performance..............................................................................40
ORGANIZATION of the funds............................................................................................41
INVESTMENT ADVISER...................................................................................................43
AMA InvestmentLink(SM) Program..............................................................................45
Code of Ethics.......................................................................................................45
DIRECTORS AND OFFICERS OF SCUDDER INTERNATIONAL FUND, INC............................................................45
REMUNERATION.........................................................................................................51
Responsibilities of the Board -- Board and Committee Meetings...............................................51
Compensation of Officers and Directors......................................................................51
DISTRIBUTOR..........................................................................................................53
TAXES................................................................................................................54
PORTFOLIO TRANSACTIONS...............................................................................................58
Portfolio Turnover..........................................................................................59
NET ASSET VALUE......................................................................................................60
ADDITIONAL INFORMATION...............................................................................................60
Experts.....................................................................................................60
Other Information...........................................................................................61
FINANCIAL STATEMENTS.................................................................................................62
APPENDIX.............................................................................................................63
</TABLE>
ii
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iii
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iv
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THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES
Scudder Global Fund is a series of Global/International Fund, Inc., and
Scudder Emerging Markets Growth Fund and Scudder International Fund (each a
"Fund," collectively the "Funds") are each a series of Scudder International
Fund, Inc. (each a "Corporation," collectively the "Corporations"), each an
open-end management investment company which continuously offers and redeems
shares at net asset value. Each Fund is a company of the type commonly known as
a mutual fund. Scudder Global Fund is a diversified series of
Global/International Fund, Inc. Scudder International Fund is a diversified
series, and Scudder Emerging Markets Growth Fund is a non-diversified series, of
Scudder International Fund, Inc. Scudder Global Fund and Scudder Emerging
Markets Growth Fund each offer two classes of shares, Class AARP and Class S,
and Scudder International Fund offers four classes of shares: Class AARP, Class
S, Barrett International Shares and Class R shares. Each class has its own
important features and policies. Shares of Class AARP are especially designed
for members of AARP.
Except as otherwise indicated, each Fund's objectives and policies are
not fundamental and may be changed without a shareholder vote. There can be no
assurance that the Funds will achieve their objective. If there is a change in a
Fund's investment objective, shareholders should consider whether that Fund
remains an appropriate investment in light of their then current financial
position and needs.
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Funds may engage (such
as short selling, hedging, etc.) or a financial instrument in which the Funds
may purchase (such as options, forward foreign currency contracts, etc.) are
meant to describe the spectrum of investments that Scudder Kemper Investments,
Inc. (the "Adviser"), in its discretion, might, but is not required to, use in
managing a Fund's portfolio assets. The Adviser may, in its discretion, at any
time employ such practice, technique or instrument for one or more funds but not
for all funds advised by it. Furthermore, it is possible that certain types of
financial instruments or investment techniques described herein may not be
available, permissible, economically feasible or effective for their intended
purposes in all markets. Certain practices, techniques, or instruments may not
be principal activities of a Fund but, to the extent employed, could from time
to time have a material impact on that Fund's performance.
General Investment Objective and Policies
Scudder Emerging Markets Growth Fund, Scudder Global Fund and Scudder
International Fund each seek long-term growth of capital from foreign equity
securities by each employing a distinct investment style.
Scudder Emerging Markets Growth Fund
The Fund seeks long-term growth of capital primarily through equity
investment in emerging markets around the globe.
The Fund will invest in the Asia-Pacific region, Latin America, less
developed nations in Europe, the Middle East and Africa, focusing investments in
countries and regions where there appear to be the best value and appreciation
potential, subject to considerations of portfolio diversification and liquidity.
In the opinion of the Adviser, many emerging nations around the globe are likely
to continue to experience economic growth rates well in excess of those found in
the U.S., Japan and other developed markets. In the opinion of the Adviser, this
economic growth should translate into strong stock market performance over the
long term.
While the Fund offers the potential for substantial price appreciation
over time, it also involves above-average investment risk. The Fund is designed
as a long-term investment and not for short-term trading purposes. It should not
be considered a complete investment program. The Fund's net asset value (price)
can fluctuate significantly with changes in stock market levels, political
developments, movements in currencies, investment flows and other factors. To
encourage a long-term investment horizon, a 2% redemption and exchange fee,
described more fully below, is payable to the Fund for the benefit of remaining
shareholders on shares held less than one year.
At least 65% of the Fund's total assets will be invested in the equity
securities of emerging market issuers. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the International Bank for Reconstruction and Development (i.e., the
World Bank), the International Finance Corporation or the United Nations or its
authorities. The Fund intends to allocate its investments among at least three
<PAGE>
countries at all times, and does not expect to concentrate in any particular
industry. There is no limitation, however, on the amount the Fund can invest in
a specific country or region of the world.
The Fund deems an issuer to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market
country;
o the issuer's principal securities trading market is in an
emerging market; or
o at least 50% of the issuer's non-current assets, capitalization,
gross revenue or profit in any one of the two most recent fiscal
years is derived (directly or indirectly through subsidiaries)
from assets or activities located in emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.
The Fund may invest up to 35% of its total assets in emerging market
and domestic debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to equal or exceed the capital
appreciation of equity securities. Debt instruments held by the Fund take the
form of bonds, notes, bills, debentures, convertible securities, warrants, bank
obligations, short-term paper, loan participations, loan assignments and trust
interests.
Under normal market conditions, the Fund may invest up to 35% of its
assets in equity securities of issuers in the U.S. and other developed markets.
In evaluating the appropriateness of such investments for the Fund, the Adviser
takes into account the issuer's involvement in the emerging markets and the
potential impact of that involvement on business results. The Fund may also
purchase securities on a when-issued or forward delivery basis, enter into
reverse repurchase agreements and may engage in various strategic transactions,
including derivatives.
For temporary defensive purposes, the Fund may hold, without limit,
debt instruments as well as cash and cash equivalents, including foreign and
domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements. It is impossible to accurately predict
how long such alternative strategies will be utilized. The Fund may also invest
in closed-end investment companies investing primarily in the emerging markets.
To the extent the Fund invests in such closed-end investment companies,
shareholders will incur certain duplicate fees and expenses. Such closed-end
investment company investments will generally only be made when market access or
liquidity restricts direct investment in the market.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market price of the Fund's investments, and there is no assurance that the
Fund's objectives will be achieved.
Scudder Global Fund
The Fund seeks long-term growth while actively seeking to reduce
downside risk as compared with other global growth funds. The Fund will not
invest in securities issued by tobacco-producing companies. Although the Fund
can invest in companies of any size, it generally focuses on established
companies whose stocks are listed on a recognized exchange. While most of the
Fund's equities are common stocks, some may be other types of equities, such as
convertible stocks, preferred stocks and depository receipts. The Fund may also
buy investment grade debt securities when it believes they may perform at least
as well as equities.
The management of the Fund believes that there is substantial
opportunity for long-term capital growth from a professionally managed portfolio
of securities selected from the U.S. and foreign equity markets. Through this
global investment framework, management seeks to take advantage of the
investment opportunities created by the global economy. The world has become
highly integrated in economic, industrial and financial terms. Companies
increasingly operate globally as they purchase raw materials, produce and sell
their products, and raise capital. As a result, international trends such as
movements in currency and trading relationships are becoming more important to
many industries than purely domestic influences. To understand a company's
business, it is frequently more important to understand how it is linked to the
world economy than whether or not it is, for example, a U.S., French or Swiss
2
<PAGE>
company. Just as a company takes a global perspective in deciding where to
operate, so too may an investor benefit from looking globally in deciding which
industries are growing, which producers are efficient and which companies'
shares are undervalued. The Fund affords the investor access to potential
opportunities wherever they arise, without being constrained by the location of
a company's headquarters or the trading market for its shares.
The Fund invests in companies that the Adviser believes will benefit
from global economic trends, promising technologies or products and specific
country opportunities resulting from changing geopolitical, currency, or
economic considerations. It is expected that investments will be spread broadly
around the world. The Fund will be invested usually in securities of issuers
located in at least three countries, one of which may be the U.S. The Fund may
be invested 100% in non-U.S. issues, and for temporary defensive purposes may be
invested 100% in U.S. issues, although under normal circumstances it is expected
that both foreign and U.S. investments will be represented in the Fund's
portfolio. It is expected that investments will include companies of varying
sizes as measured by assets, sales, or capitalization. The Fund generally
invests in equity securities of established companies listed on U.S. or foreign
securities exchanges, but also may invest in securities traded over-the-counter.
It also may invest in debt securities convertible into common stock, and
convertible and non-convertible preferred stock, and fixed-income securities of
governments, governmental agencies, supranational agencies and companies when
the Adviser believes the potential for appreciation will equal or exceed that
available from investments in equity securities. In addition, for temporary
defensive purposes, the Fund may vary from its investment policies during
periods when the Adviser determines that it is advisable to do so because of
conditions in the securities markets or other economic or political conditions.
During such periods, the Fund may hold without limit cash and cash equivalents.
It is impossible to accurately predict for how long such alternative strategies
may be utilized. The Fund may not invest more than 5% of its total assets in
debt securities that are rated Baa or below by Moody's Investors Service, Inc.
("Moody's") or BBB or below by Standard and Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. ("S&P"), or deemed by the Adviser to be of
comparable quality (commonly referred to as "high yield" or "junk" bonds). More
information about these investment techniques is provided under "Investments and
Investment Techniques."
Global Fund's Investments. Scudder Global Fund seeks long-term growth
while actively seeking to reduce downside risk as compared with other global
growth funds. The managers use analytical tools to monitor actively the risk
profile of the portfolio as compared to comparable funds and appropriate
benchmarks and peer groups. The managers use several strategies in seeking to
reduce downside risk, including: (i) diversifying broadly among companies,
industries, countries and regions; (ii) focusing on high-quality companies with
reasonable valuations; and (iii) generally focusing on countries with developed
economies. The portfolio managers' attempts to manage downside risk may also
reduce performance in a strong market.
The Fund is intended to provide individual and institutional investors
with an opportunity to invest a portion of their assets in a globally oriented
portfolio, and is designed for long-term investors who can accept global
investment risk. The Adviser believes that allocation of assets on a global
basis decreases the degree to which events in any one country, including the
U.S., will affect an investor's entire investment holdings. In the period since
World War II, many leading foreign economies have grown more rapidly than the
U.S. economy, thus providing investment opportunities; although there can be no
assurance that this will be true in the future. As with any long-term
investment, the value of the Fund's shares when sold may be higher or lower than
when purchased.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform standards, practices and requirements, with
respect to accounting, auditing and financial reporting, as are domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign securities
exchanges and bid to asked spreads in foreign bond markets are generally higher
3
<PAGE>
than negotiated commissions on U.S. exchanges and bid to asked spreads in the
U.S. bond market, although the Fund will endeavor to achieve the most favorable
net results on their portfolio transactions. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less governmental supervision and regulation
of business and industry practices, securities exchanges, brokers and listed
companies than in the U.S. It may be more difficult for the Fund's agents to
keep currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries. Investments
in foreign securities may also entail certain risks, such as possible currency
blockages or transfer restrictions, and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. The management of the Fund seeks to mitigate the
risks associated with the foregoing considerations through continuous
professional management.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
Investments in foreign securities usually will involve currencies of
foreign countries. Because of the considerations discussed above, the value of
the assets of the Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and a Fund may incur costs in connection with conversions between
various currencies. Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. The Fund will conduct their
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into strategic transactions involving currencies (see "Strategic
Transactions and Derivatives").
Because the Fund may be invested in both U.S. and foreign securities
markets, changes in the Fund's share price may have a low correlation with
movements in the U.S. markets. The Fund's share price will reflect the movements
of both the different stock and bond markets in which it is invested and of the
currencies in which the investments are denominated; the strength or weakness of
the U.S. dollar against foreign currencies may account for part of the Fund's
investment performance. Foreign securities such as those purchased by the Fund
may be subject to foreign governmental taxes which could reduce the yield on
such securities, although a shareholder of the Fund may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her proportionate share of such foreign taxes paid by
the Fund (see "TAXES"). U.S. and foreign securities markets do not always move
in step with each other, and the total returns from different markets may vary
significantly. The Fund invests in many securities markets around the world in
an attempt to take advantage of opportunities wherever they may arise.
Because of the Fund's investment considerations discussed above and the
investment policies, investment in shares of a Fund is not intended to provide a
complete investment program for an investor.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market price of the Fund's investments, and there is no assurance that the
Fund's objectives will be achieved.
Scudder International Fund
The Fund offers four classes of shares: Class S (formerly International
Shares), Class AARP, Barrett International Shares, and Class R shares. This
Statement of Additional Information applies only to the Class S, Class AARP
shares and the Class R shares (collectively, the "Shares"). The Fund seeks
long-term growth of capital primarily from foreign equity securities. These
4
<PAGE>
securities are selected primarily to permit the Fund to participate in non-U.S.
companies and economies that are believed to have prospects for growth.
The Fund generally invests in equity securities of established
companies, listed on foreign exchanges (although the Fund may also invest in
securities traded over the counter), which the Adviser believes have favorable
characteristics. The Fund's equity investments include common stock, convertible
and non-convertible preferred stock, sponsored and unsponsored depository
receipts, and warrants.
When the Adviser believes that it is appropriate to do so in order to
achieve the Fund's investment objective of long-term capital growth, the Fund
may invest up to 20% of its total assets in debt securities. Such debt
securities include debt securities of governments, governmental agencies,
supranational organizations and private issuers, including bonds denominated in
the European Currency Unit (the "Euro"). Portfolio debt investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The value of fixed-income investments will fluctuate with
changes in interest rates and bond market conditions, tending to rise as
interest rates decline and decline as interest rates rise. The Fund will
predominantly purchase "investment-grade" bonds, which are those rated Aaa, Aa,
A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged by the
Adviser to be of equivalent quality. The Fund may also invest up to 5% of its
total assets in debt securities which are rated below investment-grade (see
"Risk factors").
The Fund intends to diversify investments among several countries and
normally to have investments in securities of at least three different countries
other than the U.S. The Fund will invest primarily in securities of issuers in
the 21 developed foreign countries included in the Morgan Stanley Capital
International ("MSCI") World ex-US Index, but may invest in "emerging markets."
The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the International Bank of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.
The major portion of the Fund's assets consists of equity securities of
established companies listed on recognized exchanges; the Adviser expects this
condition to continue, although the Fund may invest in other securities. In
selecting securities for the Fund's portfolio, the Adviser applies a
disciplined, multi-part investment approach for selecting stocks for the Fund.
In analyzing companies for investment, the Adviser ordinarily looks for one or
more of the following characteristics: strong competitive positioning,
above-average earnings growth per share, high return on invested capital,
healthy balance sheets and overall financial strength, strength of management
and general operating characteristics which will enable the companies to compete
successfully in the marketplace. The Adviser will further seek to have broad
country representation, favoring those countries that it believes have sound
economic conditions and open markets. The Adviser will also look for
opportunities on a macro-economic level, seeking to identify major changes in
the business environment and companies that are poised to benefit from these
changes. Investment decisions are made without regard to arbitrary criteria as
to minimum asset size, debt-equity ratios or dividend history of portfolio
companies. The Adviser will typically sell an investment when certain criteria
are met, including but not limited to: the price of the security reaches the
Adviser's assessment of its fair value; the underlying investment theme is
judged by the Adviser to have matured; or if the original reason for investing
in the security no longer applies or is no longer valid.
In applying the disciplined, multi-part investment approach for
selecting stocks for the Fund, the Adviser first analyzes the pool of foreign
dividend-paying securities, primarily from the world's more mature markets, and
targeting stocks that have high relative yields compared to the average for
their markets. In the Adviser's opinion, this group of higher-yielding stocks
offers the potential for returns that is greater than or equal to the average
market return, with price volatility that is lower than the overall market
volatility. The Adviser believes that these potentially favorable risk and
return characteristics exist because the higher dividends offered by these
stocks act as a "cushion" when markets are volatile and because the stocks with
higher yields tend to have more attractive valuations (e.g., lower
price-to-earning ratios and lower price-to-book ratios). The second stage of
portfolio construction involves a fundamental analysis of each company's
financial strength, profitability, projected earnings, competitive positioning,
and ability of management. During this step, the Adviser's research team
identifies what it believes are the most promising stocks for the Fund's
portfolio. The third stage of the investment process involves diversifying the
portfolio among different industry sectors. The key element of this stage is
evaluating how the stocks in different sectors react to economic factors such as
interest rates, inflation, Gross Domestic Product, and consumer spending, and
then attaining a proper balance of stocks in these sectors based on the
Adviser's economic forecast. The fourth and final stage of this ongoing process
is diversifying the portfolio among different countries. The Adviser will seek
5
<PAGE>
to have broad country representation, favoring those countries that it believes
have sound economic conditions and open markets. The Fund's strategy is to
manage risk and create opportunity at each of the four stages in its investment
process, starting with the focus on stocks with high relative yields.
The Fund may hold up to 20% of its net assets in U.S. and foreign fixed
income securities for temporary defensive purposes when the Adviser believes
that market conditions so warrant. The Fund may invest up to 20% of its net
assets under normal conditions, and without limit for temporary defensive
purposes, in cash or cash equivalents including domestic and foreign money
market instruments, short-term government and corporate obligations and
repurchase agreements, when the Adviser deems such a position advisable in light
of economic or market conditions. It is impossible to predict how long
alternative strategies may be utilized. In addition, the Fund may engage in
reverse repurchase agreements, illiquid securities and strategic transactions,
which may include derivatives.
Foreign securities such as those purchased by the Fund may be subject
to foreign governmental taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
From time to time, the Fund may be a purchaser of illiquid securities
such as restricted debt or equity securities (i.e., securities which may require
registration under the Securities Act of 1933, as amended, (the "1933 Act"), or
an exemption therefrom, in order to be sold in the ordinary course of business)
in a private placement. (See "Illiquid Securities".)
The Fund invests in companies, wherever organized, which do business
primarily outside the United States.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market price of the Fund's investments, and there is no assurance that the
Fund's objectives will be achieved.
Foreign Investment Risk
While the Funds offer the potential for substantial appreciation over
time, they also involve above-average investment risk in comparison to a mutual
fund investing in a broad range of U.S. equity securities. Each Fund is designed
as a long-term investment and not for short-term trading purposes. None of the
Funds, nor the Funds together, should be considered a complete investment
program, although each could serve as a core international holding for an
individual's portfolio. Each Fund's net asset value, or price, can fluctuate
significantly with changes in stock market levels, political developments,
movements in currencies, global investment flows and other factors.
Master/feeder structure
The Board of Directors has the discretion to retain the current
distribution arrangement for the Funds while investing in a master fund in a
master/feeder structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Interfund Lending Program
The Corporations' Board of Directors has approved the filing of an application
for exemptive relief with the Securities and Exchange Commission (the "SEC")
which would permit the Funds to participate in an interfund lending program
among certain investment companies advised by the Adviser. If the Funds receive
the requested relief, the interfund lending program would allow the
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participating funds to borrow money from and loan money to each other for
temporary or emergency purposes. The program would be subject to a number of
conditions designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable interest rate than a rate approximating the
lowest interest rate at which bank loans would be available to any of the
participating funds under a loan agreement; and (2) no fund may lend money
through the program unless it receives a more favorable return than that
available from an investment in repurchase agreements and, to the extent
applicable, money market cash sweep arrangements. In addition, a fund would
participate in the program only if and to the extent that such participation is
consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings would extend overnight,
but could have a maximum duration of seven days. Loans could be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Funds are actually engaged in borrowing
through the interfund lending program, the Funds, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging) except that the Funds may engage in reverse repurchase
agreements and dollar rolls for any purpose.
Special Considerations
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less governmental supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of a Fund is
uninvested and no cash is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause a Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a Fund
due to subsequent declines in value of the portfolio security or, if a Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. Costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in U.S. securities.
Such transactions also involve additional costs for the purchase or sale of
foreign currency.
Certain emerging markets require prior governmental approval of
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain emerging markets
may also restrict investment opportunities in issuers in industries deemed
important to national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to a Fund of any restrictions on investments.
In the course of investment in emerging markets, a Fund will be exposed
to the direct or indirect consequences of political, social and economic changes
in one or more emerging markets. While a Fund will manage its assets in a manner
that will seek to minimize the exposure to such risks, there can be no assurance
that adverse political, social or economic changes will not cause a Fund to
suffer a loss of value in respect of the securities in that Fund's portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for a Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
SEC. Accordingly if a Fund believes that appropriate circumstances exist, it
will promptly apply to the SEC for a determination that an emergency is present.
During the period commencing from a Fund's identification of such condition
until the date of the SEC action, a Fund's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Corporation's Board of Directors.
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Volume and liquidity in most foreign markets are less than in the U.S.,
and securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although a Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less governmental supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for certificated portfolio securities. In addition, with respect to
certain emerging markets, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect a Fund's investments in those countries.
Moreover, individual emerging market economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
A Fund may have limited legal recourse in the event of a default with
respect to certain debt obligations it holds. If the issuer of a fixed-income
security owned by a Fund defaults, that Fund may incur additional expenses to
seek recovery. Debt obligations issued by emerging market country governments
differ from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. A Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements.
Income from securities held by a Fund could be reduced by a withholding
tax at the source or other taxes imposed by the emerging market countries in
which that Fund makes its investments. A Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to that Fund
or to entities in which that Fund has invested. The Adviser will consider the
cost of any taxes in determining whether to acquire any particular investments,
but can provide no assurance that the taxes will not be subject to change.
Many emerging markets have experienced substantial, and, in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in a Fund's
portfolio. Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments have occurred
frequently over the history of certain emerging markets and could adversely
affect a Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
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Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Common Stocks. Under normal circumstances, each Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stock also offers greater potential for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents.
Depository Receipts. International Fund may invest indirectly in securities of
foreign issuers through sponsored or unsponsored American Depository Receipts
("ADRs"), Global Depository Receipts ("GDRs"), International Depository Receipts
("IDRs") and other types of Depository Receipts (which, together with ADRs, GDRs
and IDRs are hereinafter referred to as "Depository Receipts"). Prices of
unsponsored Depositary Receipts may be more volatile than if the issuer of the
underlying securities sponsored them. Depository Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depository Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depository Receipts. ADRs are Depository
Receipts which are bought and sold in the United States and are typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities by a foreign corporation. GDRs, IDRs and other types of Depository
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of each Fund's investment policies, a Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities. Depositary Receipts other than those denominated in U.S.
dollars will be subject to foreign currency exchange rate risk. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. However, certain
Depositary Receipts may not be listed on an exchange and therefore may be
illiquid securities.
Warrants. The Emerging Markets Growth Fund and the International Fund may invest
in warrants up to 5% of the value of their respective net assets. The holder of
a warrant has the right, until the warrant expires, to purchase a given number
of shares of a particular issuer at a specified price. Such investments can
provide a greater potential for profit or loss than an equivalent investment in
the underlying security. Prices of warrants do not necessarily move, however, in
tandem with the prices of the underlying securities and are, therefore,
considered speculative investments. Warrants pay no dividends and confer no
rights other than a purchase option. Thus, if a warrant held by a Fund were not
exercised by the date of its expiration, the Fund would lose the entire purchase
price of the warrant.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Funds may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of a
Fund as measured in U.S. dollars may be affected favorably or unfavorably by
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changes in foreign currency exchange rates and exchange control regulations, and
a Fund may incur costs and experience conversion difficulties and uncertainties
in connection with conversions between various currencies. In particular, the
Funds' foreign investments are generally denominated in foreign currencies. The
strength or weakness of the U.S. dollar against these currencies is responsible
for part of a Fund's investment performance. If the dollar falls in value
relative to the Japanese yen, for example, the dollar value of a Japanese stock
held in the portfolio will rise even though the price of the stock remains
unchanged. Conversely, if the dollar rises in value relative to the yen, the
dollar value of the Japanese stock will fall.
In addition, many foreign currencies have experienced significant
devaluation relative to the dollar. Although a Fund values its assets daily in
terms of U.S. dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should a Fund desire to resell that currency to the dealer. A Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
entering into options or forward or futures contracts to purchase or sell
foreign currencies.
Trust Preferred Securities. A Fund may invest in Trust Preferred Securities,
which are hybrid instruments issued by a special purpose trust (the "Special
Trust"), the entire equity interest of which is owned by a single issuer. The
proceeds of the issuance to a Fund of Trust Preferred Securities are typically
used to purchase a junior subordinated debenture, and distributions from the
Special Trust are funded by the payments of principal and interest on the
subordinated debenture.
If payments on the underlying junior subordinated debentures held by
the Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as a Fund,
would be required to accrue daily for Federal income tax purposes their share of
the stated interest and the de minimis OID on the debentures (regardless of
whether a Fund receives any cash distributions from the Special Trust), and the
value of Trust Preferred Securities would likely be negatively affected.
Interest payments on the underlying junior subordinated debentures typically may
only be deferred if dividends are suspended on both common and preferred stock
of the issuer. The underlying junior subordinated debentures generally rank
slightly higher in terms of payment priority than both common and preferred
securities of the issuer, but rank below other subordinated debentures and debt
securities. Trust Preferred Securities may be subject to mandatory prepayment
under certain circumstances. The market values of Trust Preferred Securities may
be more volatile than those of conventional debt securities. Trust Preferred
Securities may be issued in reliance on Rule 144A under the 1933 Act, and,
unless and until registered, are restricted securities; there can be no
assurance as to the liquidity of Trust Preferred Securities and the ability of
holders of Trust Preferred Securities, such as a Fund, to sell their holdings.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve International Fund's objective of long-term capital growth, the
Fund may invest up to 20% of its total assets in debt securities including bonds
of foreign governments, supranational organizations and private issuers,
including bonds denominated in the Euro. Portfolio debt investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund may purchase "investment-grade" bonds, which are
those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Adviser.
Moody's considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. The lower a bond is rated, the greater its
risks render it similar to equity securities. To the extent that the Fund
invests in high-grade securities, the Fund will not be able to avail itself of
opportunities for higher income which may be available at lower grades. The
Global Fund may not invest more than 5% of its total assets in debt securities
that are rated Baa or below by Moody's or BBB or below by S&P, or deemed by the
Adviser to be of comparable quality. Emerging Markets Growth Fund may purchase
investment grade bonds, or, if unrated, judged to be of equivalent quality as
determined by the Adviser.
High Yield/High Risk Bonds. A Fund may also purchase, to a limited extent, debt
securities which are rated below investment-grade (commonly referred to as "junk
bonds"), that is, rated below Baa by Moody's or below BBB by S&P and unrated
securities, which usually entail greater risk (including the possibility of
default or bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and may be less
liquid, than securities in the higher rating categories. The lower the ratings
of such debt securities, the greater their risks render them like equity
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securities. The International Fund will invest no more than 5% of its total
assets in securities rated BB or lower by Moody's or Ba by S&P, and may invest
in securities which are rated D by S&P. Securities rated D may be in default
with respect to payment of principal or interest. See the Appendix to this
Statement of Additional Information for a more complete description of the
ratings assigned by ratings organizations and their respective characteristics.
High yield, high-risk securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers and to price fluctuations in response to changes in interest
rates. An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect a Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of a Fund to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interests of a Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
On average, for the semiannual period ended February 29, 2000, the
International Fund's holdings in debt securities rated below investment grade by
one or more nationally recognized rating services, or judged by the Adviser to
be of equivalent quality to the established categories of such rating services
comprised less than 5% of the Fund's total assets. For more information
regarding tax issues related to high yield securities, see "TAXES."
Illiquid Securities. A Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
1933 Act or the availability of an exemption from registration (such as Rules
144 or 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale. This investment practice, therefore, could have the
effect of increasing the level of illiquidity of a Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of a Fund's net assets. The Corporation's Board of
Directors has approved guidelines for use by the Adviser in determining whether
a security is illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; or (iii) in limited quantities after they have
been held for a specified period of time and other conditions are met pursuant
to an exemption from registration. Issuers of restricted securities may not be
subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. If adverse market
conditions were to develop during the period between a Fund's decision to sell a
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restricted or illiquid security and the point at which a Fund is permitted or
able to sell such security, a Fund might obtain a price less favorable than the
price that prevailed when it decided to sell. Where a registration statement is
required for the resale of restricted securities, a Fund may be required to bear
all or part of the registration expenses. A Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public and, in such event, a Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.
Repurchase Agreements. Each Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
as high as that of other obligations a Fund may purchase or to be at least equal
to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's or S&P.
A repurchase agreement provides a means for a Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., a Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to a Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to a Fund together
with the repurchase price upon repurchase. In either case, the income to a Fund
is unrelated to the interest rate on the Obligation itself. Obligations will be
held by the Custodian or in the Federal Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to a Fund's investment restriction applicable
to loans. It is not clear whether a court would consider the Obligation
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and a Fund has
not perfected a security interest in the Obligation, a Fund may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt instrument purchased for a Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the Obligation, in which case a Fund
may incur a loss if the proceeds to a Fund of the sale to a third party are less
than the repurchase price. However, if the market value of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), a Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
Reverse Repurchase Agreements. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed upon time and price. Each
Fund maintains a segregated account in connection with outstanding reverse
repurchase agreements. Reverse repurchase agreements are deemed to be borrowings
subject to a Fund's investment restrictions applicable to that activity. Each
Fund will enter into reverse repurchase agreements only when the Adviser
believes that the interest income to be earned from the investment of the
proceeds of the transaction will be greater than the interest expense of the
transaction.
Investment Company Securities. Each Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. A Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, a Fund may invest in a variety of investment companies
which seek to track the composition and performance of specific indexes or a
specific portion of an index. These index-based investments hold substantially
all of their assets in securities representing their specific index.
Accordingly, the main risk of investing in index-based investments is the same
as investing in a portfolio of equity securities comprising the index. The
market prices of index-based investments will fluctuate in accordance with both
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changes in the market value of their underlying portfolio securities and due to
supply and demand for the instruments on the exchanges on which they are traded
(which may result in their trading at a discount or premium to their NAVs).
Index-based investments may not replicate exactly the performance of their
specified index because of transaction costs and because of the temporary
unavailability of certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to correspond generally to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Strategic Transactions and Derivatives. The Funds may, but are not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in a Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
In the course of pursuing these investment strategies, the Funds may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect a Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in a Fund's portfolio, or to establish a position in the derivatives
markets as a substitute for purchasing or selling particular securities. Some
Strategic Transactions may also be used to enhance potential gain although no
more than 5% of a Fund's assets will be committed to Strategic Transactions
entered into for non-hedging purposes. Any or all of these investment techniques
may be used at any time and in any combination, and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Funds to utilize these Strategic Transactions
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successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Funds will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions will not be used to alter fundamental
investment purposes and characteristics of the Funds, and the Funds will
segregate assets (or as provided by applicable regulations, enter into certain
offsetting positions) to cover its obligations under options, futures and swaps
to limit leveraging of the Funds.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Funds, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Funds can realize on its
investments or cause the Funds to hold a security it might otherwise sell. The
use of currency transactions can result in the Funds incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. The use of options and futures transactions entails certain other
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of
the Funds creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Funds might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
the Funds the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Funds
are authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
A Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
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liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Funds will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Funds to require the Counterparty
to sell the option back to the Funds at a formula price within seven days. The
Funds expect generally to enter into OTC options that have cash settlement
provisions, although they are not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Funds or fails to make a cash
settlement payment due in accordance with the terms of that option, the Funds
will lose any premium they paid for the option as well as any anticipated
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. The Funds will engage in OTC option
transactions only with U.S. government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers" or broker/dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of A-1 from S&P or P-1 from Moody's or an equivalent rating from any
nationally recognized statistical rating organization ("NRSRO") or, in the case
of OTC currency transactions, are determined to be of equivalent credit quality
by the Adviser. The staff of the SEC currently takes the position that OTC
options purchased by the Funds, and portfolio securities "covering" the amount
of a Fund's obligation pursuant to an OTC option sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid, and are subject to
a Fund's limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Funds sell a call option, the premium that they receive may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in their
portfolio or will increase a Fund's income. The sale of put options can also
provide income.
The Funds may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. All calls sold by the
Funds must be "covered" (i.e., the Funds must own the securities or futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though the Funds will
receive the option premium to help protect them against loss, a call sold by the
Funds exposes the Funds during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Funds to hold a security or
instrument which they might otherwise have sold.
The Funds may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments (whether or not they hold the
above securities in their portfolios), and on securities indices, currencies and
futures contracts other than futures on individual corporate debt and individual
equity securities. The Funds will not sell put options if, as a result, more
than 50% of a Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
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Funds may be required to buy the underlying security at a disadvantageous price
above the market price.
General Characteristics of Futures. The Funds may enter into futures contracts
or purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Funds, as seller, to deliver
to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such position.
A Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires a Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Funds. If the Funds exercise an option on a futures contract they will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as they would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
A Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of a Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. The Funds also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Funds may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Funds may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.
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The Funds' dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of the
Funds, which will generally arise in connection with the purchase or sale of
their portfolio securities or the receipt of income therefrom. Position hedging
is entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
A Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Funds may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Funds have or in which the Funds
expect to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Funds may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of a Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Funds holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the
Funds if the currency being hedged fluctuates in value to a degree or in a
direction that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Funds are engaging in proxy hedging. If the
Funds enter into a currency hedging transaction, the Funds will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Funds may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Funds to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Funds may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Funds expect to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Funds anticipate purchasing at a later
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date. The Funds will not sell interest rate caps or floors where they do not own
securities or other instruments providing the income stream the Funds may be
obligated to pay. Interest rate swaps involve the exchange by the Funds with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them, and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Funds receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Funds will
segregate assets (or enter into offsetting positions) to cover their obligations
under swaps, the Adviser and the Funds believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to their borrowing restrictions. The Funds will not enter
into any swap, cap, floor or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the Counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from a NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, the
Funds may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Funds may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Funds might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that a Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Funds to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Funds will require the Funds to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Funds on an index will require the Funds to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Funds requires the Funds to
segregate cash or liquid assets equal to the exercise price.
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Except when the Funds enter into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Funds to buy or sell
currency will generally require the Funds to hold an amount of that currency or
liquid assets denominated in that currency equal to the Funds' obligations or to
segregate cash or liquid assets equal to the amount of a Fund's obligation.
OTC options entered into by the Funds, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Funds, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Funds other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Funds will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Funds must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet their obligation to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. Such liquid assets may consist of
cash, cash equivalents, liquid debt or equity securities or other acceptable
assets.
With respect to swaps, the Funds will accrue the net amount of the
excess, if any, of their obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. A Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Funds could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Funds. Moreover, instead of segregating cash or liquid assets if a
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Each Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. (See "TAXES.")
Zero Coupon Securities. Global Fund may invest in zero coupon securities which
pay no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
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book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if the Global Fund is
"diversified" under the 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Convertible Securities. Emerging Markets Growth Fund and Global Fund may invest
in convertible securities, that is, bonds, notes, debentures, preferred stocks
and other securities which are convertible into common stock. Investments in
convertible securities can provide an opportunity for capital appreciation
and/or income through interest and dividend payments by virtue of their
conversion or exchange features.
The convertible securities in which a Fund may invest are either fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
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obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).
Lending of Portfolio Securities. Each Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. A Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, a Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of a Fund's
total assets at the time any loan is made.
Borrowing. Each Fund may not borrow money, except as permitted under Federal
law. Each Fund will borrow only when the Adviser believes that borrowing will
benefit a Fund after taking into account considerations such as the costs of the
borrowing. Each Fund does not expect to borrow for investment purposes, to
increase return or leverage the portfolio. Borrowing by a Fund will involve
special risk considerations. Although the principal of a Fund's borrowings will
be fixed, a Fund's assets may change in value during the time a borrowing is
outstanding, thus increasing exposure to capital risk.
When-Issued Securities. Each Fund may from time to time purchase equity and debt
securities on a "when-issued" or "forward delivery" basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities takes place at a later date. During the period
between purchase and settlement, no payment is made by a Fund to the issuer and
no interest accrues to a Fund. To the extent that assets of a Fund are held in
cash pending the settlement of a purchase of securities, a Fund would earn no
income; however, it is each Fund's intention to be fully invested to the extent
practicable and subject to the policies stated above. While when-issued or
forward delivery securities may be sold prior to the settlement date, each Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time a Fund makes
the commitment to purchase a security on a when-issued or forward delivery
basis, it will record the transaction and reflect the value of the security in
determining its net asset value. The market value of the when-issued or forward
delivery securities may be more or less than the purchase price. Each Fund does
not believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis.
Real Estate Investment Trusts ("REITs"). Scudder Global Fund may invest in
REITs. REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. Investment in REITs may subject the Fund to risks
associated with the direct ownership of real estate, such as decreases in real
estate values, overbuilding, increased competition and other risks related to
local or general economic conditions, increases in operating costs and property
taxes, changes in zoning laws, casualty or condemnation losses, possible
environmental liabilities, regulatory limitations on rent and fluctuations in
rental income. Equity REITs generally experience these risks directly through
fee or leasehold interests, whereas mortgage REITs generally experience these
risks indirectly through mortgage interests, unless the mortgage REIT forecloses
on the underlying real estate. Changes in interest rates may also affect the
value of the Fund's investment in REITs. For instance, during periods of
declining interest rates, certain mortgage REITs may hold mortgages that the
mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by those REITs.
Certain REITs have relatively small market capitalizations, which may
tend to increase the volatility of the market price of their securities.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free pass-through of income under the Internal Revenue Code
of 1986, as amended, and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund's, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
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Investment Restrictions
The fundamental policies of the Funds set forth below may not be
changed without the approval of a majority of a Fund's outstanding shares. As
used in this Statement of Additional Information, a "majority of a Fund's
outstanding shares" means the lesser of (1) 67% or more of the voting securities
present at such meeting, if the holders of more than 50% of the outstanding
voting securities of a Fund are present or represented by proxy; or (2) more
than 50% of the outstanding voting securities of a Fund. Each Fund except
Emerging Markets Growth Fund has elected to be classified as a diversified
series of an open-end investment company. Emerging Markets Growth Fund is
non-diversified.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of a Fund's assets will
not be considered a violation of the restriction.
In addition, as a matter of fundamental policy, each Fund may not:
(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
With respect to fundamental policy number six above, the Funds have no
current intention to hold and sell real estate acquired as a result of a Fund's
ownership.
The Directors of the Corporation have voluntarily adopted certain
non-fundamental policies and restrictions which are observed in the conduct of a
Fund's affairs. These represent intentions of the Directors based upon current
circumstances. They differ from fundamental investment policies in that they may
be changed or amended by action of the Directors without requiring prior notice
to or approval of the shareholders.
As a matter of nonfundamental policy, the Funds do not currently intend
to:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
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(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
The foregoing nonfundamental policies are in addition to policies
otherwise stated in the Prospectus or in this Statement of Additional
Information.
PURCHASES
For Scudder International Fund, the following information applies to Class S and
Class AARP shares only. For information regarding the purchase of Class R
shares, please contact your plan administrator/ plan representative.
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and members of their immediate
families, members of the National Association of Securities Dealers, Inc.
("NASD") and banks may, if they prefer, subscribe initially for at least $2,500
for Class S and $1,000 for Class AARP through Scudder Investor Services, Inc. by
letter, fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. Investors interested in investing in
Class S must call 1-800-225-5163 to get an account number. During the call the
investor will be asked to indicate the Fund name, class name, amount to be wired
($2,500 minimum for Class S and $1,000 for Class AARP), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification number or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, Boston, MA 02101, ABA Number 011000028, DDA
Account 9903-5552. The investor must give the Scudder fund name, class name,
account name and the new account number. Finally, the investor must send a
completed and signed application to the Fund promptly. Investors interested in
investing in Class AARP should call 1-800-253-2277 for further instructions.
The minimum initial purchase amount is less than $2,500 for Class S
under certain special plan accounts and is $1,000 for Class AARP.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500 for
Class S and $1,000 for Class AARP. For fiduciary accounts such as IRAs, and
custodial accounts such as Uniform Gift to Minor Act, and Uniform Trust to Minor
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Act accounts, the minimum balance is $1,000 for Class S and $500 for Class AARP.
These amounts may be changed by each Fund's Board of Directors. A shareholder
may open an account with at least $1,000 ($500 for fiduciary/custodial
accounts), if an automatic investment plan (AIP) of $100/month ($50/month for
Class AARP and fiduciary/custodial accounts) is established. Scudder group
retirement plans and certain other accounts have similar or lower minimum share
balance requirements.
The Funds reserve the right, following 60 days' written notice to
applicable shareholders, to:
o for Class S, assess an annual $10 per Fund charge (with the
Fee to be paid to the Fund) for any
non-fiduciary/non-custodial account without an automatic
investment plan (AIP) in place and a balance of less than
$2,500; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in a Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three (3) business
days. If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
a Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, a Fund shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse a Fund or the
principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to a
Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of a Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange, Inc. (the "Exchange"), normally 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. QuickBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
QuickBuy and redeem them within seven days of the purchase, a Fund may hold the
redemption proceeds for a period of up to seven business days. If you purchase
shares and there are insufficient funds in your bank account, the purchase will
be canceled and you will be subject to any losses or fees incurred in the
transaction. QuickBuy transactions are not available for most retirement plan
accounts. However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
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completing a QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow 15 days for this service to be available.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine and to discourage fraud. To the extent
that the Funds do not follow such procedures, they may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Funds will not be
liable for acting upon instructions communicated by telephone that they
reasonably believe to be genuine.
Investors interested in making subsequent investments in Class AARP of
a Fund should call 1-800-253-2277 for further information.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of a Fund are purchased by a check which proves to be
uncollectible, the Corporation reserves the right to cancel the purchase
immediately, and the purchaser will be responsible for any loss incurred by a
Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Corporation shall have the authority, as agent
of the shareholder, to redeem shares in the account in order to reimburse a Fund
or the principal underwriter for the loss incurred. Investors whose orders have
been canceled may be prohibited from or restricted in placing future orders in
any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to a Fund prior to the regular close of trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Funds pay a fee for receipt by the Custodian of
"wired funds," but the right to charge investors for this service is reserved.
Boston banks are presently closed on certain holidays although the
Exchange may be open. These holidays are Columbus Day (the 2nd Monday in
October) and Veterans' Day (November 11). Investors are not able to purchase
shares by wiring federal funds on such holidays because the Custodian is not
open to receive such federal funds on behalf of a Fund.
For Scudder International Fund, the following information applies to all share
classes.
Share Price
Purchases will be filled without sales charge at the net asset value
per share next computed after receipt of the application in good order. Net
asset value normally will be computed for each class as of the close of regular
trading on each day during which the Exchange is open for trading. Orders
received after the close of regular trading on the Exchange will be executed at
the next business day's net asset value. If the order has been placed by a
member of the NASD, other than the Distributor, it is the responsibility of that
member broker, rather than a Fund, to forward the purchase order to Scudder
Service Corporation (the "Transfer Agent") in Boston by the close of regular
trading on the Exchange.
There is no sales charge in connection with the purchase of shares of
any class of the Funds.
Share Certificates
Due to the desire of each Fund's management to afford ease of
redemption, certificates will not be issued to indicate ownership in a Fund.
Share certificates now in a shareholder's possession may be sent to a Fund's
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Transfer Agent for cancellation and credit to such shareholder's account.
Shareholders who prefer may hold the certificates in their possession until they
wish to exchange or redeem such shares.
All issued and outstanding shares of what were formerly AARP Funds that
were subsequently reorganized into existing Scudder Funds were simultaneously
cancelled on the books of the AARP Funds. Share certificates representing
interests in shares of the relevant AARP Fund will represent a number of shares
of Class AARP of the relevant Scudder Fund into which the AARP Fund was
reorganized. Class AARP shares of each fund will not issue certificates
representing shares in connection with the reorganization.
Other Information
Each Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for its shares. Those
brokers may also designate other parties to accept purchase and redemption
orders on a Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at a class' net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Directors and the Distributor, also a Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Board of Directors and the Distributor may suspend or
terminate the offering of shares of a Fund at any time for any reason.
The "Tax Identification Number" section of the Application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations a certification of exempt status), will be
returned to the investor. The Funds reserve the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
The Corporation may issue shares at net asset value in connection with
any merger or consolidation with, or acquisition of the assets of, any
investment company or personal holding company, subject to the requirements of
the 1940 Act.
EXCHANGES AND REDEMPTIONS
For Scudder International Fund, the following information applies to Class AARP
and Class S shares only. For information regarding the purchase of Class R
shares, please contact your plan administrator/ plan representative.
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500 for Class S and
$1,000 for Class AARP. When an exchange represents an additional investment into
an existing account, the account receiving the exchange proceeds must have
identical registration, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more for Class S.
If the account receiving the exchange proceeds is to be different in any
respect, the exchange request must be in writing and must contain an original
signature guarantee.
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Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at respective net asset
values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Corporation and the Transfer Agent each reserves the right to
suspend or terminate the privilege of the Automatic Exchange Program at any
time.
There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Funds employ
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine and
to discourage fraud. To the extent that a Fund does not follow such procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions. A Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Funds
and the Transfer Agent each reserves the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder Funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder fund into which the exchange is being contemplated. The exchange
privilege may not be available for certain Scudder Funds or classes of Scudder
Funds. For more information, please call 1-800-225-5163 (Class S) and
1-800-253-2277 (Class AARP).
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Special Redemption and Exchange Information for Scudder Emerging Markets Growth
Fund
In general, shares of the Fund may be exchanged or redeemed at net
asset value. However, shares of the Fund held for less than one year are
redeemable at a price equal to 99% of the then current net asset value per
share. This 1% discount, referred to in the prospectus and this statement of
additional information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.
The redemption discount will not be applied to (a) a redemption of
shares of the Fund outstanding for one year or more; (b) shares purchased
through certain Scudder retirement plans, including 401(k) plans, 403(b) plans,
457 plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans
provided, however, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply (before purchasing shares, please check with your account
representative concerning the availability of the fee waiver. In addition, this
waiver does not apply to IRA and SEP-IRA accounts.); (c) shares purchased
through certain wrap fee programs; (d) a redemption of reinvestment shares
(i.e., shares purchased through the reinvestment of dividends or capital gains
distributions paid by the Fund); (e) a redemption of shares by the Fund upon
exercise of its right to liquidate accounts (i) falling below the minimum
account size by reason of shareholder redemptions or (ii) when the shareholder
has failed to provide tax identification information; or (f) a redemption of
shares due to the death of the registered shareholder of a Fund account or due
to the death of all registered shareholders of a Fund account with more than one
registered shareholder (i.e., joint tenant account), upon receipt by Scudder
Service Corporation of appropriate written instructions and documentation
satisfactory to Scudder Service Corporation. For this purpose and without regard
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to the shares actually redeemed, shares will be treated as redeemed as follows:
first, reinvestment shares; second, purchased shares held one year or more; and
third, purchased shares held for less than one year. Finally, if a redeeming
shareholder acquires Fund shares through a transfer from another shareholder,
applicability of the discount, if any, will be determined by reference to the
date the shares were originally purchased, and not from the date of transfer
between shareholders.
Redemption By Telephone
Shareholders currently receive the right automatically, without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may also request by telephone to have
the proceeds mailed or wired to their predesignated bank account. In order to
request wire redemptions by telephone, shareholders must have completed and
returned to the Transfer Agent the application, including the designation of a
bank account to which the redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish the telephone redemption
privilege must complete the appropriate section on the
application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder pension and profit-sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption proceeds
should either return a Telephone Redemption Option Form
(available upon request), or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
If a request for a redemption to a shareholder's bank account is made
by telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
The Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
Redemption requests by telephone (technically a repurchase agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickSell program, may sell shares of a Fund by telephone. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account in two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange will begin their processing the following business day. QuickSell
transactions are not available for Scudder IRA accounts and most other
retirement plan accounts.
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In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account. New investors wishing to establish QuickSell may
so indicate on the application. Existing shareholders who wish to add QuickSell
to their account may do so by completing a QuickSell Enrollment Form. After
sending in an enrollment form, shareholders should allow for 15 days for this
service to be available.
The Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven (7) business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven (7) days of payment for shares tendered for repurchase or redemption
may result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
For Scudder International Fund, the following information applies to all share
classes.
Redemption-in-Kind
The Corporation reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by a
Fund and valued as they are for purposes of computing a Fund's net asset value
(a redemption-in-kind). If payment is made in securities, a shareholder may
incur transaction expenses in converting these securities into cash. The
Corporation has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which a Fund is obligated to redeem shares, with respect to
any one shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund at the beginning of the
period.
For Scudder International Fund, the following information applies to Class AARP
and Class S shares only.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to a Fund
through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order with a proper original signature
guarantee, as described in the Shares' prospectus, should be sent with a copy of
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the invoice to Scudder Funds, c/o Scudder Confirmed Processing, Two
International Place, Boston, Massachusetts 02110-4103. Failure to deliver shares
or required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any loss
incurred by a Fund or the principal underwriter by reason of such cancellation.
Net losses on such transactions which are not recovered from the shareholder
will be absorbed by the principal underwriter. Any net gains so resulting will
accrue to a Fund. For this group, repurchases will be carried out at the net
asset value next computed after such repurchase requests have been received. The
arrangements described in this paragraph for repurchasing shares are
discretionary and may be discontinued at any time.
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
For Scudder International Fund, the following information applies to all share
classes.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. A Fund does not impose
a redemption or repurchase charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemption of shares,
including redemptions undertaken to effect an exchange for shares of another
Scudder fund, may result in tax consequences (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding. (See
"TAXES.")
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment therefore may be suspended at times (a)
during which the Exchange is closed, other than customary weekend and holiday
closings, (b) during which trading on the Exchange is restricted for any reason,
(c) during which an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or (d)
during which the Securities and Exchange Commission (the "Commission"), by order
permits a suspension of the right of redemption or a postponement of the date of
payment or of redemption; provided that applicable rules and regulations of the
Commission (or any succeeding governmental authority) shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist.
FEATURES AND SERVICES OFFERED BY THE FUNDS
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes funds in its
Scudder Family of Funds from the vast majority of mutual funds available today.
The primary distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based Rule 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under Rule 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
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Scudder pioneered the no-load concept when it created the nation's
first no-load fund in 1928, and later developed the nation's first family of
no-load mutual funds.
For Scudder International Fund, the following information applies to Class S and
Class AARP shares only. For information regarding account access for Class R
shares, please contact your plan administrator/ plan representative.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com.
The address for Class AARP shares is aarp.scudder.com. These sites offer
guidance on global investing and developing strategies to help meet financial
goals and provide access to the Scudder investor relations department via
e-mail. The sites also enable users to access or view fund prospectuses and
profiles with links between summary information in Fund Summaries and details in
the Prospectus. Users can fill out new account forms on-line, order free
software, and request literature on funds.
Account Access -- The Adviser is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
The Adviser's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional Shares of a Fund. A change of instructions for the method of
payment may be given to the Transfer Agent in writing at least five days prior
to a dividend record date. Shareholders may change their dividend option by
calling 1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP or by
sending written instructions to the Transfer Agent. Please include your account
number with your written request.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional class shares of a Fund.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's Direct
Distributions Program. Shareholders who elect to participate in the Direct
Distributions Program, and whose predesignated checking account of record is
with a member bank of Automated Clearing House Network (ACH) can have income and
capital gain distributions automatically deposited to their personal bank
account usually within three business days after a Fund pays its distribution. A
Direct Distributions request form can be obtained by calling 1-800-225-5163 for
Class S and 1-800-253-2277 for Class AARP. Confirmation Statements will be
mailed to shareholders as notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
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Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-SCUDDER for
Class S and 1-800-253-2277 for Class AARP.
For Scudder International Fund, the following information applies to all share
classes.
Reports to Shareholders
The Corporation issues to its shareholders unaudited semiannual and
annual financial statements audited by independent accountants, including a list
of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. Each distribution will be
accompanied by a brief explanation of the source of the distribution.
For Scudder International Fund, the following information applies only to Class
AARP and Class S shares.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds; a list of Scudder's
funds follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
TAX FREE
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund**
-----------------------------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
** Only the Scudder Shares are part of the Scudder Family of Funds.
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Scudder California Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
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
-----------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Stock Fund
Scudder Small Company Value Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International Fund***
Scudder Global Discovery Fund**
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
-----------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only Class S shares are part of the Scudder Family of Funds.
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Scudder Latin America Fund
The Japan Fund, Inc.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Health Care Fund
Scudder Technology Fund
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
Certain Scudder funds or classes thereof may not be available for
purchase or exchange. For more information, please call 1-800-225-5163.
The following information applies only to Class AARP and Class S shares
of Scudder International Fund.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of a Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by a Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals
Shares of a Fund may be purchased as the investment medium under a plan
in the form of a Scudder Profit-Sharing Plan (including a version of the Plan
which includes a cash-or-deferred feature) or a Scudder Money Purchase Pension
Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
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<PAGE>
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals
Shares of a Fund may be purchased as the investment medium under a plan
in the form of a Scudder 401(k) Plan adopted by a corporation, a self-employed
individual or a group of self-employed individuals (including sole proprietors
and partnerships), or other qualifying organization. This plan has been approved
as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of a Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder 403(b) Plan
Shares of a Fund may also be purchased as the underlying investment for
tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional Shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s). Any
such requests must be received by a Fund's transfer agent ten days prior to the
date of the first automatic withdrawal. An Automatic Withdrawal Plan may be
terminated at any time by the shareholder, the Corporation or its agent on
written notice, and will be terminated when all Shares of a Fund under the Plan
have been liquidated or upon receipt by the Corporation of notice of death of
the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP.
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Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Corporation and its agents reserve the right to establish a
maintenance charge in the future depending on the services required by the
investor.
The Corporation reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments in Class R and
Class S shares through automatic deductions from checking accounts by completing
the appropriate form and providing the necessary documentation to establish this
service. The minimum investment is $50 for Class R and Class S shares.
Shareholders may arrange to make periodic investments in Class AARP of
each Fund through automatic deductions from checking accounts. The minimum
pre-authorized investment amount is $50. New shareholders who open a Gift to
Minors Account pursuant to the Uniform Gift to Minors Act (UGMA) and the Uniform
Transfer to Minors Act (UTMA) and who sign up for the Automatic Investment Plan
will be able to open a Fund account for less than $500 if they agree to increase
their investment to $500 within a 10 month period. Investors may also invest in
any Class AARP for $500 if they establish a plan with a minimum automatic
investment of at least $100 per month. This feature is only available to Gifts
to Minors Account investors. The Automatic Investment Plan may be discontinued
at any time without prior notice to a shareholder if any debit from their bank
is not paid, or by written notice to the shareholder at least thirty days prior
to the next scheduled payment to the Automatic Investment Plan.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
Scudder Roth IRA: Individual Retirement Account
Shares of a Fund may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
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<PAGE>
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, certain medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
For Scudder International Fund, the following information applies to all share
classes.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds intend to follow the practice of distributing all of their
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. A Fund may
follow the practice of distributing the entire excess of net realized long-term
capital gains over net realized short-term capital losses. However, a Fund may
retain all or part of such gain for reinvestment after paying the related
federal income taxes for which the shareholders may then be asked to claim a
credit against their federal income tax liability. (See "TAXES.")
If a Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, a Fund may be subject to that excise tax. (See "TAXES.") In certain
circumstances, a Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by a Fund, to the extent permissible, as part of a Fund's
dividends paid deduction on its federal tax return.
Each Fund intends to distribute its investment company taxable income
and any net realized capital gains in November or December to avoid federal
excise tax, although an additional distribution may be made if necessary.
Both types of distributions will be made in Shares of a Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in Shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year each Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
For Scudder International Fund, the following information applies only to Class
R shares.
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<PAGE>
Dividends and other distributions in the aggregate amount of $10 or less are
automatically reinvested in shares of the same fund unless you request that such
policy not be applied to your account.
For Scudder International Fund, the following information applies to all share
classes.
PERFORMANCE INFORMATION
From time to time, quotations of the Shares' performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures will be calculated in the
following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Class S shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Class S shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of
$1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value:
ERV is the value, at the end of the
applicable period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Average Annual Total Returns for the period ended February 29, 2000
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life of Fund
<S> <C> <C> <C> <C>
Emerging Markets Growth Fund -
Class S^(1) * 19.24% -- -- 3.27%^(2)
Global Fund - Class S * 25.77% 17.20% 12.37% --
International Fund - Class S * 57.60% 21.71% 13.37% --
</TABLE>
(1) For the period ending April 30, 2000. Total returns would have been lower
if expenses had not been maintained.
(2) For the period beginning May 8, 1996 (commencement of operations)
* Since Class R shares (in the case of International Fund) and Class AARP
shares (in the case of each fund) are new classes of shares, no performance
information is available. However, Class R and Class AARP shares will have
substantially similar annual returns because the shares are invested in the
same portfolio of securities, and the annual returns would differ only to
the extent that expenses differ.
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Shares and assume
that all dividends and capital gains distributions during the period were
reinvested in Shares. Cumulative Total Return is
39
<PAGE>
calculated by finding the cumulative rates of return of a hypothetical
investment over such periods, according to the following formula (Cumulative
Total Return is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Cumulative Annual Total Returns for the period ended February 29, 2000
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life of Fund
<S> <C> <C> <C> <C>
Emerging Markets Growth Fund -
Class S^(1) 19.24% -- -- 13.65%^(2)
Global Fund - Class S 25.77% 121.17% 221.08% --
International Fund - Class S 57.60% 167.07% 250.66% --
</TABLE>
(1) For the period ended April 30, 2000.
(2) For the period beginning May 8, 1996 (commencement of operations)
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Comparison of Fund Performance
In connection with communicating their performance to current or
prospective shareholders, the Funds also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs.
Historical information on the value of the dollar versus foreign
currencies may be used from time to time in advertisements concerning the Funds.
Such historical information is not indicative of future fluctuations in the
value of the U.S. dollar against these currencies. In addition, marketing
materials may cite country and economic statistics and historical stock market
performance for any of the countries in which a Fund invests.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, Directors
and officers of a Fund, its portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Funds may be advertised as an investment choice in Scudder's
college planning program.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in a Fund. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
40
<PAGE>
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning a Fund, including reprints of, or selections from, editorials or
articles about a Fund.
ORGANIZATION OF THE FUNDS
Scudder International Fund, Inc. was organized as Scudder Fund of
Canada Ltd. in Canada in 1953 by the investment management firm of Scudder,
Stevens & Clark, Inc. On March 16, 1964, the name of the Corporation was changed
to Scudder International Investments Ltd. On July 31, 1975, the corporate
domicile of the Corporation was changed to the U.S. through the transfer of its
net assets to a newly formed Maryland corporation, Scudder International Fund,
Inc., in exchange for shares of the Corporation which then were distributed to
the shareholders of the Corporation.
The authorized capital stock of the Corporation consists of 1.6 billion
shares of a par value of $.01 each, which capital stock has been divided into
five series: Scudder International Fund, the original series; Scudder Latin
America Fund and Scudder Pacific Opportunities Fund, both organized in December
1992, Scudder Greater Europe Growth Fund, organized in October 1994, Scudder
Emerging Markets Growth Fund, organized in May 1996. Each series consists of 200
million shares except for the International Fund which consists of 500 million
shares. Scudder International Fund is further divided into four classes of
shares, Class AARP, Class S, the Barrett International Shares and Class R
shares. Scudder Latin America Fund, Scudder Pacific Opportunities Fund, Scudder
Greater Europe Growth Fund and Scudder Emerging Markets Growth Fund are each
further divided into two classes of shares, Class AARP and Class S. The
Directors have the authority to issue additional series of shares and to
designate the relative rights and preferences as between the different series.
All shares issued and outstanding are fully paid and non-assessable,
transferable, and redeemable at net asset value, subject to such charges as may
be applicable, at the option of the shareholder. Shares have no pre-emptive or
conversion rights.
Scudder Global Fund is a series of Global/International Fund, Inc., a
Maryland corporation organized on May 15, 1986. The name of this Corporation was
changed, effective May 29, 1998, from Scudder Global Fund, Inc. This Corporation
currently consists of five series: Scudder Global Fund, Scudder International
Bond Fund, Scudder Global Bond Fund, Global Discovery Fund and Scudder Emerging
Markets Income Fund. Each Fund is further divided into two classes of shares,
Class AARP and Class S shares, except Global Discovery Fund whose shares are
divided into four classes of shares, Class A, Class B, Class C and Scudder
Shares.
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<PAGE>
The authorized capital stock of Global/International Fund, Inc.
consists of 1.1 billion shares with $0.01 par value, 100 million shares of which
are allocated to Global Discovery Fund, 400 million shares of which are
allocated to Scudder Global Bond Fund, 200 million shares of which are allocated
to each of Scudder International Bond Fund, Scudder Emerging Markets Income Fund
and Scudder Global Fund. Each share of each series of the Corporation (or class
thereof) has equal rights as to each other share of that series (or class) as to
voting for Directors, redemption, dividends and liquidation. The Directors have
the authority to issue additional series of shares and to designate the relative
rights and preferences as between the different series. All shares issued and
outstanding are fully paid and non-assessable, transferable and redeemable at
net asset value at the option of the shareholder. Shares have no pre-emptive or
conversion rights.
Shares of each Corporation have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of each Corporation received for the issue or
sale of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are charged
with the liabilities in respect to such series and with a share of the general
liabilities of each Corporation. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of
each Corporation, subject to the general supervision of the Directors, have the
power to determine which liabilities are allocable to a given series, or which
are general or allocable to two or more series. In the event of the dissolution
or liquidation of either Corporation or any series, the holders of the shares of
any series are entitled to receive as a class the underlying assets of such
shares available for distribution to shareholders.
The assets of the Corporations received for the issue or sale of the
shares of each series and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors, are specifically allocated to such
series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with such a share of
the general liabilities of the Corporations. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Corporations, subject to the general supervision of the Directors, have the
power to determine which liabilities are allocable to a given series, or which
are general or allocable to two or more series. In the event of the dissolution
or liquidation of the Corporation or any series, the holders of the shares of
any series are entitled to receive as a class the underlying assets of such
shares available for distribution to shareholders.
Shares of each Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series and by class on matters affecting an individual class. For
example, a change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Directors of each Corporation, in their discretion, may authorize
the additional division of shares of a series into different classes permitting
shares of different classes to be distributed by different methods. Although
shareholders of different classes of a series would have an interest in the same
portfolio of assets, shareholders of different classes may bear different
expenses in connection with different methods of distribution.
Pursuant to the approval of a majority of stockholders, each
Corporation's Directors have the discretion to retain the current distribution
arrangement while investing in a master fund in a master/feeder fund structure
if the Board determines that the objectives of a Fund would be achieved more
efficiently thereby.
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<PAGE>
Each Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporations, to the fullest
extent permitted by Maryland General Corporation Law and the 1940 Act, shall not
be liable to the Corporations or its shareholders for damages. Maryland law
currently provides that Directors shall not be liable for actions taken by them
in good faith, in a manner reasonably believed to be in the best interests of
the Corporations and with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In so acting, a Director shall
be fully protected in relying in good faith upon the records of the Corporations
and upon reports made to the Corporation by persons selected in good faith by
the Directors as qualified to make such reports. The Articles and the By-Laws of
each Corporation provide that each Corporation will indemnify its Directors,
officers, employees or agents against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Corporations consistent with applicable law.
INVESTMENT ADVISER
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Funds. This organization, the
predecessor of which is Scudder, Stevens & Clark, Inc., is one of the most
experienced investment counsel firms in the U. S. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 the Adviser introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On December 31, 1997, Zurich Insurance Company ("Zurich") acquired a
majority interest in the Adviser, and Zurich Kemper Investments, Inc., a Zurich
subsidiary, became part of the Adviser. The Adviser's name changed to Scudder
Kemper Investments, Inc. On September 7, 1998, the businesses of Zurich
(including Zurich's 70% interest in Scudder Kemper) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") were combined to form a new
global insurance and financial services company known as Zurich Financial
Services Group. By way of a dual holding company structure, former Zurich
shareholders initially owned approximately 57% of Zurich Financial Services
Group, with the balance initially owned by former B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over 280 open and
closed-end mutual funds.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. The Adviser's international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Funds may invest, the conclusions and
investment decisions of the Adviser with respect to the Funds are based
primarily on the analyses of its own research department.
Certain investments may be appropriate for a fund and also for other
clients advised by the Adviser. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for a fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to that fund.
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<PAGE>
In certain cases, the investments for a fund are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser,
that have similar names, objectives and investment styles. You should be aware
that the Funds are likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Funds can be expected to vary from those of these other mutual funds.
The present investment management agreements (the "Agreements") became
effective September 7, 1998, were approved at a shareholder meeting held on
December 15, 1998 and were most recently approved by the Directors on July 10,
2000 for Scudder Global Fund and Scudder Emerging Markets Growth Fund. The
Agreement for Scudder International Fund was approved by the Directors on July
10, 2000 and at a shareholder meeting held on July 13, 2000 and became effective
on August 14, 2000. The Agreements will continue in effect until September 30,
2000 and from year to year thereafter only if its continuance is approved
annually by the vote of a majority of those Directors who are not parties to
such Agreement or interested persons of the Adviser or the Corporations, cast in
person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Corporations' Directors or of a majority of the
outstanding voting securities of the respective Fund. The Agreements may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically terminate in the event of their assignment.
For these services Emerging Markets Growth Fund pays the Adviser a fee
equal to 1.25% of the Fund's average daily net assets, payable monthly, provided
the Fund will make such interim payments as may be requested by the Adviser not
to exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser has agreed until December 31, 2000 to maintain the total
annualized expenses of the Fund at no more than 2.25% of the average daily net
assets of the Fund. For the fiscal years ended October 31, 1997, 1998 and 1999,
the Adviser did not impose all of its management fee amounting to $617,962,
$269,707 and $580,913, respectively. The Adviser did impose management fees
amounting to $1,724,110, $2,003,649 and $852,388, respectively.
For these services Global Fund pays the Adviser a fee equal to 1.00% on
the first $500 million of average daily net assets, 0.95% on such net assets in
excess of $500 million, 0.90% on such net assets in excess of $1 billion and
0.85% on such net assets in excess of $1.5 billion. The fee is payable monthly,
provided the Fund will make such interim payments as may be requested by the
Adviser not to exceed 75% of the amount of the fee then accrued on the books of
the Fund and unpaid. The investment advisory fees for the fiscal years ended
June 30, 1999, 1998 and 1997, were $14,936,557, $15,502,974 and $13,450,790,
respectively. For the two months ended August 31, 1999, the investment advisory
fee pursuant to the Agreement amounted to $2,547,570.
For Scudder Kemper's services, Scudder International Fund pays Scudder
Kemper a fee equal to 0.675% of average daily net assets on such assets up to $6
billion, 0.625% of average daily net assets on such assets exceeding $6 billion,
and 0.600% of average daily net assets on such assets exceeding $7 billion. The
investment advisory fees for the fiscal years ended March 31, 1999, 1998 and
1997 were $23,819,941, $22,491,681, and $20,989,160, respectively. For the five
months ended August 31, 1999, the investment advisory fees pursuant to the
Agreement amounted to $11,269,103, of which $2,432,369 was unpaid at August 31,
1999.
The term Scudder Investments is the designation given to the services
provided by Scudder Kemper Investments, Inc. and its affiliates to the Scudder
Family of Funds.
Scudder Kemper has agreed to pay a fee to AARP and/or its affiliates in
return for services relating to investments by AARP members in AARP Class shares
of each fund. This fee is calculated on a daily basis as a percentage of the
combined net assets of AARP Classes of all funds managed by Scudder Kemper. The
fee rates, which decrease as the aggregate net assets of the AARP Classes become
larger, are as follows: 0.07% for the first $6 billion in net assets, 0.06% for
the next $10 billion and 0.05% thereafter.
44
<PAGE>
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
Code of Ethics
The Funds, the Adviser and principal underwriter have each adopted
codes of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Funds and employees of the Adviser and principal underwriter are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Funds, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The Adviser's Code
of Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Funds. Among other things, the Adviser's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the
Adviser's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
DIRECTORS AND OFFICERS OF SCUDDER INTERNATIONAL FUND, INC.
AND GLOBAL/INTERNATIONAL FUND, INC.
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Henry P. Becton, Jr. (56) Director President, WGBH Educational Foundation None
WGBH
125 Western Avenue
Allston, MA 02134
45
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
Linda C. Coughlin (48)+* President and Managing Director of Scudder Kemper Director and Senior
Director Investments, Inc. Vice President
Dawn-Marie Driscoll (53) Director Executive Fellow, Center for None
4909 SW 9th Place Business Ethics, Bentley College;
Cape Coral, FL 33914 President, Driscoll Associates
(consulting firm)
Edgar R. Fiedler (70) Director Senior Fellow and Economic None
50023 Brogden Counsellor, The Conference Board,
Chapel Hill, NC Inc.( Not-for-profit business
research organization)
Keith R. Fox (46) Director General Partner, Exeter Group of None
10 East 53rd Street Funds
New York, NY 10022
Joan E. Spero (55) Director President, Doris Duke Charitable None
Doris Duke Charitable Foundation Foundation; Department of State -
650 Fifth Avenue Undersecretary of State for Economic,
New York, NY 10128 Business and Agricultural Affairs
(March 1993 to January 1997)
Jean Gleason Stromberg (56) Director Consultant; Director, Financial None
3816 Military Road, NW Institutions Issues, U.S. General
Washington, D.C. Accounting Office (1996-1997);
Partner, Fulbright & Jaworski Law
Firm (1978-1996)
Jean C. Tempel (56) Director Managing Director, First Light None
One Boston Place Capital, LLC. (venture capital firm)
23rd Floor
Boston, MA 02108
46
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
Steven Zaleznick (45)* Director President and CEO, AARP Services, None
601 E. Street, NW Inc.
7th Floor
Washington, D.C. 20004
Kathryn L. Quirk (47)# Vice President and Managing Director of Scudder Kemper Director, Senior Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Assistant
Clerk
Thomas V. Bruns (43) *** Vice President Managing Director of Scudder Kemper None
Investments, Inc.
William F. Glavin (41)+ Vice President Managing Director of Scudder Kemper Vice President
Investments, Inc.
Irene T. Cheng (44) # Vice President of Managing Director of Scudder Kemper None
Scudder International Investments, Inc.
Fund, Inc.
Joyce E. Cornell (55) # Vice President of Managing Director of Scudder Kemper None
Scudder International Investments, Inc.
Fund, Inc.
Susan E. Dahl (34) # Vice President of Managing Director of Scudder Kemper None
Global/International Investments, Inc.
Fund, Inc.
Edmund B. Games, Jr. (61) + Vice President of Managing Director of Scudder Kemper None
Scudder International Investments, Inc.
Fund, Inc.
James E. Masur (40) + Vice President Senior Vice President of Scudder None
Kemper Investments, Inc.
Howard Schneider (43) + Vice President Managing Director of Scudder Kemper None
Investments, Inc.
Carol L. Franklin (46) # Vice President of Managing Director of Scudder Kemper None
Scudder International Investments, Inc.
Fund, Inc.
47
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
Ann M. McCreary (43) # Vice President Managing Director of Scudder Kemper None
Investments, Inc.
Joan Gregory (55) # Vice President of Vice President of Scudder Kemper None
Scudder International Investments, Inc.
Fund, Inc.
Tien Yu Sieh (31) # Vice President of Senior Vice President of Scudder None
Scudder International Kemper Investments, Inc.
Fund, Inc.
Jan C. Faller (34)+ Vice President of Vice President of Scudder Kemper None
Global/International Investments, Inc.
Fund, Inc.
William E. Holzer (50) # Vice President of Managing Director of Scudder Kemper None
Global/International Investments, Inc.
Fund, Inc.
Gerald J. Moran (60)# Vice President of Managing Director of Scudder Kemper None
Global/International Investments, Inc.
Fund, Inc.
M. Isabel Saltzman (45)+ Vice President of Managing Director of Scudder Kemper None
Global/International Investments, Inc.
Fund, Inc.
John R. Hebble (42)+ Treasurer Senior Vice President of Scudder Assistant Treasurer
Kemper Investments, Inc.
Caroline Pearson (38)+ Assistant Secretary Senior Vice President of Scudder Clerk
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
John Millette (37)+ Vice President and Vice President of Scudder Kemper None
Secretary Investments, Inc.
Brenda Lyons (37)+ Assistant Treasurer Senior Vice President of Scudder None
Kemper Investments, Inc.
</TABLE>
* Ms. Coughlin and Mr. Zaleznick are considered by the Funds and their
counsel to be persons who are "interested persons" of the Adviser or of
the Corporation as defined in the 1940 Act.
** Unless otherwise stated, all officers and directors have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154
*** Address: 222 South Riverside Plaza, Chicago, Illinois
48
<PAGE>
The Directors and officers of the Corporation also serve in similar
capacities with respect to other Scudder Funds.
Certain accounts for which Scudder Kemper acts as investment adviser
owned 1,010,573 shares in the aggregate, or 14.14% of the outstanding shares of
Scudder Emerging Markets Growth Fund on August 31, 2000. Scudder Kemper may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
To the best of the Corporation's knowledge, as of August 31, 2000, all
Directors and officers of the Corporation, as a group, owned beneficially (as
that term is defined in Section 13 (d) under the Securities Exchange Act of
1934) less than 1% of the outstanding shares of any class of Scudder Emerging
Markets Growth Fund, Scudder International Fund and Scudder Global Fund.
To the best of the Funds' knowledge, as of August 31, 2000, no person
owned of record more than 5% or more of the outstanding shares of any Fund,
except as stated below. They may be deemed to be the beneficial owner of certain
of these shares.
<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------- ---------------------- ------------------------
Name Fund Class Shares Percentage
---- ---- ----- ------ ----------
---------------------------- -------------------------- -------------- ---------------------- ------------------------
<S> <C> <C> <C>
Charles Schwab & Co. Emerging Markets Growth S 630,777 8.82%
101 Montgomery Street
San Francisco, CA 94101
---------------------------- -------------------------- -------------- ---------------------- ------------------------
State Street Bank and Emerging Markets Growth S 486,081 6.80%
Trust, Custodian
Scudder Pathway Series:
Balanced Portfolio1
Heritage Drive
Quincy, MA 02171
---------------------------- -------------------------- -------------- ---------------------- ------------------------
</TABLE>
To the best of the Fund's knowledge, as of August 31, 2000, no person
owned of record more than 5% or more of the outstanding shares of any class of
Scudder International Fund, except as stated below. They may be deemed to be the
beneficial owner of certain of these shares.
<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------------------- -------------------------- ----------------------
Name Fund Class Shares Percentage
---- ---- ----- ------ ----------
---------------------------- -------------------------- -------------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
Charles Schwab & Co. International Fund S 11,043,022 12.94%
101 Montgomery Street
San Francisco, CA 94101
---------------------------- -------------------------- -------------------------- -------------------------- ----------------------
AARP Managed Investment International Fund AARP 113,953 9.43%
Portfolio:
Diversified Growth
1 Heritage Drive
Quincy, MA 02171
---------------------------- -------------------------- -------------------------- -------------------------- ----------------------
</TABLE>
To the best of the Fund's knowledge, as of August 31, 2000, no person
owned of record more than 5% or more of the outstanding shares of any class of
Scudder Global Fund, except as stated below. They may be deemed to be the
beneficial owner of certain of these shares.
<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------------------- -------------------------- -------------
Name Fund Class Shares Percentage
---------------------------- -------------------------- -------------------------- -------------------------- -------------
<S> <C> <C> <C> <C>
Charles Schwab & Co. Global Scudder Shares 5,686,133 11.55%
101 Montgomery Street
---------------------------- -------------------------- -------------------------- -------------------------- -------------
49
<PAGE>
---------------------------- -------------------------- -------------------------- -------------------------- -------------
San Francisco, CA 94101
---------------------------- -------------------------- -------------------------- -------------------------- -------------
</TABLE>
50
<PAGE>
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Directors is responsible for the general oversight of the
Funds' business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Directors" have primary
responsibility for assuring that a Fund is managed in the best interests of its
shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of the Funds and other operational matters, including
policies and procedures designed to ensure compliance with various regulatory
requirements. At least annually, the Independent Directors review the fees paid
to the Adviser and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, the Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by the Funds' independent
public accountants and by independent legal counsel selected by the Independent
Directors.
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Funds' independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
Each Independent Director receives compensation for his or her
services, which includes an annual retainer and an attendance fee for each
meeting attended. The Independent Director who serves as lead director receives
additional compensation for his or her service. No additional compensation is
paid to any Independent Director for travel time to meetings, attendance at
director's educational seminars or conferences, service on industry or
association committees, participation as speakers at directors' conferences or
service on special director task forces or subcommittees. Independent Directors
do not receive any employee benefits such as pension or retirement benefits or
health insurance. Notwithstanding the schedule of fees, the Independent
Directors have in the past and may in the future waive a portion of their
compensation.
The Independent Directors also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Director fee schedules. The
following table shows the aggregate compensation received by each Independent
Director during 1999 from each Corporation and from all of the Scudder funds as
a group.
51
<PAGE>
<TABLE>
<CAPTION>
Scudder International Global/International, Fund,
Name Fund, Inc.* Inc. ** All Scudder Funds
---- ---------- ----- -----------------
<S> <C> <C> <C>
Henry P. Becton, Jr. + $0 $0 $140,000 (30 funds)
Dawn-Marie Driscoll + $0 $0 $150,000 (30 funds)
Edgar R. Fiedler + $0 $0 $73,230 (29 funds)++
Keith R. Fox $43,650 $36,375 $160,325 (23 funds)
Joan E. Spero $47,550 $39,625 $175,275 (23 funds)
Jean Gleason Stromberg + $0 $0 $40,935 (16 funds)
Jean C. Tempel + $0 $0 $140,000 (30 funds)
</TABLE>
+ Newly-elected Director. On July 7, 2000, shareholders of the Fund
elected a new Board of Directors. See the "Directors and Officers"
section for the newly-constituted Board of Directors.
* In 1999, Scudder International Fund, Inc. consisted of eight funds:
Scudder International Fund, Scudder Latin America Fund, Scudder Pacific
Opportunities Fund, Scudder Greater Europe Growth Fund, Scudder
Emerging Markets Growth Fund, Scudder International Growth and Income
Fund, Scudder International Value Fund and Scudder International Growth
Fund.
** In 1999, Global/International Fund, Inc. consists of five funds:
Scudder Global Fund, Scudder International Bond Fund, Scudder Global
Bond Fund, Global Discovery Fund and Scudder Emerging Markets Income
Fund.
++ Mr. Fielder's total compensation includes the $9,900 accrued, but not
received, through the deferred compensation program.
52
<PAGE>
Members of the Board of Directors who are employees of the Adviser or its
affiliates receive no direct compensation from the Corporation, although they
are compensated as employees of the Adviser, or its affiliates, as a result of
which they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
Each Corporation has an underwriting agreement with Scudder Investor
Services, Inc., Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
corporation. The Corporations' underwriting agreement dated May 8, 2000 will
remain in effect until September 30, 2001 and from year to year thereafter only
if its continuance is approved annually by a majority of the members of the
Board of Directors who are not parties to such agreement or interested persons
of any such party and either by vote of a majority of the Board of Directors or
a majority of the outstanding voting securities of the Funds. The underwriting
agreements were last approved by the Directors on July 10, 2000.
Under the underwriting agreements, a Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the Commission of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering a Fund as a broker or
dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor); notices, proxy
statements, reports or other communications to shareholders of a Fund; the cost
of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both a Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of a Fund's shares
to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of a Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by a Fund, unless a Rule 12b-1 Plan is in effect which
provides that a Fund shall bear some or all of such expenses.
As agent, the Distributor currently offers shares of the Funds on a
continuous basis to investors in all states in which shares of a Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreements provide that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of a Fund.
For Scudder International Fund, the following information applies to the Class R
shares only.
To provide compensation to financial services firms for performing
administrative support services to its customers who are shareholders of Class R
shares of the Fund, the Trust, on behalf of Class R shares of the Fund, has
approved an Administrative Services Agreement. These services include, but are
not limited to: providing information on shareholder accounts and transactions,
answering inquiries regarding the Fund, resolving account problems, and
explaining mutual fund performance and rankings. For services provided under the
Administrative Services Agreement, the Fund, on behalf of Class R shares, would
pay the Distributor an administrative service fee of up to 0.25% of the average
daily net assets of that class of the Fund. The Distributor would then
distribute this fee to financial representatives that provide services for their
clients who are investors through applicable group retirement plans. The
administrative service fee is calculated monthly.
With respect to the Class R shares, the Fund has adopted a distribution
plan in accordance with Rule 12b-1 under the 1940 Act (the "Plan"), which allows
for the payment of distribution fees by the Fund to the Distributor. Currently,
53
<PAGE>
the Plan is inactive and no payments will be made under the Plan by the Fund.
However, the Plan will be activated and payments made under the Plan in the
event that payments made under the Administrative Services Agreement to the
Distributor are deemed to be the indirect financing of the distribution of Fund
shares. The Plan may also be activated by a vote of the Fund's Board of
Directors. If the Plan were made operative, the Distributor would compensate
various financial services firms for sales of Fund shares and may pay
commissions, fees and concessions to such firms. Moreover, the distribution fee
paid under the operative Plan would be used to compensate the Distributor for
expenses incurred in connection with activities primarily intended to result in
the sale of Class R shares, including the printing of prospectuses and reports
for persons other than existing shareholders and the preparation, printing and
distribution of sales literature and advertising materials. Under the Plan, the
Distributor may appoint Kemper Distributors, Inc., an affiliate of the Adviser,
as its agent to carry out its duties involving the Plan.
Administrative Fee
Each Fund has entered into administrative services agreements with
Scudder Kemper (the "Administration Agreements"), pursuant to which Scudder
Kemper will provide or pay others to provide substantially all of the
administrative services required by a Fund (other than those provided by Scudder
Kemper under its investment management agreements with the Funds, as described
above) in exchange for the payment by each Fund of an administrative services
fee (the "Administrative Fee") of 0.375% of its average daily net assets for
Scudder International Fund and Scudder Global Fund, and 0.65% of Scudder
Emerging Markets Growth Fund's average daily net assets. One effect of these
arrangements is to make each Fund's future expense ratio more predictable. The
Administrative Fee will become effective August 14, 2000 for Scudder
International Fund, September 11, 2000 for Scudder Global Fund and on or about
October 2, 2000 for Scudder Emerging Markets Growth Fund.
Various third-party service providers (the "Service Providers"), some
of which are affiliated with Scudder Kemper, provide certain services to the
Funds pursuant to separate agreements with the Funds. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for the
Funds and maintains their accounting records. Scudder Service Corporation, also
a subsidiary of Scudder Kemper, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Funds. Scudder Trust Company, an
affiliate of Scudder Kemper, provides subaccounting and recordkeeping services
for shareholders in certain retirement and employee benefit plans. As custodian,
Brown Brothers Harriman holds the portfolio securities of the Funds, pursuant to
a custodian agreement. PricewaterhouseCoopers LLP audits the financial
statements of the Funds and provides other audit, tax, and related services.
Dechert acts as general counsel for each Fund.
Scudder Kemper will pay the Service Providers for the provision of
their services to the Funds and will pay other fund expenses, including
insurance, registration, printing and postage fees. In return, each Fund will
pay Scudder Kemper an Administrative Fee.
Each Administration Agreement has an initial term of three years,
subject to earlier termination by a Fund's Board. The fee payable by a Fund to
Scudder Kemper pursuant to the Administration Agreements is reduced by the
amount of any credit received from the Fund's custodian for cash balances.
Certain expenses of the Funds will not be borne by Scudder Kemper under
the Administration Agreements, such as taxes, brokerage, interest and
extraordinary expenses; and the fees and expenses of the Independent Directors
(including the fees and expenses of their independent counsel). In addition,
each Fund will continue to pay the fees required by its investment management
agreement with Scudder Kemper.
For the International Fund, the following information applies to all share
classes.
TAXES
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
54
<PAGE>
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year a Fund does not qualify for special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such an event, dividend
distributions would be taxable to shareholders to the extent of a Fund's
earnings and profits, and would be eligible for the dividends received deduction
in the case of corporate shareholders.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of a Fund's ordinary income for the calendar year, at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) realized during the one-year period ending October 31
during such year, and all ordinary income and capital gains for prior years that
were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of a Fund. Presently, the
Funds have no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by a Fund, each Fund intends to elect to
treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by a Fund on such gains as a credit against the shareholder's federal income tax
liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such reported gains and the
shareholder's tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of each Fund's gross income. If any such dividends constitute a
portion of a Fund's gross income, a portion of the income distributions of a
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
a Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of a Fund are deemed to have been held by a Fund or the
shareholders, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, regardless of the length of time the shares of a Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional Shares will have a cost basis for federal income tax purposes in each
Share so received equal to the net asset value of a Share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
55
<PAGE>
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by a Fund result in a reduction in the net asset value of
that Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Each Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and will be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by a Fund to foreign countries (which
taxes relate primarily to investment income). Each Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of a Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code, except in the case of
certain electing individual taxpayers who have limited creditable foreign taxes
and no foreign source income other than passive investment-type income.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of a Fund are
held by a Fund or the shareholder, as the case may be, for less than 16 days (46
days in the case of preferred shares) during the 30-day period (90-day period
for preferred shares) beginning 15 days (45 days for preferred shares) before
the shares become ex-dividend. In addition, if a Fund fails to satisfy these
holding period requirements, it cannot elect under Section 853 to pass through
to shareholders the ability to claim a deduction for the related foreign taxes.
If a Fund does not make the election permitted under section 853 any
foreign taxes paid or accrued will represent an expense to a Fund which will
reduce its investment company taxable income. Absent this election, shareholders
will not be able to claim either a credit or a deduction for their pro rata
portion of such taxes paid by a Fund, nor will shareholders be required to treat
as part of the amounts distributed to them their pro rata portion of such taxes
paid.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by a
Fund will be subject to tax under Section 1234 of the Code. In general, no loss
will be recognized by a Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on a Fund's holding period for the option, and in the case
of the exercise of a put option, on a Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any stock in
a Fund's portfolio similar to the stocks on which the index is based. If a Fund
writes an option, no gain is recognized upon its receipt of a premium. If the
option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If a call option is exercised, the character of the gain
or loss depends on the holding period of the underlying stock.
Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes a Fund's risk of loss with respect to such stock could
be treated as a "straddle" which is governed by Section 1092 of the Code, the
operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
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certain "qualified covered call options" on stock written by a Fund.
Many futures and forward contracts entered into by a Fund and listed
nonequity options written or purchased by a Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term, and on the last trading day of a Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options and
similar financial instruments entered into or acquired by a Fund will be treated
as ordinary income or loss.
Notwithstanding any of the foregoing, a Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if a Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of a Fund's taxable year, if certain conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, a Fund will recognize gain at that time as though it
had closed the short sale. Future regulations may apply similar treatment to
other transactions with respect to property that becomes substantially
worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time a Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If a Fund invests in stock of certain foreign investment companies, a
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of a Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of a Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to a Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in a Fund's investment company taxable income and,
accordingly, would not be taxable to a Fund to the extent distributed by a Fund
as a dividend to its shareholders.
A Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, a Fund
would report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds a Fund's adjusted basis in these shares; any
mark-to-market losses and any loss from an actual disposition of shares would be
reported as ordinary loss to the extent of any net mark-to-market gains included
in income in prior years. The effect of the election would be to treat excess
distributions and gain on dispositions as ordinary income which is not subject
to a fund level tax when distributed to shareholders as a dividend.
Alternatively, a Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
If a Fund invests in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from a Fund by its corporate shareholders, to the extent
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attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by a
Fund in a written notice to shareholders.
A Fund will be required to report to the IRS all distributions of
investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of investment company taxable income and capital gains
and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of a Fund may be subject to state and local taxes on
distributions received from a Fund and on redemptions of a Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
A Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or a
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research services. The Adviser has negotiated arrangements, which
are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or a Fund in exchange for the direction by the Adviser of
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brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser will not place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of a Fund with issuers, underwriters or
other brokers and dealers. The Distributor will not receive any commission, fee
or other remuneration from a Fund for this service.
Although certain research services from broker/dealers may be useful to
a Fund and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than a Fund, and not all such information is used by the Adviser
in connection with a Fund. Conversely, such information provided to the Adviser
by broker/dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to a Fund.
The Directors review, from time to time, whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable. a
Fund
For the fiscal years ended October 31, 1997, 1998 and 1999, Emerging
Markets Growth Fund paid brokerage commissions of $1,448,573, $682,277 and
$869,718, respectively. For the fiscal year ended October 31, 1999, $620,195
(71.31%) of the total brokerage commissions paid by the Fund resulted from
orders placed, consistent with the policy of obtaining the most favorable net
results, with brokers and dealers who provided supplementary research, market
and statistical information to the Fund or the Adviser. The total amount of
brokerage transactions aggregated $574,522,694 of which $528,963,044 (92.07%) of
all brokerage transactions were transactions which included research
commissions. For the fiscal years ended June 30, 1999, 1998 and 1997, the
Scudder Global Fund paid brokerage commissions of $2,425,890, $2,451,495 and
$2,465,215, respectively. For the fiscal year ended June 30, 1999, $1,639,151,
(67.57% of the total brokerage commissions paid by the Fund) resulted from
orders placed, consistent with the policy of obtaining the most favorable net
results, with brokers and dealers who provided supplementary research, market
and statistical information to the Fund or the Adviser. The total amount of
brokerage transactions aggregated $1,575,800,538, of which $1,003,696,387
(63.69% of all brokerage transactions) were transactions which included research
commissions. Such brokerage was not allocated to any particular brokers or
dealers or with any regard to the provision of market quotations for purposes of
valuing the Fund's portfolio or to any other special factors. For the fiscal
years ended March 31, 1999, 1998 and 1997, the Scudder International Fund paid
brokerage commissions of $9,926,570, $6,904,371, and $5,275,727 respectively.
For the fiscal year ended March 31, 1999, $9,741,020 (98.13%) of the total
brokerage commissions paid by the Fund resulted from orders for transactions,
placed consistent with the policy of seeking to obtain the most favorable net
results, with brokers and dealers who provided supplementary research services
to the Fund or the Adviser. The amount of such transactions aggregated
$4,239,712,028 (95.76% of all brokerage transactions). The balance of such
brokerage was not allocated to particular broker or dealer with regard to the
above-mentioned or other special factors.
Portfolio Turnover
The Funds' average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. For the fiscal
years ended October 31, 1999, 1998 and 1997, Emerging Markets Growth Fund's
portfolio turnover rates were 63.6%, 44.8% and 61.5%, respectively. For the
fiscal years ended June 30, 1999, 1998 and 1997 Global Fund's portfolio turnover
rates were 70.2%, 51.3% and 40.5%, respectively, and for the two months ended
August 31, 1999 was 28.8%. For the fiscal years ended March 31, 1999, 1998 and
1997 International Fund's portfolio turnover rates were 79.9%, 55.7% and 35.8%,
respectively, and for the five months ended August 31, 1999 was 81.5%. Purchases
and sales are made for a Fund's portfolio whenever necessary, in management's
opinion, to meet that Fund's objective.
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NET ASSET VALUE
The net asset value of shares of a Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading
(the "Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Net asset value per share is
determined separately for each class of shares by dividing the value of the
total assets of the Fund attributable to the shares of that class, less all
liabilities attributable to that class, by the total number of shares of that
class outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean"). Lacking a
Calculated Mean, the security is valued at the most recent bid quotation. An
equity security which is traded on the Nasdaq Stock Market, Inc. ("Nasdaq") is
valued at its most recent sale price. Lacking any sales, the security is valued
at the most recent bid quotation. The value of an equity security not quoted on
the Nasdaq System, but traded in another over-the-counter market, is its most
recent sale price. Lacking any sales, the security is valued at the Calculated
Mean. Lacking a Calculated Mean, the security is valued at the most recent bid
quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by a Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
purchased with remaining maturities of sixty days or less shall be valued by the
amortized cost method, which the Board believes approximates market value. If it
is not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Corporation's Valuation Committee, the value
of a portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The financial highlights of each Fund included in the Funds' prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 160 Federal Street,
Boston, MA 02110, independent accountants, given on the authority of said firm
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as experts in accounting and auditing. PricewaterhouseCoopers LLP audits the
financial statements of each Fund and provides other audit, tax, and related
services.
Other Information
Many of the investment changes in a Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of a Fund. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of Emerging Markets Growth Fund Class S is
811165-50-5.
The CUSIP number of Emerging Markets Growth Fund Class AARP is
811165-86-9.
The CUSIP number of Global Fund Class S is 378947-20-4.
The CUSIP number of Global Fund Class AARP is 378947-87-3.
For International Fund:
The CUSIP number of Class S shares is 811165-10-9.
The CUSIP number of the Class R shares is 81165-87-7.
The CUSIP number of Class AARP shares is 811165-82-8.
Emerging Markets Growth Fund has a fiscal year end of October 31.
Global Fund has a fiscal year end of August 31.
International Fund has a fiscal year end of August 31.
The Funds employ Brown Brothers Harriman & Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian for the Funds.
The law firm of Dechert is counsel to the Funds.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for the Funds. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. Each
Fund pays SSC an annual fee of $26.00 for each retail account and $29.00 for
each retirement account. For the fiscal year ended October 31, 1997, 1998 and
1999, Emerging Markets Growth Fund incurred charges of $58,165, $459,710 and
$345,907, respectively, of which $53,392 was unpaid at October 31, 1999. For the
fiscal year ended June 30, 1997, 1998 and 1999, SSC charged the Global Fund
aggregate fees of $2,374,492, $2,508,727 and $2,380,471, respectively, and
$368,471 for the two months ended August 31, 1999, of which $179,331 was unpaid
at August 31, 1999. The International Fund incurred fees of $3,098,197 for Class
S shares and $4,857 for the Barrett International Shares, respectively, during
the fiscal year ended March 31, 1999, and $1,258,902 and $4,632, respectively,
for the five months ended August 31, 1999, of which $255,782 is unpaid at August
31, 1999. Prior to the inception of the Barrett International Shares, Class S
shares of the Fund incurred fees of $3,394,358, and $3,050,321 during the fiscal
years ended March 31, 1998 and 1997 respectively.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are generally
held in an omnibus account.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. Each Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.065% of the first $150 million of average daily net assets, 0.040% of
such assets in excess of $150 million, 0.020% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the fiscal
year ended October 31, 1997, 1998 and 1999, Emerging Markets Growth Fund
incurred charges of $58,165, $459,710 and $125,323, respectively, of which
$19,079 was unpaid at October 31, 1999. For the fiscal years ended June 30,
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1997, 1998 and 1999, SFAC charged the Global Fund aggregate fees of $552,664,
$601,315 and $585,537, respectively, and $97,186 for the two months ended August
31, 1999, all of which was unpaid as of August 31, 1999. For the fiscal years
ended March 31, 1997, 1998 and 1999, SFAC charged the International Fund
aggregate fees of $893,682, $838,885, and $795,122, respectively, and $402,576
for the five months ended August 31, 1999, of which $83,574 was unpaid at August
31, 1999.
Kemper Service Corporation ("KSvC"), 811 Main Street, Kansas City,
Missouri, 64105-2005, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for Class R shares of
International Fund and also provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays KSvC a fee of $5.00 for each new account, an annual fee of $18.00 for
each account maintained for a participant, an asset-based fee of 0.08% and
out-of-pocket reimbursement. For the period August 2, 1999 to August 31, 1999,
the amount charged to Class R amounted to $139, all of which was unpaid at
August 31, 1999.
Annual service fees are paid by each Fund to Scudder Trust Company, Two
International Place, Boston, Massachusetts, 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts. Emerging Markets Growth Fund pays
Scudder Trust Company an annual fee of $17.55 per shareholder account, and
Global Fund and International Shares of International Fund pays Scudder Trust
Company an annual fee of $29 per shareholder account. For the fiscal year ended
October 31, 1997, 1998 and 1999, Emerging Markets Growth Fund incurred charges
of $41,624, $87,163 and $123,109, respectively, of which $30,858 was unpaid at
October 31, 1999. For the fiscal years ended June 30, 1997, 1998 and 1999,
Global Fund incurred fees of $830,991, $1,195,885 and $1,427,397, respectively,
and $235,738 for the two months ended August 31, 1999, of which $119,042 was
unpaid at August 31, 1999. International Shares (now Class S) of International
Fund incurred fees of $2,067,603, $1,561,049, and $930,582 during the fiscal
years ended March 31, 1999, 1998 and 1997, respectively, and $1,202,021 for the
five months ended August 31, 1999, of which $254,431 was unpaid at August 31,
1999.
The prospectuses and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the Commission under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Fund and the
securities offered hereby. This Registration Statement and its amendments are
available for inspection by the public at the Commission in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio
of the Funds, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements in the Annual Report to the
Shareholders of Scudder International Fund and Scudder Global Fund dated August
31, 1999, the unaudited Semiannual Report to Shareholders of Scudder
International Fund and Scudder Global Fund, dated February 29, 2000, and for the
Annual Report to Shareholders of Scudder International Fund - International
Shares (now Class S) and for Scudder Emerging Markets Growth Fund dated October
31, 1999 and the unaudited semiannual Report to Shareholders dated April 30,
2000 of Scudder Emerging Markets Growth Fund are each incorporated herein by
reference and are hereby deemed to be a part of this Statement of Additional
Information by reference in its entirety.
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APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds.
Ratings of Corporate Bonds
S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
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Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
