SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/GLOBAL
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Scudder Global
Discovery Fund
Annual Report
October 31, 2000
The fund seeks to provide above-average capital appreciation over the long term.
Scudder Global Discovery Fund is properly known as Global Discovery Fund.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
18 Glossary of Investment Terms
19 Investment Portfolio
25 Financial Statements
28 Financial Highlights
29 Notes to Financial Statements
37 Report of Independent Accountants
38 Tax Information
39 Shareholder Meeting Results
40 Officers and Directors
41 Investment Products and Services
43 Account Management Resources
2
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Scudder Global Discovery Fund
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ticker symbol SGSCX fund number 010
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Date of o For the 12-month period ended October 31, 2000, the
Inception: fund provided a total return of 33.25%, compared with
9/10/91 a 13.69% return for its benchmark, the Salomon
Brothers World Equity Extended Market Index.
Total Net o The fall of the Nasdaq in March ushered in a period
Assets of of unprecedented stock market turbulence in the
Scudder United States that spread abroad, throwing markets
Shares as of around the world into turmoil.
10/31/00:
$574 million o The fund benefited from timely moves out of many of
the technology stocks whose prices exceeded rational
valuation measurements, and by adding to positions in
energy, health care, and services.
3
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Letter from the Fund's President
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Dear Shareholders,
The 12-month period has been extremely volatile for many global investors.
Interest rates in the United States rose, while the historic gains in
technology, telecommunications, and media stocks ended suddenly in March. In
spite of this tumult, Scudder Global Discovery Fund was able to outperform its
benchmark by a wide margin.
As portfolio managers Gerry Moran and Steven Stokes discuss in the interview
that begins on page 10, this outperformance was due in part to timely moves out
of many of the technology stocks whose prices exceeded rational valuation
measurements. At the beginning of 2000, the managers began a more defensive
positioning of the portfolio by adding to positions in energy, health care, and
services. As a result of this reallocation, as well as good stock selection, the
fund provided a total return of 33.25% for the period ended October 31, 2000,
compared with a 13.69% return for its unmanaged benchmark, the Salomon Brothers
World Equity Extended Market Index.
For current information on your fund and your account, visit our Web site at
www.scudder.com. There you'll find a wealth of information, including the most
recent fund performance, the latest news on Scudder products and services, and
the opportunity
4
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to perform account transactions. You can also speak with one of our
representatives by calling 1-800-SCUDDER (1-800-728-3337).
Thank you for your continued interest in Scudder Global Discovery Fund.
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President
Scudder Global Discovery Fund
5
<PAGE>
Performance Update
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October 31, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Yearly periods ended October 31
Global Discovery Salomon Brothers
Fund -- Scudder Shares World Equity EMI*
---------------------- -----------------
9/99** 10000 10000
'91 9770 10148
'92 9894 9705
'93 13459 12714
'94 13837 13493
'95 14988 14422
'96 18131 16569
'97 20151 18779
'98 20390 17934
'99 28944 21064
'00 38568 23947
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 10/31/2000 $10,000 Cumulative Annual
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Global Discovery Fund -- Scudder Shares
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1 year $ 13,325 33.25% 33.25%
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5 year $ 25,733 157.33% 20.81%
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Life of Class** $ 39,210 292.10% 16.12%
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Salomon Brothers World Equity EMI*
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1 year $ 11,369 13.69% 13.69%
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5 year $ 16,606 66.06% 10.68%
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Life of Class** $ 23,947 139.47% 10.09%
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6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE FUND TOTAL
RETURN (%) AND INDEX TOTAL RETURN (%)
Yearly periods ended October 31
Global Discovery Salomon Brothers
Fund -- Scudder Shares World Equity EMI*
---------------------- -----------------
1991* -0.67 1.48
1992 1.26 -4.37
1993 36.04 31.01
1994 2.80 6.13
1995 8.32 6.88
1996 20.97 14.89
1997 11.14 13.34
1998 1.19 -4.50
1999 41.95 17.45
2000 33.25 13.69
<TABLE>
<CAPTION>
1991** 1992 1993 1994 1995 1996 1997 1998 1999 2000
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class Total
Return (%) -.67 1.26 36.04 2.80 8.32 20.97 11.14 1.19 41.95 33.25
------------------------------------------------------------------------------------
Index Total
Return (%)*** 1.48 -4.37 31.01 6.13 6.88 14.89 13.34 -4.50 17.45 13.69
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Net Asset Value
($) 11.92 12.05 16.14 16.27 17.54 20.45 21.64 19.81 28.17 35.01
------------------------------------------------------------------------------------
Income
Dividends ($) -- .02 .07 .18 -- .20 .13 .64 -- --
------------------------------------------------------------------------------------
Capital Gains
Distributions ($) -- -- .12 .15 .08 .44 .86 1.41 -- 2.38
------------------------------------------------------------------------------------
</TABLE>
* The Salomon Brothers World Equity Extended Market Index is an unmanaged
small capitalization stock universe of 22 countries. Index returns assume
dividends reinvested net of withholding tax and, unlike Fund returns, do
not reflect any fees or expenses.
** The Fund commenced operations on September 10, 1991. Index comparisons
begin September 30, 1991.
*** Prior to April 30, 1997, the Morgan Stanley Capital International World
Index was used as a comparative index.
Performance is historical and assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than when purchased. If the Adviser had not
maintained expenses, the total returns for the one-year, five-year, and
life of Class periods would have been lower.
7
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Portfolio Summary
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October 31, 2000
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Geographical
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(Excludes 10% Cash Equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Management seeks to
invest in stocks
primarily based on their
individual merits rather
than attempting to
allocate assets to
specific geographic
regions.
U.S. & Canada 60%
Europe 32%
Japan 6%
Pacific Basin 2%
-------------------------------------
100%
-------------------------------------
--------------------------------------------------------------------------------
Sectors
--------------------------------------------------------------------------------
(Excludes 10% Cash Equivalents)
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
We looked to increase
the fund's
diversification by
increasing our exposure
to Europe and investing
new money in sectors
other than technology,
including energy and
health care.
Health 21%
Service Industries 17%
Technology 17%
Financial 16%
Energy 12%
Consumer Discretionary 8%
Manufacturing 5%
Consumer Staples 2%
Media 1%
Other 1%
-------------------------------------
100%
-------------------------------------
8
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Ten Largest Equity Holdings
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(30% of Portfolio) While the portfolio
tends to have
significant individual
positions, management
pursues a diversified
approach and emphasizes
companies that have a
low correlation to each
other.
1. Symbol Technologies, Inc.
Manufacturer of bar code laser scanners in the United
States
2. Nabors Industries, Inc.
Contractor of land drilling in the United States
3. Biomet, Inc.
Manufacturer of surgical implant devices in the United
States
4. S&P Mid-Cap 400 Depositary Receipts
Security that represents ownership in Mid-Cap SPDR
Trust in the United States
5. Serco Group plc
Provider of facilities management services in the
United Kingdom
6. Irish Life & Permanent plc
Operator of retail financial services group in Ireland
7. St. Jude Medical, Inc.
Manufacturer of heart valves in the United States
8. Legg Mason, Inc.
Provider of various financial services in the United
States
9. Marschollek, Lautenschlaeger und Partner AG
Independent life insurance company in Germany
10. Fiserv, Inc.
Provider of data processing services in the United
States
For more complete details about the Fund's investment portfolio, see page 19. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
In the following interview, portfolio managers Gerald J. Moran and Steven T.
Stokes discuss the market environment and their approach to managing the fund.
Q: Can you provide a general overview of the performance of Scudder Global
Discovery Fund for the past 12 months and the drivers behind it?
A: I think stock picking really came through for us during the fiscal year.
Despite rising interest rates and extreme volatility, the fund gained
33.25%, well ahead of the benchmark, Salomon Brothers World Equity Extended
Market Index (EMI), which rose roughly 13.69% for the 12-month period ended
October 31, 2000. The EMI is an unmanaged, small-capitalization stock
universe spanning 22 countries. The index is comprised of the smallest 20%
of global small-cap stocks. The fund also performed well against its peers,
topping the 21.22% average annual return of Lipper's global
small-capitalization equity group.
During the first half of the period, technology, media, and
telecommunications stocks (commonly referred to as the megasector TMT)
dominated the major world markets. These stocks, especially the trendy yet
untested "dot-com" names, were grabbing media and investor attention with
outrageous gains, while nearly all other sectors -- banks, retailers, and
food producers, most notably -- attracted little interest and showed
absolute declines.
The collapse of the Nasdaq in March changed everything. It ushered in a
period of unprecedented stock market turbulence in the United States that
spread abroad, throwing markets around the world into turmoil. Even so,
during the first half of the period, overall fund performance was propelled
by the fund's holdings in some well-chosen technology stocks, and by
selective profit taking in several long-term winners. Our effort to
concentrate allocations to stocks in which we held great conviction was
also instrumental to our success. As a result, approximately 70% of the
fund's gains during the period can be attributed to 10 stocks.
10
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Q: Could you provide a general overview of management activity throughout
the period?
A: Portfolio turnover during the period was higher than usual. But, given
the extreme market conditions, significant structural change proved
necessary. We began the period with a significant overweighting as compared
with the benchmark in technology stocks, which helped the fund capture some
of that sector's stellar gains in the first quarter. In general, the fund's
tech holdings reaped the benefits of a magical combination: explosive
growth, strong prospects for earnings, and, in our opinion, overblown
investor enthusiasm.
Clearly, the world is in the midst of a technological revolution. History
reveals, however, that when investors become fixated on new technologies
and concentrate activity on one type of stock -- personal computer
companies in the 1980s, for example -- it creates a speculative bubble
that's more than likely to burst. This was our contention with regard to
the U.S. technology market. We were skeptical of what we believed to be
over-ebullience and feared increasing volatility. Because of extraordinary
price appreciation, the technology component of the portfolio had swelled
to about 45 percent. We were uncomfortable with that and wanted to position
the fund more defensively.
We took profits in virtually all of our most successful tech holdings.
Some, like Israeli-based Check Point Software, had had spectacular gains.
In addition, we trimmed overpriced financial and service stocks that had
been major contributors to the fund's success. We directed new money into
sectors other than technology, including energy, where we expected modest
price increases to result from gas shortages in North America. We sought to
further diversify the portfolio by reducing our holdings in the United
States and broadening our exposure to Europe.
11
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After the beginning of the new year, we cut back even further on technology
and added aggressively to health care stocks. Despite our best efforts to
buffer the fund, volatility got the best of us -- as it did for just about
everyone -- in March and April.
Throughout the remainder of the year, we continued to reduce technology
exposure and to pursue broader diversification. We dramatically increased
our weightings in health care, energy, and financial stocks that we
believed could withstand the pressure of rising interest rates. Our
strategy proved effective. We can attribute most of the fund's strongly
competitive performance in the second half of the period to gains in health
care and energy holdings, which more than offset our TMT losses.
Q: Were there economic trends or political events that presented particular
challenges or benefits to fund performance?
A: The big story was, of course, the far-reaching effects of successive
hikes in U.S. interest rates and the eventual implosion of the tech market.
In the United States, volatility reached historic proportions, sending
capital markets throughout the world into turmoil. Taking a cue from the
Federal Reserve Board, European central banks raised rates in response to
concerns that economic growth was overblown. This, together with persistent
concern over the smooth integration of the European Economic and Monetary
Union (EMU), further weakened the already beleaguered euro, and hampered
stock market performance there. Japan continued to experience macroeconomic
problems and low levels of investor confidence.
Q: Would you address performance of the fund's largest holdings? Were there
notable successes or disappointments?
A: Our biggest winner was one of the fund's oldest holdings: Network
Appliance, Inc., a U.S. designer and manufacturer of network data storage
devices. This is a
12
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classic example of finding a diamond in the rough. We purchased the stock
at a time when it was relatively small and undervalued. As the need for
increasingly faster data transmission and consequently increasingly fast
storage capabilities escalated, so too did earnings and investor
enthusiasm. We began to parcel out the stock, taking profits along the way,
as its market capitalization grew too large for the fund's investment
discipline.
Alexion Pharmaceuticals, a small U.S. biotech company, was also one of our
top performers. Again, as is our aim, we established a fairly significant
position in this stock early on. Later we traveled with our biotech analyst
to company headquarters in New Haven, Connecticut. We spent four hours
talking with the president of the company, discussing drugs in development
and their potential for broad-based applications. We were impressed both
with management and with the products in the pipeline. Ultimately, we
doubled our holdings in the company, landing it among our largest
allocations.
On the flip side, our frequent communication with the management of
Mercator Software did not help us avoid an earnings disappointment. The
company had logged steady growth of about 50% when it began reporting
accounting problems. We were caught by surprise when earnings fell short.
When earnings don't follow revenues, revenues start to dwindle. We sold out
of the stock, but not before suffering losses.
Q: How will you seek to position the portfolio going forward?
A: We are pleased with the portfolio's recent restructuring and plan to
make no major changes. Our goal now is to find the best stocks we can. We
believe that much of the irrational exuberance that infected the tech
markets has been washed out. We don't expect a roaring recovery in tech,
however. It seems likely that the sector will continue to be volatile and
equally unlikely that many of the smaller Internet-related companies will
ever see their highs again if indeed they survive. While we no longer
expect technology
13
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to dominate our top 10 holdings, we do expect to continue to see robust
gains from the fund's technology holdings, if we do our job right.
As such, we'll seek more of a balance among what we consider the four
building blocks of growth. Technology stocks fall into the first category,
stocks with high growth potential. Of course, higher growth means higher
risk. To minimize it, our strategy is to diversify the portfolio's largest
holdings by choosing stocks that are non-correlated, or driven by different
economic and political forces. To help shield the portfolio from the likely
ripple effects of continued volatility, especially in TMT, we'll look to
health care companies, specifically biotech companies. Today these offer
tremendous growth potential based on drug development and advances in human
genome mapping.
Second, we want steady growth companies. These have a greater degree of
earnings dependability. Generally, financial services companies such as
Marschollek Lautenschlaeger und Partner, a German financial services
company that has been among the fund's strongest contributors, are in this
category. Third, we seek growth stocks at value prices. Usually these are
companies with solid fundamentals and tremendous growth prospects that are
largely undiscovered. A great example of this is Irish Life & Permanent, a
very inexpensive and fast-growing insurance company. We view purchases in
the Irish financials in general as an indirect and relatively safe way to
benefit from U.S.-based corporate spending. And as the only
English-speaking country in the EMU, Ireland has become the logical place
for participants to set up shop.
Finally, we look for companies that need only a catalyst to grow. Energy
companies are a good example of that. As we mentioned previously, the North
American supply of gas is tight and reserves are at an all-time low.
Drilling has only recently begun to pick up. Prices, therefore, are on the
rise.
This is not a "damn the torpedoes, full speed ahead" kind of fund. We will
modulate our speed until we feel reasonably well protected from undue
downside risk. That
14
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said, we will try to limit our exposure to these sectors to no more than
twice that of the index as a measure of risk control.
Q: What is your near-term outlook for the global markets?
A: At the end of the reporting period, about half of the fund's assets were
in U.S. securities, with the majority of the balance in European holdings.
We don't expect to alter the fund's geographic distribution greatly. On a
relative basis, the U.S. market appears to offer greater opportunities than
either Europe or Japan, despite expectations for continued volatility, and
U.S. dollar weakness, both of which are worrisome. Interest rates probably
have peaked for the near term, however, which should promote robust company
earnings.
European markets continue to be plagued by rising interest rates and a
weak, albeit slightly stabilizing, euro. Additionally, the continued
acquisition of U.S. stocks by European companies has exacerbated the euro's
weakness. Attempts at intervention by the European Central Bank have been
ineffective thus far. Still, while the falling euro has been a problem, it
appears to be well on the road to recovery and has thus favorably affected
our outlook for that part of the world. We now consider the region to be on
a par with the United States.
The Japanese market continues to face fundamental challenges that have
grown increasingly apparent over the past six months. Soft macroeconomic
conditions and low levels of consumer confidence were -- and continue to be
-- problematic. Ongoing concerns about the sustainability of the country's
economic recovery remain a central reason behind this fragile sentiment.
That said, we believe that Japanese markets may be bottoming out.
15
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We see two main risks over the next 12 months. The first would be a
concerted downturn in the U.S. capital markets, marking the end of a
10-year, bull market run. A downward spiral in U.S. equities, joined by a
falling dollar, would clearly not bode well for international markets,
either. The second potential risk is a pick-up in inflation, which could
result in continued higher interest rates and a hard landing for the global
economy. While neither of these outcomes is likely in our opinion, we do
expect persistent volatility to rock the markets as these concerns and
others continue to occupy investor sentiment in the short term. However, we
believe that investors who remain diversified among global markets for the
long term will ultimately be rewarded by the important changes that
continue to transform economies around the world.
The opinions expressed are those of the portfolio management team as of
October 31, 2000, and may not actually come to pass.
16
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Scudder Global Discovery Fund:
A Team Approach to Investing
Scudder Global Discovery Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an important
role in the fund's management process. Team members work together to develop
investment strategies and select securities for the fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Lead portfolio manager Gerald J. Moran has set the fund's investment strategy
and overseen its daily operation since the fund was introduced in 1991. Mr.
Moran joined the Adviser's equity research and management area in 1968 and has
been a portfolio manager since 1985.
Portfolio manager Steven T. Stokes joined the Adviser in 1996 and the fund team
in 1999. Mr. Stokes has 13 years of experience as an equity analyst and has been
a portfolio manager since 1994.
17
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Glossary of Investment Terms
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Currency A significant decline of a currency's value
Devaluation relative to other currencies, such as the U.S.
dollar, typically resulting from the cessation of
a country's central bank intervention in the
currency markets. For U.S. investors who are
investing overseas, a devaluation of a foreign
currency can reduce the total return of their
investment.
EMU The integration of European economies involving,
(European among other changes, a move to a single currency
Economic and for member nations. To qualify for EMU membership,
Monetary nations will be required to meet certain
Union) guidelines concerning total governmental debt and
annual budget deficits, designed to ensure a
strong common currency.
Fundamental Analysis of companies based on the projected
Research impact of management, products, sales, and
earnings on their balance sheets and income
statements. Distinct from technical analysis,
which evaluates the attractiveness of a stock
based on historical price and trading volume
movements, rather than the financial results of
the underlying company.
Growth Stock Stock of a company that has displayed
above-average earnings growth and is expected to
continue to increase profits faster than the
overall market. Stocks of such companies usually
trade at higher valuations and experience more
price volatility than the market as a whole.
Distinct from value stock.
Price/Earnings A widely used gauge of a stock's valuation that
Ratio (P/E) indicates what investors are paying for a
(also "earnings company's earning power at the current stock
multiple") price. A P/E ratio may be based on a company's
projected earnings for the coming 12 months. A
higher "earnings multiple" indicates higher
expected earnings growth, along with greater risk
of earnings disappointment.
Total Return The most common yardstick to measure the
performance of a fund. Total return -- annualized
or compounded -- is based on a combination of
share price changes plus income and capital gain
distributions, if any, expressed as a percentage
gain or loss in value.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms) Additional glossary terms are located at our Internet Web
site-- www.scudder.com.
18
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Investment Portfolio as of October 31, 2000
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Short-Term Investments 9.5%
-------------------------------------------------------------------------------------------
<S> <C> <C>
Student Loan Marketing Association, 6.45%**, 11/1/2000 ----------
(Cost $82,139,000) .......................................... 82,139,000 82,139,000
----------
Shares
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Common Stocks 90.5%
-------------------------------------------------------------------------------------------
Austria 0.1%
Schoeller-Bleckmann Oilfield Equipment AG
(Manufacturer of parts for drilling technology) ............. 136,000 1,189,490
----------
Canada 2.9%
Mosaic Group, Inc.* (Provider of sales, marketing and
corporate communications services) .......................... 504,000 3,804,398
QLT, Inc.* (Developer of pharmaceutical products) .............. 162,700 8,116,311
Talisman Energy, Inc.* (Explorer and producer of oil and gas) .. 430,100 13,536,787
----------
25,457,496
----------
Denmark 0.2%
Genmab A/S* (Biotechnology company that develops
human antibody-based products used to treat a
variety of life-threatening diseases) ....................... 70,800 1,865,655
----------
Finland 1.1%
JOT Automation Group Oyj (Manufacturer of high
technology production automation systems
and equipment) .............................................. 2,666,800 9,284,506
----------
France 3.8%
Altran Technologies S.A. (Provider of engineering and
consulting services) ........................................ 96,724 19,785,888
Dassault Systemes S.A. (Manufacturer of software products) ..... 80,451 6,138,101
Trader.com N.V. "A"* (Publisher of advertising
newspapers) ................................................. 98,900 791,200
Transiciel S.A. (Designer, developer and installer of
computer software) .......................................... 129,768 6,363,618
----------
33,078,807
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Shares Value ($)
----------------------------------------------------------------------------------------
<S> <C> <C>
Germany 3.7%
Epcos AG* (Producer of electronic components and
integrated circuits) .................................... 73,297 5,570,494
Hawesko Holding AG (Marketer of wines and liqueurs and
related products) ....................................... 19,056 263,757
Marschollek, Lautenschlaeger und Partner AG (pfd.)
(Independent life insurance company) .................... 159,100 21,480,867
Pfeiffer Vacuum Technology AG (ADR) (Manufacturer of
various pumps and vacuum systems) ....................... 64,300 2,515,738
Telesens AG* (Producer of billing systems) ................. 40,410 2,127,478
----------
31,958,334
----------
Hong Kong 2.0%
Legend Holdings Ltd. (Manufacturer of computers and
related products) ....................................... 8,138,400 6,887,575
Li & Fung Ltd. (Operator of an export trading business) .... 5,454,000 10,140,666
----------
17,028,241
----------
Indonesia 0.0%
PT Steady Safe Transportation Service Tbk* (Operator of
taxis and buses in Jakarta) ............................. 444 14
----------
Ireland 6.8%
Anglo Irish Bank Corp. plc (Provider of financial services
for the business and private sectors) ................... 6,460,732 14,977,139
Elan Corp. "A" (Warrants) expire 12/31/2001 (Developer of
controlled-absorption drug delivery systems) ............ 194,200 13,011,400
Irish Continental Group plc (Transporter of passengers,
freight and containers between Ireland, the U.K .........
and the continent) ...................................... 211,555 1,167,673
Irish Life & Permanent plc (Retail financial services group) 2,263,887 22,703,308
Jurys Doyle Hotel Group plc (Hotel operator) ............... 616,435 4,684,841
Ryan Hotels plc (Owner and operator of hotel chain) ........ 1,967,686 1,904,781
----------
58,449,142
----------
Israel 0.1%
Ceragon Networks Ltd.* (Developer and manufacturer of
wireless networking systems) ............................ 43,700 546,250
----------
Italy 1.2%
Bulgari SpA (Manufacturer and retailer of fine jewelry,
luxury watches and perfumes) ............................ 865,400 10,192,433
----------
Japan 5.4%
Benesse Corp. (Provider of educational services) ........... 128,000 7,041,995
Chugai Pharmaceutical Co., Ltd. (Pharmaceutical company) ... 537,000 9,119,054
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Shares Value ($)
----------------------------------------------------------------------------------------
<S> <C> <C>
KYORIN Pharmaceutical Co., Ltd. (Retailer of
prescription medicines) .................................. 217,000 7,143,132
Shinko Securities Co., Ltd. (Provider of financial services) 5,078,000 15,458,427
Uni-Charm Co. (Manufacturer of sanitary napkins, diapers
and body care goods) ..................................... 174,000 7,450,761
----------
46,213,369
----------
Luxembourg 0.7%
Millicom International Cellular S.A.* (Developer and
operator of cellular telephone networks) ................. 194,600 5,983,950
----------
Norway 0.2%
Stepstone ASA* (Provider of job listings on the Internet) ... 921,500 2,017,412
----------
Poland 0.1%
Pioneer Poland Fund (Closed-end investment company) (b) ..... 3 1,156,992
----------
Portugal 0.3%
PT Multimedia Servicos* (Provider of cable television,
Internet and e-commerce services) ........................ 75,400 2,138,466
----------
Spain 0.1%
Sogecable S.A.* (Provider of cable television) .............. 41,793 1,022,070
----------
Sweden 1.5%
AU-System AB* (Delivers consulting services and solutions
for the development of advanced Internet and wireless
technologies) ............................................ 178,000 1,148,559
Eniro AB* (Publisher of catalogues and
telephone directories) ................................... 262,900 2,472,249
Enlight Interactive AB "B"* (Developer of
educational software) .................................... 171,500 823,529
Metro International S.A. "A"* (Publisher of local editions of
Metro newspaper) ......................................... 26,280 265,534
Metro International S.A. "B"* (Publisher of local editions of
Metro newspaper) ......................................... 61,320 742,269
Telelogic AB* (Developer of software for the
telecommunications industry) ............................. 1,162,700 7,676,891
----------
13,129,031
----------
Taiwan 0.2%
GigaMedia Ltd.* (Provider of broadband Internet access
services and content) .................................... 289,472 1,411,176
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Shares Value ($)
--------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom 8.7%
Guardian IT plc (Provider of business continuity and
disaster recovery services) ............................ 105,020 1,407,901
Matalan plc (Clothing retailer) ........................... 1,521,930 14,337,271
Misys plc (Provider of computer, support and data services) 887,667 9,237,043
NDS Group plc (ADR)* (Provider of open solutions that
enable data to be transferred digitally) ............... 68,500 5,137,500
NSB Retail Systems plc (Provider of decision
support software) ...................................... 475,000 1,101,468
PizzaExpress plc (Operator of pizza restaurants) .......... 385,092 3,686,343
RM plc (Information technology solutions to
educational markets) ................................... 677,500 7,226,792
Regus plc* (Provider of a mix of workstations,
conference rooms and support services,
including Internet connections) ........................ 411,681 1,868,706
Serco Group plc (Facilities management company) ........... 2,658,452 24,465,890
Shire Pharmaceuticals Group plc* (Pharmaceutical company) . 213,217 4,326,217
Taylor Nelson Sofres plc (Market research company) ........ 676,213 2,646,097
----------
75,441,228
----------
United States 51.4%
Alexion Pharmaceuticals, Inc.* (Developer of
immunoregulatory compounds) ............................ 175,400 18,131,975
Alkermes, Inc.* (Neuropharmaceutical company
developing products to aid treatment of central
nervous system) ........................................ 325,200 12,052,725
Alpharma Inc. "A" (Manufacturer and marketer of human
pharmaceutical and animal health products) ............. 298,100 11,570,006
Anadarko Petroleum Corp. (Explorer and producer of
crude oil and natural gas) ............................. 219,100 14,033,355
ANADIGICS, Inc.* (Supplier of radio and microwave
frequency integrated circuits for use in television
and telecommunication applications) .................... 214,400 4,797,200
Answerthink, Inc.* (Provider of consulting and technology-
enabled solutions focused on the Internet and
web-enabled commerce) .................................. 267,200 4,375,400
Barrett Resources Corp.* (Explorer and producer of
oil and gas) ........................................... 262,000 9,530,250
Biomet, Inc. (Manufacturer of surgical implant devices) ... 764,050 27,649,059
CTS Corp. (Manufacturer of electronic and
electromechanical components) .......................... 56,000 2,404,500
Celgene Corp.* (Pharmaceutical company) ................... 165,600 10,660,500
Concord EFS, Inc.* (Provider of electronic transaction
authorization, processing, settlement and
transfer services) ..................................... 506,450 20,922,713
Diamond Offshore Drilling, Inc. (Offshore oil and gas
well drilling) ......................................... 391,100 13,517,394
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Shares Value ($)
----------------------------------------------------------------------------------------
<S> <C> <C>
EOG Resources, Inc. (Oil and gas company) ................. 305,700 12,036,938
Fiserv, Inc.* (Provider of data processing services) ...... 409,543 21,475,411
H & R Block, Inc. (Tax consulting and preparation) ........ 192,900 6,884,119
Hain Celestial Group, Inc.* (Distributes and sells natural,
organic and specialty food products) .................. 138,600 5,500,688
ITXC Corp.* (Provider of Internet-based voice and
fax services) .......................................... 141,700 1,496,706
Internet Security Systems, Inc.* (Provider of security
management solutions for the Internet) ................. 165,100 14,570,075
Invitrogen Corp.* (Developer & provider of technologies
for molecular biology research) ........................ 52,600 4,000,888
Legg Mason, Inc. (Provider of various financial services) . 414,400 21,522,900
MIH Ltd.* (Provider of pay-TV services) ................... 134,100 3,402,788
Manugistics Group, Inc.* (Provider of solutions for
enterprises and evolving e-business trading networks) .. 59,700 6,802,069
NPS Pharmaceuticals, Inc.* (Developer of small
molecule drugs) ........................................ 135,100 5,792,413
Nabors Industries, Inc.* (Contractor of land drilling) .... 544,800 27,730,320
OpenTV Corp. "A"* (Developer of interactive
television software) ................................... 23,300 626,188
Polycom, Inc.* (Manufacturer of audio and data
conferencing products) ................................. 222,200 14,443,000
PurchasePro.com, Inc.* (Provider of Internet
business-to-business electronic commerce services) ..... 338,800 9,147,600
Rational Software Corp.* (Software products and services
for development of software applications) .............. 277,600 16,569,250
S & P Mid-Cap 400 Depositary Receipts (Security that
represents ownership in the Mid-Cap SPDR Trust) ........ 280,800 26,711,100
St. Jude Medical, Inc. (Manufacturer of heart valves) ..... 403,100 22,170,500
Symbol Technologies, Inc. (Manufacturer of bar code
laser scanners) ........................................ 875,650 39,787,347
Tiffany & Co. (Retailer of jewelry and gift items) ........ 363,000 15,495,563
Veritas DGC, Inc.* (Provider of land, transition zone and
marine-based seismic data acquisition) ................. 103,000 3,090,000
Watchguard Technologies, Inc.* (Provider of Internet
security products) ..................................... 83,800 4,190,000
Waters Corp.* (Provider of high-performance liquid
chromatography products and services) .................. 160,000 11,610,000
-----------
444,700,940
-----------
----------------------------------------------------------------------------------------
Total Common Stocks (Cost $580,616,436) 782,265,002
----------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $662,755,436) (a) 864,404,002
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $662,861,693. At October 31,
2000, net unrealized appreciation for all securities based on tax cost was
$201,542,309. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$266,331,813 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $64,789,504.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $1,156,992 (0.13% of net assets). Their
values have been estimated by the Valuation Committee in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of these
securities at October 31, 2000 aggregated $1,477,500.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
---------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $662,755,436) ............... $ 864,404,002
Receivable for investments sold ....................................... 970,927
Dividends receivable .................................................. 344,021
Receivable for Fund shares sold ....................................... 6,669,847
Foreign taxes recoverable ............................................. 149,950
Due from Adviser ...................................................... 28,697
-------------
Total assets .......................................................... 872,567,444
Liabilities
---------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 5,627,457
Payable for Fund shares redeemed ...................................... 1,116,835
Accrued management fee ................................................ 915,644
Accrued Directors' fees and expenses .................................. 61,784
Other accrued expenses and payables ................................... 1,234,830
-------------
Total liabilities ..................................................... 8,956,550
---------------------------------------------------------------------------------------
Net assets, at value $ 863,610,894
---------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income 123,361 Net unrealized appreciation
(depreciation) on:
Investments ......................................................... 201,648,566
Foreign currency related transactions ............................... (18,856)
Accumulated net realized gain (loss) .................................. 58,751,451
Paid-in capital ....................................................... 603,106,372
---------------------------------------------------------------------------------------
Net assets, at value $ 863,610,894
---------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------
Scudder Shares
Net Asset Value offering and redemption price per share ($574,282,218 /
16,405,175 shares of capital stock outstanding, $.01 par value, -------------
30,000,000 shares authorized) ...................................... $ 35.01
-------------
Class A
Net Asset Value and redemption price per share ($152,620,484 / 4,398,724
shares of capital stock outstanding, $.01 par value, 40,000,000 -------------
shares authorized) ................................................. $ 34.70
-------------
-------------
Maximum offering price per share (100 / 94.25 of $34.70) .............. $ 36.82
-------------
Class B
Net Asset Value offering and redemption price (subject to contingent
deferred sales charge) per share ($108,217,760 / 3,189,875 shares of
capital stock outstanding, $.01 par value, 20,000,000 -------------
shares authorized) ................................................. $ 33.93
-------------
Class C
Net Asset Value offering and redemption price (subject to contingent
deferred sales charge) per share ($28,490,432 / 837,995 shares of
capital stock outstanding, $.01 par value, 10,000,000 shares -------------
authorized) ........................................................ $ 34.00
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the year ended October 31, 2000
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $219,843) .......... $ 4,451,610
Interest ....................................................... 3,206,565
-------------
Total Income ................................................... 7,658,175
-------------
Expenses:
Management fee ................................................. 9,046,223
Services to shareholders ....................................... 2,631,510
Custodian and accounting fees .................................. 1,143,156
Distribution services fees ..................................... 811,474
Administrative services fees ................................... 571,413
Auditing ....................................................... 99,493
Legal .......................................................... 9,948
Directors' fees and expenses ................................... 91,795
Reports to shareholders ........................................ 210,080
Registration fees .............................................. 99,744
Other .......................................................... 33,228
-------------
Total expenses, before expense reductions ...................... 14,748,064
Expense reductions ............................................. (268,248)
-------------
Total expenses, after expense reductions ....................... 14,479,816
--------------------------------------------------------------------------------
Net investment income (loss) (6,821,641)
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
--------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 121,357,903
Foreign currency related transactions .......................... (310,086)
-------------
121,047,817
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... 37,246,632
Foreign currency related transactions .......................... (9,199)
-------------
37,237,433
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions 158,285,250
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 151,463,609
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................... $ (6,821,641) $ (2,930,722)
Net realized gain (loss) on investment transactions 121,047,817 66,821,323
Net unrealized appreciation (depreciation) on
investment transactions during the period ..... 37,237,433 73,964,169
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations ............................ ... 151,463,609 137,854,770
--------------- ---------------
Distributions to shareholders from:
Net realized gains -- Scudder Shares .............. (35,853,709) --
Net realized gains -- Class A ..................... (5,097,672) --
Net realized gains -- Class B ..................... (2,968,119) --
Net realized gains -- Class C ..................... (855,376) --
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ......................... 1,059,449,857 467,347,036
Reinvestment of distributions ..................... 42,543,080 --
Cost of shares redeemed ........................... (838,571,697) (440,429,826)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................. 263,421,240 26,917,210
--------------- ---------------
Increase (decrease) in net assets ................. 370,109,973 164,771,980
Net assets at beginning of period ................. 493,500,921 328,728,941
Net assets at end of period (including
undistributed net investment income of $123,361
and accumulated distributions in excess of net --------------- ---------------
investment income of $2,180,693, respectively).. $ 863,610,894 $ 493,500,921
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Scudder Shares (a)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Years Ended October 31, 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $28.17 $19.81 $21.64 $20.45 $17.54
---------------------------------------------
------------------------------------------------------------------------------------
Income (loss) from investment
operations:
------------------------------------------------------------------------------------
Net investment income (loss) (b) (.21) (.13) (.10) (.12) (.04)
------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 9.43 8.49 .32 2.30 3.59
---------------------------------------------
------------------------------------------------------------------------------------
Total from investment operations 9.22 8.36 .22 2.18 3.55
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income -- -- (.64) (.13) (.20)
------------------------------------------------------------------------------------
Net realized gains on investment
transactions (2.38) -- (1.41) (.86) (.44)
---------------------------------------------
------------------------------------------------------------------------------------
Total distributions (2.38) -- (2.05) (.99) (.64)
------------------------------------------------------------------------------------
Net asset value, end of period $35.01 $28.17 $19.81 $21.64 $20.45
---------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) 33.25 41.95 1.19 11.14 20.97
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 574 404 310 349 351
------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 1.53(c) 1.68 1.65 1.63 1.60
------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.52(c) 1.68 1.65 1.63 1.60
------------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (.59) (.66) (.45) (.58) (.20)
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 64 41 61 63
------------------------------------------------------------------------------------
</TABLE>
(a) On April 16, 1998, existing shares of the Fund were designated as Scudder
Shares and are generally not available to new investors.
(b) Based on monthly average shares outstanding during the period.
(c) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.52% and
1.52%, respectively (see Notes to Financial Statements).
28
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Global Discovery Fund (the "Fund") is a diversified series of
Global/International Fund, Inc. (the "Corporation") which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company and is organized as a Maryland Corporation.
The Fund offers multiple classes of shares. Class A shares are offered to
investors subject to an initial sales charge. Class B shares are offered without
an initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one year of purchase. Class C
shares do not convert into another class. Scudder Shares, generally not
available to new investors, are not subject to initial or contingent deferred
sales charges. Certain detailed financial information for the Class A, B and C
shares is provided separately and is available upon request.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services and certain other
class-specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require the
use of management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities
29
<PAGE>
quoted on the Nasdaq Stock Market ("Nasdaq"), for which there have been sales,
are valued at the most recent sale price reported. If there are no such sales,
the value is the most recent bid quotation. Securities which are not quoted on
Nasdaq but are traded in another over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the calculated mean between the
most recent bid and asked quotations on such market. If there are no such bid
and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required
30
<PAGE>
to be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. Net realized gains from investment transactions, in
excess of available capital loss carryforwards, would be taxable to the Fund if
not distributed, and, therefore, will be distributed to shareholders at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States of America. These differences primarily relate to investments in passive
foreign investment companies, and certain securities sold at a loss. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain dividends
from foreign securities may be recorded subsequent to the ex-dividend date as
soon as the Fund is informed of such dividends. Realized gains and losses from
investment transactions are recorded on an identified cost basis. All discounts
are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended October 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $821,081,624 and
$638,735,408, respectively.
31
<PAGE>
C. Transactions with Affiliates
Management Agreement. Under the Investment Management Agreement (the
"Agreement") with Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), the Fund pays the Adviser a fee equal to an annual rate of 1.10% of
the Fund's average daily net assets, computed and accrued daily and payable
monthly. As manager of the assets of the Fund, the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. For the year ended
October 31, 2000, the fee pursuant to the Agreement amounted to $9,046,223.
Until February 29, 2000, the Adviser and certain subsidiaries had agreed to
maintain expenses of the Fund as follows: Class A shares 2.01% of average daily
net assets, Class B shares 2.83% of average daily net assets, and Class C shares
2.80% of average daily net assets. Effective March 1, 2000, the Adviser and
certain subsidiaries have agreed to maintain expenses of the Fund, until
February 28, 2001, as follows: Class A shares 1.98% of average daily net assets,
Class B shares 2.83% of average daily net assets, and Class C shares 2.80% of
average daily net assets.
Distribution Service Agreement. In accordance with Rule 12b-1 under the 1940
Act, Kemper Distributors, Inc. ("KDI"), a subsidiary of the Adviser, receives a
fee of 0.75% of average daily net assets of classes B and C. Pursuant to the
agreement, KDI enters into related selling group agreements with various firms
at various rates for sales of Class B and C shares. For the year ended October
31, 2000, the Distribution Fee was as follows:
Unpaid at
Total October 31,
Distribution Fee Aggregated 2000
-------------------------------------------- --------------- ---------------
Class B ............................. $ 633,645 $ 252,241
Class C ............................. 177,829 20,236
-------------- --------------
$ 811,474 $ 272,477
-------------- --------------
Underwriting Agreement and Contingent Deferred Sales Charge. KDI is the
principal underwriter for classes A, B and C. Underwriting commissions paid in
connection with the distribution of Class A shares for the year ended October
31, 2000 aggregated $402,759, of which $373,638 was paid to other firms.
32
<PAGE>
In addition, KDI receives any contingent deferred sales charge (CDSC) from Class
B share redemptions occurring within six years of purchase and Class C share
redemptions occurring within one year of purchase. There is no such charge upon
redemption of any share appreciation or reinvested dividends. Contingent
deferred sales charges are based on declining rates ranging from 4% to 1% for
Class B and 1% for Class C, of the value of the shares redeemed. For the year
ended October 31, 2000, the CDSC for Classes B and C aggregated $175,773 and
$8,469, respectively.
Administrative Service Fees. KDI provides information and administrative
services to classes A, B and C shareholders at an annual rate of up to 0.25% of
average daily net assets for each such class. KDI in turn has various agreements
with financial services firms that provide these services and pays these firms
based upon the assets of shareholder accounts the firms service. For the year
ended October 31, 2000, the Administrative Service Fee was as follows:
Unpaid at
Total October 31,
Administrative Service Fee Aggregated 2000
-------------------------------------------- --------------- ---------------
Class A ................................ $ 301,999 $ 26,674
Class B ................................ 211,315 99,702
Class C ................................ 58,099 30,825
-------------- --------------
$ 571,413 $ 157,201
-------------- --------------
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Fund's class A, B and C shares. For the year ended October 31, 2000, the amount
charged to classes A, B and C by KSC aggregated $493,403, $396,622 and $115,603,
respectively, of which $113,209, $102,639 and $23,703, respectively, is not
imposed and $36,915, $20,657 and $18,053, respectively, is unpaid at October 31,
2000. Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Scudder Shares.
For the year ended October 31, 2000, the amount charged to the Scudder Shares by
SSC for shareholder services aggregated $697,580, of which $113,445 is unpaid at
October 31, 2000.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Scudder Shares of the Fund. For the
33
<PAGE>
year ended October 31, 2000, the amount charged to the Scudder Shares by STC
aggregated $288,092, of which $25,314 is unpaid at October 31, 2000.
Fund Accounting Fees. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary
of the Adviser, is responsible for determining the daily net asset value per
share and maintaining the portfolio and general accounting records of the Fund.
For the year ended October 31, 2000, the amount charged to the Fund by SFAC
aggregated $765,719, of which $133,763 is unpaid at October 31, 2000.
Directors' Fees. The Fund pays each of its Directors not affiliated with the
Adviser an annual retainer plus specified amounts for attended board and
committee meetings. For the year ended October 31, 2000, the Directors' fees and
expenses aggregated $34,401. In addition, a one-time fee of $57,394 was accrued
for payment to those Directors not affiliated with the Adviser who are not
standing for re-election, under the reorganization discussed in Note F. Inasmuch
as the Adviser will also benefit from administrative efficiencies of a
consolidated board, the Adviser has agreed to bear $28,697 of such costs.
34
<PAGE>
D. Capital Share Transactions
The following table summarizes capital share and dollar activity in the Fund:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 2000 October 31, 1999
-------------------------------- -------------------------------
Shares Dollars Shares Dollars
Shares sold
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Shares .... 7,852,273 $ 293,016,942 5,590,925 $ 133,793,434
Class A ........... 17,122,035 628,071,187 12,149,520 303,252,844
Class B ........... 2,648,775 96,608,721 892,185 22,521,387
Class C ........... 1,166,370 41,753,007 314,217 7,779,371
---------- -------------- ---------- --------------
28,789,453 $1,059,449,857 18,946,847 $ 467,347,036
---------- -------------- ---------- --------------
Shares issued to shareholders in reinvestment of distributions
-----------------------------------------------------------------------------------
Scudder Shares .... 1,005,922 $ 34,070,602 -- $ --
Class A ........... 144,729 4,877,084 -- --
Class B ........... 84,443 2,802,662 -- --
Class C ........... 23,863 792,732 -- --
---------- -------------- ---------- --------------
1,258,957 $ 42,543,080 -- $ --
---------- -------------- ---------- --------------
Shares redeemed
-----------------------------------------------------------------------------------
Scudder Shares .... (6,786,276) $(250,450,250) (6,880,203) $(163,612,997)
Class A ........... (14,821,388) (547,112,786) (10,768,400) (268,241,904)
Class B ........... (536,216) (19,127,223) (189,471) (4,631,255)
Class C ........... (622,446) (21,881,438) (155,289) (3,943,670)
---------- -------------- ---------- --------------
(22,766,326) $(838,571,697) (17,993,363) $(440,429,826)
---------- -------------- ---------- --------------
Net increase (decrease)
-----------------------------------------------------------------------------------
Scudder Shares .... 2,071,919 $ 76,637,294 (1,289,278) $ (29,819,563)
Class A ........... 2,445,376 85,835,485 1,381,120 35,010,940
Class B ........... 2,197,002 80,284,160 702,714 17,890,132
Class C ........... 567,787 20,664,301 158,928 3,835,701
---------- -------------- ---------- --------------
7,282,084 $ 263,421,240 953,484 $ 26,917,210
---------- -------------- ---------- --------------
</TABLE>
E. Line of Credit
The Fund and several affiliated Funds (the "Participants") share in a $1 billion
revolving credit facility with Chase Manhattan Bank for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Participants are charged an
annual commitment fee which is allocated pro rata, based
35
<PAGE>
upon net assets, among each of the Participants. Interest is calculated based on
the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement.
F. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds.
36
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Board of Directors of Global/International Fund, Inc. and to the Scudder
Shares Shareholders of Global Discovery Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the Scudder Shares financial highlights present
fairly, in all material respects, the financial position of Global Discovery
Fund (the "Fund") at October 31, 2000, the results of its operations, the
changes in its net assets and the Scudder Shares financial highlights for each
of the periods indicated therein, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and Scudder Shares financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2000, by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 21, 2000
37
<PAGE>
Tax Information (Unaudited)
--------------------------------------------------------------------------------
The Fund paid distributions of $1.69 per share from net long-term capital gains
during its year ended October 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$118,000,000 as capital gain dividends for its year ended October 31, 2000, of
which 100% represents 20% rate gains.
The Fund paid foreign taxes of $219,843 and earned $219,843 of foreign source
income during the year ended October 31, 2000. Pursuant to Section 853 of the
Internal Revenue Code, the Fund designates $0.01 per share as foreign taxes paid
and $0.01 per share as income earned from foreign sources for the year ended
October 31, 2000.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
38
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Global Discovery
Fund (the "fund"), a series of Global/International Fund, Inc., was held on July
13, 2000, at the office of Scudder Kemper Investments, Inc., Two International
Place, Boston, Massachusetts 02110. At the Meeting the following matters were
voted upon by the shareholders (the resulting votes for each matter are
presented below).
1. To elect Directors of the Global/International Fund, Inc.
Number of Votes:
Director For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 11,807,579 306,472
Linda C. Coughlin 11,794,646 319,406
Dawn-Marie Driscoll 11,808,614 305,438
Edgar R. Fiedler 11,796,328 317,723
Keith R. Fox 11,816,858 297,194
Joan E. Spero 11,799,609 314,442
Jean Gleason Stromberg 11,800,712 313,340
Jean C. Tempel 11,801,332 312,720
Steven Zaleznick 11,791,003 323,049
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending October 31, 2000.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
11,788,783 125,069 200,200 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Broker non-votes are proxies received by the fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
39
<PAGE>
Officers and Directors
--------------------------------------------------------------------------------
Linda C. Coughlin*
o President and Director
Henry P. Becton, Jr.
o Director; President, WGBH
Educational Foundation
Dawn-Marie Driscoll
o Director; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Edgar R. Fiedler
o Director; Senior Fellow and
Economic Counsellor, The
Conference Board, Inc.
Keith R. Fox
o Director; General Partner,
The Exeter Group of Funds
Joan E. Spero
o Director; President, The
Doris Duke Charitable
Foundation
Jean Gleason Stromberg
o Director; Consultant
Jean C. Tempel
o Director; Managing Director,
First Light Capital, LLC
Steven Zaleznick
o Director; President and Chief
Executive Officer, AARP Services, Inc.
Thomas V. Bruns*
o Vice President
Susan Dahl*
o Vice President
William F. Glavin*
o Vice President
William E. Holzer*
o Vice President
Gerald J. Moran*
o Vice President
James E. Masur*
o Vice President
M. Isabel Saltzman*
o Vice President
Howard S. Schneider*
o Vice President
John Millette*
o Vice President and Secretary
Kathryn L. Quirk*
o Vice President and Assistant Secretary
John R. Hebble*
o Treasurer
Brenda Lyons*
o Assistant Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
40
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Scudder Funds
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund
Prime Reserve Shares Scudder Small Company Value Fund
Premium Shares
Managed Shares Growth
Scudder Tax Free Money Fund Scudder Classic Growth Fund
Scudder Capital Growth Fund
Tax Free Scudder Large Company Growth Fund
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund Scudder Small Company Stock Fund
Scudder California Tax Free Fund Scudder 21st Century Growth Fund
Scudder Massachusetts Tax Free Fund
Scudder New York Tax Free Fund Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund
Scudder GNMA Fund Scudder Global Discovery Fund
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Scudder Health Care Fund
Scudder Pathway Growth Portfolio Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
41
<PAGE>
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
--------------------------------------------------------------------------------
Closed-End Funds
--------------------------------------------------------------------------------
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
Scudder funds are offered by prospectus only. For more complete information on
any fund or variable annuity registered in your state, including information
about a fund's objectives, strategies, risks, advisory fees, distribution
charges, and other expenses, please order a free prospectus. Read the prospectus
before investing in any fund to ensure the fund is appropriate for your goals
and risk tolerance. There is no assurance that the objective of any fund will be
achieved, and fund returns and net asset values fluctuate. Shares are redeemable
at current net asset value, which may be more or less than their original cost.
A money market mutual fund investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although a
money market mutual fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in such a fund.
The services and products described should not be considered a solicitation to
buy or an offer to sell a security to any person in any jurisdiction where such
offer, solicitation, purchase, or sale would be unlawful under the securities
laws of such jurisdiction.
Scudder Investor Services, Inc.
42
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly
to regularly purchase fund shares and "dollar cost
average" -- buy more shares when the fund's price is
lower and fewer when it's higher, which can reduce
your average purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to
purchase shares -- use distributions from one Scudder
fund to purchase shares in another, automatically
(accounts with identical registrations or the same
social security or tax identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of
your transactions is electronically debited from a
previously designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* Dollar cost averaging involves continuous
investment in securities regardless of price
fluctuations and does not assure a profit or
protect against loss in declining markets.
Investors should consider their ability to
continue such a plan through periods of low
price levels.
Around-the- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to
exchange or redeem shares, and information on other
Scudder funds and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all Scudder funds,
plus your current asset allocation, whenever you need
them. Scudder's site also provides news about Scudder
funds, retirement planning information, and more.
43
<PAGE>
<PAGE>
--------------------------------------------------------------------------------
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the
proceeds for schedule (as frequently as once a month) and amount
living expenses of the redemptions, and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into
automated the bank account you designate within three business
withdrawal days after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by
electronically crediting your redemption proceeds to
the bank account you previously designated.
For more Scudder Class S Shareholders:
information
about these Call a Scudder representative at
services 1-800-SCUDDER
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 219669
Kansas City, MO
64121-9669
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 219735
Kansas City, MO
64121-9735
44
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 219669
Kansas City, MO 64121-9669
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
<PAGE>
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 2000
Kemper Global Discovery Fund seeks above-average capital appreciation over the
long term by investing primarily in equity securities of small companies located
throughout the world.
KEMPER GLOBAL
DISCOVERY FUND
"... This is not a "damn the torpedoes, full speed ahead" kind of fund. We will
modulate our speed until we feel reasonably well protected from undue downside
risk. ..."
[KEMPER FUNDS LOGO]
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
11
GEOGRAPHIC COMPOSITION
12
PORTFOLIO OF INVESTMENTS
17
FINANCIAL STATEMENTS
20
FINANCIAL HIGHLIGHTS
23
NOTES TO FINANCIAL STATEMENTS
28
REPORT OF INDEPENDENT ACCOUNTANTS
29
TAX INFORMATION
30
SHAREHOLDERS' MEETING
AT A GLANCE
KEMPER GLOBAL DISCOVERY FUND
TOTAL RETURNS
FOR THE YEAR ENDED OCTOBER 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER GLOBAL DISCOVERY KEMPER GLOBAL DISCOVERY LIPPER GLOBAL SMALL CAP
KEMPER GLOBAL DISCOVERY FUND CLASS A FUND CLASS B FUND CLASS C FUNDS CATEGORY AVERAGE*
------------------------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
32.63 31.51 31.73 21.22
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PERFORMANCE OF CLASSES WILL DIFFER. FOR ADDITIONAL INFORMATION,
PLEASE SEE THE FUND'S PROSPECTUS.
RETURNS DURING PART OF THE PERIODS SHOWN INCLUDE THE EFFECT OF A TEMPORARY
WAIVER OF MANAGEMENT FEES AND/OR ABSORPTION OF CERTAIN OPERATING EXPENSES BY THE
INVESTMENT ADVISOR. WITHOUT SUCH WAIVER OR ABSORPTION, RETURNS WOULD HAVE BEEN
LOWER AND RATINGS OR RANKINGS MIGHT HAVE BEEN LESS FAVORABLE.
INVESTMENT IN FOREIGN SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING
FLUCTUATING CURRENCY EXCHANGE RATES, SHIFTING GOVERNMENT REGULATION AND
DIFFERENCES IN LIQUIDITY.
INVESTING IN SECURITIES OF SMALL COMPANIES MAY INVOLVE A GREATER RISK OF LOSS
AND MORE ABRUPT FLUCTUATIONS IN MARKET PRICE THAN INVESTMENTS IN LARGER
COMPANIES.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/00 10/31/99
.........................................................
<S> <C> <C> <C> <C>
GLOBAL DISCOVERY FUND CLASS
A $34.70 $28.05
.........................................................
GLOBAL DISCOVERY FUND CLASS
B $33.93 $27.69
.........................................................
GLOBAL DISCOVERY FUND CLASS
C $34.00 $27.71
.........................................................
</TABLE>
KEMPER GLOBAL DISCOVERY FUND
LIPPER RANKINGS AS OF 10/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER GLOBAL SMALL CAP FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.............................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #10 of 47 funds #12 of 47 funds #11 of 47 funds
.............................................................................................
</TABLE>
*LIPPER, INC. RANKINGS ARE BASED ON RETURNS THAT REFLECT CHANGES IN NET ASSET
VALUE WITH ALL DIVIDENDS REINVESTED BUT DO NOT REFLECT SALES CHARGES. IF THEY
HAD, RANKINGS MIGHT HAVE BEEN LESS FAVORABLE.
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR INTERNATIONAL EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR Source: Morningstar, Inc. as of 10/31/00. The
INTERNATIONAL EQUITY Morningstar International Equity Style Box(TM)
STYLE BOX] placement is based on a fund's price-to- earnings
and price-to-cash-flow ratios relative to the
MSCI EAFE, as well as the size of the companies
in which it invests, or median market
capitalization. The style box represents a
snapshot of a fund's portfolio on a single day,
but it's not exact because a portfolio changes
from day to day. A longer-term view is
represented by the fund's Morningstar category,
which is based on actual investment style as
measured by the fund's underlying holdings over
the past three years.
</TABLE>
CURRENCY WEAKNESS A significant decline of a currency's value relative to other
currencies, such as the U.S. dollar. Weakness may be prompted by trading or
central bank intervention (or the lack of intervention) in the currency markets.
For U.S. investors who are investing overseas, a weakness in a foreign currency
can have the effect of reducing an investment's total return because the
investment, converted back into U.S. dollars, will require more of the foreign
currency to purchase dollars.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected impact of
management, products, sales and earnings on their balance sheets and income
statements. Distinct from technical analysis, which evaluates the attractiveness
of a stock based on historical price and trading volume movements, rather than
the financial results of the underlying company.
GROWTH STOCK Stock of a company that has displayed above-average earnings growth
and is expected to continue to increase profits faster than the overall market.
Stocks of such companies usually experience more price volatility than the
market as a whole. Distinct from value stock.
MARKET CAPITALIZATION The value of a company's outstanding shares of common
stock, determined by multiplying the number of shares outstanding by the share
price. The universe of publicly traded companies is frequently divided into
large, mid and small capitalizations.
OVERWEIGHTING/UNDERWEIGHTING The allocation of assets -- usually in terms of
sector, industry or country -- within a portfolio relative to the portfolio's
benchmark index or investment universe.
<PAGE>
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.43 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- while volatile month-to-month, they have been up an average of 15
to 20 percent compared to a year ago for the past six months.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. We saw the first
evidence of how productivity slows along with economic growth in the third
quarter: Productivity gains dipped to just 3.3 percent from the second quarter's
remarkable 6.1 percent. Second, interest expense will surge (thanks to higher
rates and all that new debt. Third, depreciation costs are escalating. And
finally, the excessively weak euro and higher oil costs will sap earnings.
3
<PAGE>
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (11/30/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.40 6.00 4.80
Prime rate (2) 9.50 9.25 8.50 8.00
Inflation rate (3)* 3.50 3.10 2.60 1.40
The U.S. dollar (4) 11.10 4.30 -0.70 1.20
Capital goods orders (5)* 7.00 17.10 12.30 -0.60
Industrial production (5)* 5.20 6.50 4.40 4.00
Employment growth (6)* 1.80 2.50 2.30 2.50
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 10/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE>
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for good quality borrowers. Capital goods
orders are strong, so there's a lot of life left in business spending. Shoppers
are a little pickier, but they're still more interested in visiting the mall
than in filling their piggy banks. And after the election, no matter who wins,
fiscal policy is likely to be more stimulative than it has been for years. The
price to pay will likely be a rise in core inflation (inflation excluding food
and energy). We expect it to hit 3 percent next year, up from its recent rate of
2.5 percent. We believe we'll make it safely through 2001, but investors should
keep their hands on the wheel and their eyes peeled.
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED
TO BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE
OPINIONS AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER
KEMPER INVESTMENTS, INC. AS OF DECEMBER 6, 2000, AND MAY NOT ACTUALLY COME TO
PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS
INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
Sincerely,
Scudder Kemper Investments, Economics Group
5
<PAGE>
ECONOMIC OVERVIEW
[INTENTIONALLY LEFT BLANK]
6
<PAGE>
PERFORMANCE UPDATE
[MORAN PHOTO]
GERALD MORAN IS A SENIOR VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC. AND
LEAD PORTFOLIO MANAGER FOR KEMPER GLOBAL DISCOVERY FUND. HE HAS MANAGED THE FUND
SINCE ITS INCEPTION IN 1991. MORAN HAS MORE THAN 30 YEARS OF INDUSTRY EXPERIENCE
AND HAS WORKED EXCLUSIVELY WITH SMALL-COMPANY STOCKS FOR THE LAST DECADE. HE
RECEIVED A BACHELOR'S DEGREE FROM YALE IN 1961.
[STOKES PHOTO]
STEVEN STOKES IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC. AND HAS
SERVED AS PORTFOLIO MANAGER FOR KEMPER GLOBAL DISCOVERY FUND SINCE 1999. PRIOR
TO THAT, STOKES SPENT 10 YEARS AS AN EQUITY ANALYST AND A VALUE-STYLE PORTFOLIO
MANAGER WITH ANOTHER FIRM. STOKES HOLDS A BACHELOR'S DEGREE IN FINANCE FROM THE
STATE UNIVERSITY OF NEW YORK AND IS A CHARTERED FINANCIAL ANALYST.
VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY PARTICULAR
SECURITY.
THE CRASH OF THE U.S. TECHNOLOGY MARKETS IN MARCH
HAD A "TSUNAMI EFFECT" THAT SWAMPED WORLD EQUITY
MARKETS. PORTFOLIO MANAGERS GERRY MORAN AND STEVE
STOKES SKILLFULLY RODE THE CREST OF THE WAVE, ONCE
AGAIN TURNING IN STRONG PERFORMANCE, COMPARED WITH
THE BENCHMARK INDEX AND MANY OF THE FUND'S PEERS.
HERE THEY DISCUSS HOW ADROIT STOCK PICKING AND
COURAGE OF CONVICTION KEPT THE FUND ON AN EVEN KEEL
IN TREACHEROUS WATERS.
Q WILL YOU PROVIDE A GENERAL OVERVIEW OF FUND PERFORMANCE FOR THE ANNUAL
PERIOD AND THE DRIVERS BEHIND IT?
A I think stock picking really came through for us during the fiscal year.
Kemper Global Discovery Fund, despite rising interest rates and extreme
volatility, gained 32.63 percent (Class A shares, unadjusted for sales charges),
over our benchmark Salomon Brothers World Equity Extended Market index (SB World
Equity EMI), which rose roughly 13.69 percent for the one-year period ended
October 31, 2000. The SB World Equity EMI is an unmanaged, small-capitalization
stock universe spanning 22 countries. The index comprises the smallest 20
percent of global small-cap stocks. The fund also performed well against its
peers, topping the 21.22 percent average annual return of Lipper's global
small-capitalization equity group.
During the first half of the period, technology, media and telecommunications
stocks (commonly referred to as the megasector TMT) dominated the major world
markets. These stocks, especially the trendy yet untested "dot-com" names, were
grabbing media and investor attention with outrageous gains, while nearly all
other sectors -- banks, retailers and food producers, most notably -- attracted
little interest and showed absolute declines.
The collapse of the Nasdaq in March changed everything. It ushered in a period
of unprecedented stock-market turbulence in the United States that spread
abroad, throwing markets around the world into turmoil. Even so, during the
first half of the period, overall fund performance was propelled by the fund's
holdings in some well-chosen technology stocks and by selective profit-taking in
several long-term winners. Our effort to concentrate allocations to stocks in
which we held great conviction was also instrumental to our success. As a
result, approximately 70 percent of the fund's gains during the period can be
attributed to 10 stocks.
Q WILL YOU PROVIDE A GENERAL OVERVIEW OF MANAGEMENT ACTIVITY THROUGHOUT THE
PERIOD?
A Portfolio turnover during the period was higher than usual, but given the
extreme market conditions, significant structural change proved necessary. We
began the period with a significant overweighting as compared with the benchmark
in technology stocks, which helped the fund to capture some of that sector's
stellar gains in the first quarter. In general, the fund's tech holdings reaped
the benefits of a magical combination: explosive growth, strong prospects for
earnings and, in our opinion, overblown investor enthusiasm.
7
<PAGE>
PERFORMANCE UPDATE
Clearly, the world is in the midst of a technological revolution. History
reveals, however, that when investors become fixated on new technologies and
concentrate activity on one type of stock -- personal computer companies in the
1980s, for example -- it creates a speculative bubble that's more than likely to
burst. This was our contention with regard to the U.S. technology market. We
were skeptical of what we believed to be over-ebullience and feared increasing
volatility. Because of extraordinary price appreciation, the technology
component of the portfolio had swelled to about 45 percent. We were
uncomfortable with that and wanted to position the fund more defensively.
We took profits in virtually all of our most successful tech holdings. Some,
like Israel-based Check Point Software Technologies, have had spectacular gains.
In addition, we trimmed overpriced financial and service stocks that had been
major contributors to the fund's success. We directed new money into sectors
other than technology, including energy, where we expected modest price
increases to result from gas shortages in North America. We sought to further
diversify the portfolio by reducing our holdings in the United States and
broadening our exposure to Europe.
Following the New Year, we cut back even further on technology and added
aggressively to health care stocks. Despite our best efforts to buffer the fund,
volatility got the best of us -- as it did for just about everyone -- in March
and April.
Throughout the remainder of the year, we continued to reduce technology
exposure and to pursue broader diversification. We dramatically increased our
weightings in health care, energy and financial stocks that we believed could
withstand the pressure of rising interest rates. Our strategy proved effective.
We can attribute most of the fund's strongly competitive performance in the
second half of the period to gains in health care and energy holdings, which
more than offset our TMT losses.
Q WERE THERE ECONOMIC TRENDS OR POLITICAL EVENTS THAT PRESENTED PARTICULAR
CHALLENGES OR BENEFITS TO FUND PERFORMANCE?
A The big story was, of course, the far-reaching effects of successive hikes
in U.S. interest rates and the eventual implosion of the tech market. In the
United States, volatility reached historic proportions and spread throughout the
world. Taking a cue from the Federal Reserve, Europe raised rates in response to
concerns that economic growth was overblown. This, together with persistent
concern over the smooth integration of the European Economic and Monetary Union
(EMU), further weakened the already beleaguered euro and hampered stock market
performance there. Japan continued to experience macroeconomic problems and low
levels of investor confidence.
Q AMONG THE FUND'S LARGEST HOLDINGS, WERE THERE NOTABLE SUCCESSES OR
DISAPPOINTMENTS?
A Our biggest winner was one of the fund's oldest holdings: Network
Appliance, Inc., a U.S. designer and manufacturer of network data storage
devices. This is a classic example of finding a diamond in the rough. We
purchased the stock at a time when it was relatively small and undervalued. As
the need for increasingly faster data transmission and consequently faster
storage capabilities escalated, so too did earnings and investor enthusiasm. We
began to parcel out the stock, taking profits along the way, as its market
capitalization grew too large for the fund's investment discipline.
Alexion Pharmaceuticals, a small U.S. biotech company, was also one of our top
performers. Again, as is our aim, we established a fairly significant position
in this stock early on. Later we traveled with our biotech analyst to company
headquarters in New Haven, Connecticut. We spent four hours talking with the
president of the company, discussing drugs in development and their potential
for broad-based applications. We were impressed both with management and with
the products in the pipeline. Ultimately, we doubled our holdings in the
company, landing it among our largest allocations.
On the flip side, our frequent communication with the management of Mercator
Software did not help us avoid an earnings disappointment. The company had
logged steady growth of about 50 percent when it began reporting accounting
problems. We were caught by surprise when earnings fell short. When earnings
don't follow revenues, revenues start to dwindle. We sold out of the stock, but
not before suffering losses.
Q HOW WILL YOU SEEK TO POSITION THE PORTFOLIO GOING FORWARD?
A We are pleased with the portfolio's recent restructuring and plan to make
no major changes. Our goal now is to find the best stocks we can.
8
<PAGE>
PERFORMANCE UPDATE
We believe that much of the irrational exuberance that infected the tech
markets has been washed out. We don't expect a roaring recovery in tech,
however. It seems likely that the sector will continue to be volatile and
equally unlikely that many of the smaller Internet-related companies will ever
see their highs again if, indeed, they survive. While we no longer expect
technology to dominate our top 10 holdings, we do expect to continue to see
robust gains from the fund's technology holdings, if we do our job right.
Given these circumstances, we'll seek more of a balance among what we consider
the four building blocks of growth. Technology stocks fall into the first
category, stocks with high growth potential. Of course, higher growth means
higher risk. To minimize it, our strategy is to diversify the portfolio's
largest holdings by choosing stocks that are noncorrelated, or driven by
different economic and political forces. To help shield the portfolio from the
likely ripple effects of continued volatility, especially in TMT, we'll look to
health care companies, specifically biotech companies. Today these offer
tremendous growth potential based on drug development and advances in human
genome mapping.
Second, we want steadily growing companies. These have a greater degree of
earnings dependability. Generally, financial services companies such as
Marschollek Lautenschlaeger und Partner, a German financial services company
that has been among the fund's strongest contributors, are in this category.
Third, we seek growth stocks at value prices. Usually these are companies with
solid fundamentals and tremendous growth prospects that are largely
undiscovered. A great example of this is Irish Life & Permanent, a very
inexpensive and fast-growing insurance company. We view purchases in the Irish
financials in general as an indirect and relatively safe way to benefit from
U.S.-based corporate spending. And as the only English-speaking country in the
EMU, Ireland has become the logical place for participants to set up shop.
Finally, we look for companies that need only a catalyst to grow. Energy
companies are a good example of that. As we mentioned previously, the North
American supply of gas is tight, and reserves are at an all-time low. Drilling
has only recently begun to pick up. Prices, therefore, are on the rise.
This is not a "damn the torpedoes, full speed ahead" kind of fund. We will
modulate our speed until we feel reasonably well protected from undue downside
risk. That said, we will try to limit our exposure to these sectors to no more
than twice that of the index, as a measure of risk control.
Q WHAT IS YOUR NEAR-TERM OUTLOOK FOR THE GLOBAL MARKETS?
A At the end of the reporting period, about half of the fund's assets were
in U.S. securities, with the majority of the balance in European holdings. We
don't expect to alter the fund's geographic distribution greatly.
On a relative basis, the U.S. market appears to offer greater opportunities
than either Europe or Japan, despite expectations for continued volatility and
U.S. dollar weakness, both of which are worrisome. Interest rates probably have
peaked for the near term, however, which should promote robust company earnings.
European markets continue to be plagued by rising interest rates and a weak,
albeit slightly stabilizing, euro. Additionally, the continued acquisition of
U.S. stocks by European companies has exacerbated the euro's weakness. Attempts
at intervention by the European Central Bank have been feeble. We believe that
if economic conditions worsen, a full-scale intervention backed by the United
States may become necessary.
The Japanese market continues to face fundamental challenges that have grown
increasingly apparent over the past six months. Soft macroeconomic conditions
and low levels of consumer confidence were -- and continue to be -- problematic.
Ongoing concerns about the sustainability of the country's economic recovery
remain a central reason behind this fragile sentiment. That fact
notwithstanding, we believe that Japanese markets are beginning to bottom out.
We are now somewhat optimistic that people will return to the Japanese stock
market in time.
We see two main risks over the next 12 months. The first is a concerted
downturn in the U.S. capital markets, marking the end of a 10-year bull-market
run. A downward spiral in U.S. equities, joined by a falling dollar, would
clearly not bode well for international markets, either. The second potential
risk is a pickup in inflation, which could result in continued higher interest
rates and a hard landing for the global economy. While neither of these outcomes
is likely in our opinion, we do expect persistent volatility to rock the markets
as these concerns and others continue to occupy investor sentiment in the short
term. However, we believe that investors who remain diversified among global
markets for the long term will ultimately be rewarded by the important changes
that continue to transform economies around the world.
9
<PAGE>
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR LIFE OF CLASS
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER GLOBAL DISCOVERY FUND CLASS A 25.01% 19.18% 15.26% (since 9/10/91)
....................................................................................................
KEMPER GLOBAL DISCOVERY FUND CLASS B 28.51 n/a 16.86 (since 4/16/98)
....................................................................................................
KEMPER GLOBAL DISCOVERY FUND CLASS C 31.73 n/a 17.88 (since 4/16/98)
....................................................................................................
</TABLE>
KEMPER GLOBAL DISCOVERY FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 09/30/91 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER GLOBAL DISCOVERY SALOMON BROTHERS WORLD U.S. CONSUMER PRICE
FUND CLASS A1 EQUITY INDEX+ INDEX++
----------------------- ---------------------- -------------------
<S> <C> <C> <C>
9/30/91 10000 10000 10000
9599 10295 10051
9592 10257 10343
12/31/93 13254 12590 10627
12236 12988 10911
14419 15162 11188
12/31/96 17515 17062 11560
19253 18484 11757
22368 19592 11946
36715 23971 12267
10/31/00 36040 23947 12670
</TABLE>
KEMPER GLOBAL DISCOVERY FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 04/30/98 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER GLOBAL DISCOVERY SALOMON BROTHERS WORLD U.S. CONSUMER PRICE
FUND CLASS B1 EQUITY INDEX+ INDEX++
----------------------- ---------------------- -------------------
<S> <C> <C> <C>
4/30/98 10000 10000 10000
9766 9689 10031
12/31/98 9737 8306 10086
10688 10063 10228
12/31/99 15840 11387 10357
16273 11913 10609
10/31/00 15733 11378 10698
</TABLE>
KEMPER GLOBAL DISCOVERY FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 04/30/98 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER GLOBAL DISCOVERY SALOMON BROTHERS WORLD U.S. CONSUMER PRICE
FUND CLASS C1 EQUITY INDEX+ INDEX++
----------------------- ---------------------- -------------------
<S> <C> <C> <C>
4/30/98 10000 10000 10000
9771 9689 10031
12/31/98 9741 8306 10086
10692 10063 10228
12/31/99 15860 11387 10357
16306 11913 10609
10/31/00 16079 11378 10698
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURNS AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING
REINVESTMENT OF ALL DIVIDENDS AND FOR
CLASS A SHARES ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75 PERCENT,
FOR CLASS B SHARES ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3 PERCENT AND FOR
CLASS C SHARES NO ADJUSTMENT FOR SALES
CHARGE. THE MAXIMUM CDSC FOR CLASS B
SHARES IS 4 PERCENT. FOR CLASS C
SHARES, THERE IS A 1 PERCENT CDSC ON
CERTAIN REDEMPTIONS WITHIN THE FIRST
YEAR OF PURCHASE.
(1)CLASS A SHARES PERFORMANCE PRIOR TO
APRIL 16, 1998 IS DERIVED FROM THE
SCUDDER "S" SHARE INCEPTION DATE
AND HAS BEEN ADJUSTED TO REFLECT
THE CURRENT MAXIMUM INITIAL SALES
CHARGE OF 5.75%. CLASS S SHARES ARE
SUBJECT TO CERTAIN OTHER, OR
DIFFERENT LEVELS OF, EXPENSES THAN
CLASS A. THE EXPENSES APPLICABLE TO
CLASS S SHARES HAVE BEEN REFLECTED
IN THE PERFORMANCE PRESENTED FOR
CLASS A. THE DIFFERENCE IN EXPENSES
WILL AFFECT PERFORMANCE. THE FUND'S
SHARES WERE OFFERED WITHOUT A SALES
CHARGE UNTIL APRIL 15, 1998. KEMPER
CLASS A, B AND C SHARES WERE
INITIALLY OFFERED ON APRIL 16,
1998. CLASS B SHARES ARE ADJUSTED
FOR THE CDSC IN EFFECT AT THE END
OF THE PERIOD. RETURNS DURING PART
OF THE PERIODS SHOWN INCLUDE THE
EFFECT OF A TEMPORARY WAIVER OF
MANAGEMENT FEES AND/OR ABSORPTION
OF CERTAIN OPERATING EXPENSES BY
THE INVESTMENT ADVISOR. WITHOUT
SUCH WAIVER OR ABSORPTION, RETURNS
WOULD HAVE BEEN LOWER AND RATINGS
OR RANKINGS MIGHT HAVE BEEN LESS
FAVORABLE. WHEN COMPARING KEMPER
GLOBAL DISCOVERY FUND TO THE
SALOMON BROTHERS WORLD EQUITY
INDEX, YOU SHOULD NOTE THAT THE
FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH
CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDEX. DURING
THE PERIODS NOTED, SECURITIES
PRICES FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
+THE SALOMON BROTHERS WORLD EQUITY
INDEX (EMI) IS COMPRISED OF EQUITY
SECURITIES LISTED ON STOCK EXCHANGES
IN 22 COUNTRIES.
++THE U.S. CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE IS WIESENBERGER.
RISKS ASSOCIATED WITH FOREIGN
SECURITIES, INCLUDING FLUCTUATING
EXCHANGE RATES, GOVERNMENT REGULATIONS
AND DIFFERENCES IN LIQUIDITY, MAY AFFECT
YOUR INVESTMENT.
10
<PAGE>
GEOGRAPHIC COMPOSITION
GEOGRAPHIC COMPOSITION OF KEMPER GLOBAL DISCOVERY FUND*
BASED ON TOTAL COMMON STOCKS AS OF OCTOBER 31, 2000.
[BAR GRAPH]
<TABLE>
<CAPTION>
UNITED STATES 57%
------------- ---
<S> <C>
UNITED KINGDOM 10.00
IRELAND 7.00
JAPAN 6.00
OTHER 5.00
FRANCE 4.00
GERMANY 4.00
CANADA 3.00
HONG KONG 2.00
SWEDEN 2.00
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
11
<PAGE>
PORTFOLIO OF INVESTMENTS
KEMPER GLOBAL DISCOVERY FUND
Portfolio of Investments as of October 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS--9.5% AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Student Loan Marketing Association, 6.45%**,
11/1/2000 (Cost $82,139,000) $82,139,000 $ 82,139,000
---------------------------------------------------------------------------------
COMMON STOCKS--90.5% SHARES
AUSTRIA--0.1%
Schoeller-Bleckmann Oilfield Equipment AG
(MANUFACTURER OF PARTS FOR DRILLING TECHNOLOGY) 136,000 1,189,490
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CANADA--2.9%
Mosaic Group, Inc.*
(PROVIDER OF SALES, MARKETING AND CORPORATE
COMMUNICATIONS SERVICES) 504,000 3,804,398
QLT, Inc.*
(DEVELOPER OF PHARMACEUTICAL PRODUCTS) 162,700 8,116,311
Talisman Energy, Inc.*
(EXPLORER AND PRODUCER OF OIL AND GAS) 430,100 13,536,787
---------------------------------------------------------------------------------
25,457,496
------------------------------------------------------------------------------------------------------------------------
DENMARK--0.2%
Genmab A/S*
(BIOTECHNOLOGY COMPANY THAT DEVELOPS HUMAN
ANTIBODY-BASED PRODUCTS USED TO TREAT A VARIETY
OF LIFE THREATENING DISEASES) 70,800 1,865,655
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
FINLAND--1.1%
JOT Automation Group Oyj
(MANUFACTURER OF HIGH TECHNOLOGY PRODUCTION
AUTOMATION SYSTEMS AND EQUIPMENT) 2,666,800 9,284,506
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
FRANCE--3.8%
Altran Technologies S.A.
(PROVIDER OF ENGINEERING AND CONSULTING
SERVICES) 96,724 19,785,888
Dassault Systemes S.A.
(MANUFACTURER OF SOFTWARE PRODUCTS) 80,451 6,138,101
Trader.com N.V. "A"*
(PUBLISHER OF ADVERTISING NEWSPAPERS) 98,900 791,200
Transiciel S.A.
(DESIGNER, DEVELOPER AND INSTALLER OF COMPUTER
SOFTWARE) 129,768 6,363,618
---------------------------------------------------------------------------------
33,078,807
------------------------------------------------------------------------------------------------------------------------
GERMANY--3.7%
Epcos AG*
(PRODUCER OF ELECTRONIC COMPONENTS AND
INTEGRATED CIRCUITS) 73,297 5,570,494
Hawesko Holding AG
(MARKETER OF WINES AND LIQUEURS AND RELATED
PRODUCTS) 19,056 263,757
Marschollek, Lautenschlaeger und Partner AG
(pfd.)
(INDEPENDENT LIFE INSURANCE COMPANY) 159,100 21,480,867
Pfeiffer Vacuum Technology AG (ADR)
(MANUFACTURER OF VARIOUS PUMPS AND VACUUM
SYSTEMS) 64,300 2,515,738
Telesens AG*
(PRODUCER OF BILLING SYSTEMS) 40,410 2,127,478
---------------------------------------------------------------------------------
31,958,334
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
HONG KONG--2.0%
Legend Holdings Ltd.
(MANUFACTURER OF COMPUTERS AND RELATED
PRODUCTS) 8,138,400 $ 6,887,575
Li & Fung Ltd.
(OPERATOR OF AN EXPORT TRADING BUSINESS) 5,454,000 10,140,666
---------------------------------------------------------------------------------
17,028,241
------------------------------------------------------------------------------------------------------------------------
INDONESIA--0.0%
PT Steady Safe Transportation Service Tbk*
(OPERATOR OF TAXIS AND BUSES IN JAKARTA) 444 14
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
IRELAND--6.8%
Anglo Irish Bank Corp. plc
(PROVIDER OF FINANCIAL SERVICES FOR THE
BUSINESS AND PRIVATE SECTORS) 6,460,732 14,977,139
Elan Corp. "A" (Warrants) expire 12/31/2001
(DEVELOPER OF CONTROLLED-ABSORPTION DRUG
DELIVERY SYSTEMS) 194,200 13,011,400
Irish Continental Group plc
(TRANSPORTER OF PASSENGERS, FREIGHT AND
CONTAINERS BETWEEN IRELAND, THE U.K. AND THE
CONTINENT) 211,555 1,167,673
Irish Life & Permanent plc
(RETAIL FINANCIAL SERVICES GROUP) 2,263,887 22,703,308
Jurys Doyle Hotel Group plc
(HOTEL OPERATOR) 616,435 4,684,841
Ryan Hotels plc
(OWNER AND OPERATOR OF HOTEL CHAIN) 1,967,686 1,904,781
---------------------------------------------------------------------------------
58,449,142
------------------------------------------------------------------------------------------------------------------------
ISRAEL--0.1%
Ceragon Networks Ltd.*
(DEVELOPER AND MANUFACTURER OF WIRELESS
NETWORKING SYSTEMS) 43,700 546,250
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ITALY--1.2%
Bulgari SpA
(MANUFACTURER AND RETAILER OF FINE JEWELRY,
LUXURY WATCHES AND PERFUMES) 865,400 10,192,433
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
JAPAN--5.4%
Benesse Corp.
(PROVIDER OF EDUCATIONAL SERVICES) 128,000 7,041,995
Chugai Pharmaceutical Co., Ltd.
(PHARMACEUTICAL COMPANY) 537,000 9,119,054
KYORIN Pharmaceutical Co., Ltd.
(RETAILER OF PRESCRIPTION MEDICINES) 217,000 7,143,132
Shinko Securities Co., Ltd.
(PROVIDER OF FINANCIAL SERVICES) 5,078,000 15,458,427
Uni-Charm Co.
(MANUFACTURER OF SANITARY NAPKINS, DIAPERS AND
BODY CARE GOODS) 174,000 7,450,761
---------------------------------------------------------------------------------
46,213,369
------------------------------------------------------------------------------------------------------------------------
LUXEMBOURG--0.7%
Millicom International Cellular S.A.*
(DEVELOPER AND OPERATOR OF CELLULAR TELEPHONE
NETWORKS) 194,600 5,983,950
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
NORWAY--0.2%
Stepstone ASA*
(PROVIDER OF JOB LISTINGS ON THE INTERNET) 921,500 2,017,412
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
POLAND--0.1%
Pioneer Poland Fund
(CLOSED-END INVESTMENT COMPANY)(B) 3 $ 1,156,992
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
PORTUGAL--0.3%
PT Multimedia Servicos*
(PROVIDER OF CABLE TELEVISION, INTERNET AND
E-COMMERCE SERVICES) 75,400 2,138,466
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SPAIN--0.1%
Sogecable S.A.*
(PROVIDER OF CABLE TELEVISION) 41,793 1,022,070
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SWEDEN--1.5%
AU-System AB*
(DELIVERS CONSULTING SERVICES AND SOLUTIONS FOR
THE DEVELOPMENT OF ADVANCED INTERNET AND
WIRELESS TECHNOLOGIES) 178,000 1,148,559
Enlight Interactive AB "B"*
(DEVELOPER OF EDUCATIONAL SOFTWARE) 171,500 823,529
Eniro AB*
(PUBLISHER OF CATALOGUES AND TELEPHONE
DIRECTORIES) 262,900 2,472,249
Metro International S.A. "A"*
(PUBLISHER OF LOCAL EDITIONS OF METRO
NEWSPAPER) 26,280 265,534
Metro International S.A. "B"*
(PUBLISHER OF LOCAL EDITIONS OF METRO
NEWSPAPER) 61,320 742,269
Telelogic AB*
(DEVELOPER OF SOFTWARE FOR THE
TELECOMMUNICATIONS INDUSTRY) 1,162,700 7,676,891
---------------------------------------------------------------------------------
13,129,031
------------------------------------------------------------------------------------------------------------------------
TAIWAN--0.2%
GigaMedia Ltd.*
(PROVIDER OF BROADBAND INTERNET ACCESS SERVICES
AND CONTENT) 289,472 1,411,176
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--8.7%
Guardian IT plc
(PROVIDER OF BUSINESS CONTINUITY AND DISASTER
RECOVERY SERVICES) 105,020 1,407,901
Matalan plc
(CLOTHING RETAILER) 1,521,930 14,337,271
Misys plc
(PROVIDER OF COMPUTER, SUPPORT AND DATA
SERVICES) 887,667 9,237,043
NDS Group plc (ADR)*
(PROVIDER OF OPEN SOLUTIONS THAT ENABLE DATA TO
BE TRANSFERRED DIGITALLY) 68,500 5,137,500
NSB Retail Systems plc
(PROVIDER OF DECISION SUPPORT SOFTWARE) 475,000 1,101,468
PizzaExpress plc
(OPERATOR OF PIZZA RESTAURANTS) 385,092 3,686,343
RM plc
(INFORMATION TECHNOLOGY SOLUTIONS TO
EDUCATIONAL MARKETS) 677,500 7,226,792
Regus plc*
(PROVIDER OF A MIX OF WORKSTATIONS, CONFERENCE
ROOMS AND SUPPORT SERVICES, INCLUDING INTERNET
CONNECTIONS) 411,681 1,868,706
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
Serco Group plc
(FACILITIES MANAGEMENT COMPANY) 2,658,452 $ 24,465,890
Shire Pharmaceuticals Group plc*
(PHARMACEUTICAL COMPANY) 213,217 4,326,217
Taylor Nelson Sofres plc
(MARKET RESEARCH COMPANY) 676,213 2,646,097
---------------------------------------------------------------------------------
75,441,228
------------------------------------------------------------------------------------------------------------------------
UNITED STATES--51.4%
Alexion Pharmaceuticals, Inc.*
(DEVELOPER OF IMMUNOREGULATORY COMPOUNDS) 175,400 18,131,975
Alkermes, Inc.*
(NEUROPHARMACEUTICAL COMPANY DEVELOPING
PRODUCTS TO AID TREATMENT OF CENTRAL NERVOUS
SYSTEM) 325,200 12,052,725
Alpharma Inc. "A"
(MANUFACTURER AND MARKETER OF HUMAN
PHARMACEUTICAL AND ANIMAL HEALTH PRODUCTS) 298,100 11,570,006
Anadarko Petroleum Corp.
(EXPLORER AND PRODUCER OF CRUDE OIL AND NATURAL
GAS) 219,100 14,033,355
ANADIGICS, Inc.*
(SUPPLIER OF RADIO AND MICROWAVE FREQUENCY
INTEGRATED CIRCUITS FOR USE IN TELEVISION AND
TELECOMMUNICATION APPLICATIONS) 214,400 4,797,200
Answerthink, Inc.*
(PROVIDER OF CONSULTING AND TECHNOLOGY ENABLED
SOLUTIONS FOCUSED ON THE INTERNET AND WEB-
ENABLED COMMERCE) 267,200 4,375,400
Barrett Resources Corp.*
(EXPLORER AND PRODUCER OF OIL AND GAS) 262,000 9,530,250
Biomet, Inc.
(MANUFACTURER OF SURGICAL IMPLANT DEVICES) 764,050 27,649,059
CTS Corp.
(MANUFACTURER OF ELECTRONIC AND
ELECTROMECHANICAL COMPONENTS) 56,000 2,404,500
Celgene Corp.*
(PHARMACEUTICAL COMPANY) 165,600 10,660,500
Concord EFS, Inc.*
(PROVIDER OF ELECTRONIC TRANSACTION
AUTHORIZATION, PROCESSING, SETTLEMENT AND
TRANSFER SERVICES) 506,450 20,922,713
Diamond Offshore Drilling, Inc.
(OFFSHORE OIL AND GAS WELL DRILLING) 391,100 13,517,394
EOG Resources, Inc.
(OIL AND GAS COMPANY) 305,700 12,036,938
Fiserv, Inc.*
(PROVIDER OF DATA PROCESSING SERVICES) 409,543 21,475,411
H & R Block, Inc.
(TAX CONSULTING AND PREPARATION) 192,900 6,884,119
Hain Celestial Group, Inc.*
(DISTRIBUTES AND SELLS NATURAL, ORGANIC AND
SPECIALTY FOOD PRODUCTS) 138,600 5,500,688
ITXC Corp.*
(PROVIDER OF INTERNET-BASED VOICE AND FAX
SERVICES) 141,700 1,496,706
Internet Security Systems, Inc.*
(PROVIDER OF SECURITY MANAGEMENT SOLUTIONS FOR
THE INTERNET) 165,100 14,570,075
Invitrogen Corp.*
(DEVELOPER & PROVIDER OF TECHNOLOGIES FOR
MOLECULAR BIOLOGY RESEARCH) 52,600 4,000,888
Legg Mason, Inc.
(PROVIDER OF VARIOUS FINANCIAL SERVICES) 414,400 21,522,900
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE>
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
MIH Ltd.*
(PROVIDER OF PAY-TV SERVICES) 134,100 $ 3,402,788
Manugistics Group, Inc.*
(PROVIDER OF SOLUTIONS FOR ENTERPRISES AND
EVOLVING E-BUSINESS TRADING NETWORKS) 59,700 6,802,069
NPS Pharmaceuticals, Inc.*
(DEVELOPER OF SMALL MOLECULE DRUGS) 135,100 5,792,413
Nabors Industries, Inc.*
(CONTRACTOR OF LAND DRILLING) 544,800 27,730,320
OpenTV Corp. "A"*
(DEVELOPER OF INTERACTIVE TELEVISION SOFTWARE) 23,300 626,188
Polycom, Inc.*
(MANUFACTURER OF AUDIO AND DATA CONFERENCING
PRODUCTS) 222,200 14,443,000
PurchasePro.com, Inc.*
(PROVIDER OF INTERNET BUSINESS-TO-BUSINESS
ELECTRONIC COMMERCE SERVICES) 338,800 9,147,600
Rational Software Corp.*
(SOFTWARE PRODUCTS AND SERVICES FOR DEVELOPMENT
OF SOFTWARE APPLICATIONS) 277,600 16,569,250
S & P Mid-Cap 400 Depositary Receipts
(SECURITY THAT REPRESENTS OWNERSHIP IN THE
MID-CAP SPDR TRUST) 280,800 26,711,100
St. Jude Medical, Inc.
(MANUFACTURER OF HEART VALVES) 403,100 22,170,500
Symbol Technologies, Inc.
(MANUFACTURER OF BAR CODE LASER SCANNERS) 875,650 39,787,347
Tiffany & Co.
(RETAILER OF JEWELRY AND GIFT ITEMS) 363,000 15,495,563
Veritas DGC, Inc.*
(PROVIDER OF LAND, TRANSITION ZONE AND
MARINE-BASED SEISMIC DATA ACQUISITION) 103,000 3,090,000
Watchguard Technologies, Inc.*
(PROVIDER OF INTERNET SECURITY PRODUCTS) 83,800 4,190,000
Waters Corp.*
(PROVIDER OF HIGH-PERFORMANCE LIQUID
CHROMATOGRAPHY PRODUCTS AND SERVICES) 160,000 11,610,000
---------------------------------------------------------------------------------
444,700,940
---------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $580,616,436) 782,265,002
---------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $662,755,436)(a) $864,404,002
---------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $662,861,693. At October 31,
2000, net unrealized appreciation for all securities based on tax cost was
$201,542,309. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$266,331,813 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $64,789,504.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $1,156,992 (0.13% of net assets). Their
values have been estimated by the Valuation Committee in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of these
securities at October 31, 2000 aggregated $1,477,500.
16 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of October 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $662,755,436) $864,404,002
----------------------------------------------------------------------------
Receivable for investments sold 970,927
----------------------------------------------------------------------------
Dividends receivable 344,021
----------------------------------------------------------------------------
Receivable for Fund shares sold 6,669,847
----------------------------------------------------------------------------
Foreign taxes recoverable 149,950
----------------------------------------------------------------------------
Due from Adviser 28,697
----------------------------------------------------------------------------
TOTAL ASSETS 872,567,444
----------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 5,627,457
----------------------------------------------------------------------------
Payable for Fund shares redeemed 1,116,835
----------------------------------------------------------------------------
Accrued management fee 915,644
----------------------------------------------------------------------------
Accrued Directors' fees and expenses 61,784
----------------------------------------------------------------------------
Other accrued expenses and payables 1,234,830
----------------------------------------------------------------------------
TOTAL LIABILITIES 8,956,550
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $863,610,894
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income 123,361
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investments 201,648,566
----------------------------------------------------------------------------
Foreign currency related transactions (18,856)
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 58,751,451
----------------------------------------------------------------------------
Paid-in capital 603,106,372
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $863,610,894
----------------------------------------------------------------------------
NET ASSET VALUE
SCUDDER SHARES
Net Asset Value offering and redemption price per share
($574,282,218/16,405,175 shares of capital stock
outstanding, $.01 par value, 30,000,000 shares authorized) $35.01
----------------------------------------------------------------------------
CLASS A
Net Asset Value and redemption price per share
($152,620,484/4,398,724 shares of capital stock
outstanding, $.01 par value, 40,000,000 shares authorized) $34.70
----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $34.70) $36.82
----------------------------------------------------------------------------
CLASS B
Net Asset Value offering and redemption price (subject to
contingent deferred sales charge) per share
($108,217,760/3,189,875 shares of capital stock
outstanding, $.01 par value, 20,000,000 shares authorized) $33.93
----------------------------------------------------------------------------
CLASS C
Net Asset Value offering and redemption price (subject to
contingent deferred sales charge) per share
($28,490,432/837,995 shares of capital stock outstanding,
$.01 par value, 10,000,000 shares authorized) $34.00
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
for the year ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $219,843) $ 4,451,610
----------------------------------------------------------------------------
Interest 3,206,565
----------------------------------------------------------------------------
Total income 7,658,175
----------------------------------------------------------------------------
Expenses:
Management fee 9,046,223
----------------------------------------------------------------------------
Services to shareholders 2,631,510
----------------------------------------------------------------------------
Custodian and accounting fees 1,143,156
----------------------------------------------------------------------------
Distribution services fees 811,474
----------------------------------------------------------------------------
Administrative services fees 571,413
----------------------------------------------------------------------------
Auditing 99,493
----------------------------------------------------------------------------
Legal 9,948
----------------------------------------------------------------------------
Directors' fees and expenses 91,795
----------------------------------------------------------------------------
Reports to shareholders 210,080
----------------------------------------------------------------------------
Registration fees 99,744
----------------------------------------------------------------------------
Other 33,228
----------------------------------------------------------------------------
Total expenses, before expense reductions 14,748,064
----------------------------------------------------------------------------
Expense reductions (268,248)
----------------------------------------------------------------------------
Total expenses, after expense reductions 14,479,816
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (6,821,641)
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 121,357,903
----------------------------------------------------------------------------
Foreign currency related transactions (310,086)
----------------------------------------------------------------------------
121,047,817
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period on:
Investments 37,246,632
----------------------------------------------------------------------------
Foreign currency related transactions (9,199)
----------------------------------------------------------------------------
37,237,433
----------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT TRANSACTIONS 158,285,250
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $151,463,609
----------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------------
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (6,821,641) $ (2,930,722)
---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 121,047,817 66,821,323
---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 37,237,433 73,964,169
---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 151,463,609 137,854,770
---------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net realized gains -- Scudder Shares (35,853,709) --
---------------------------------------------------------------------------------------------------
Net realized gains -- Class A (5,097,672) --
---------------------------------------------------------------------------------------------------
Net realized gains -- Class B (2,968,119) --
---------------------------------------------------------------------------------------------------
Net realized gains -- Class C (855,376) --
---------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 1,059,449,857 467,347,036
---------------------------------------------------------------------------------------------------
Reinvestment of distributions 42,543,080 --
---------------------------------------------------------------------------------------------------
Cost of shares redeemed (838,571,697) (440,429,826)
---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 263,421,240 26,917,210
---------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 370,109,973 164,771,980
---------------------------------------------------------------------------------------------------
Net assets at beginning of period 493,500,921 328,728,941
---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $123,361 and accumulated distributions
in excess of net investment income of $2,180,693,
respectively) $ 863,610,894 $493,500,921
---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A
YEARS ENDED OCTOBER 31
-------------------------------------------
2000 1999 1998(B)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $28.05 $19.78 $ 23.98
---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (a) (.39) (.24) (.09)
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 9.42 8.51 (4.11)
---------------------------------------------------------------------------------------------------------
Total from investment operations 9.03 8.27 (4.20)
---------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gain on investment transactions (2.38) -- --
---------------------------------------------------------------------------------------------------------
Net asset value, end of period $34.70 $28.05 $ 19.78
---------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (D) 32.63 41.61 (17.51)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 153 55 11
---------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions (%) 2.09(e) 2.26 2.20*
---------------------------------------------------------------------------------------------------------
Ratio of operating expenses after expense reductions (%) 1.99(e) 2.01 1.95*
---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.06) (.98) (1.00)*
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 64 41
---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period April 16, 1998 (commencement of sales of Class A shares) to
October 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of any sales charges.
(e) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 2.08% and 1.99%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
20
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS B
YEARS ENDED OCTOBER 31
-------------------------------------------
2000 1999 1998(B)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $27.69 $19.70 $ 23.98
---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (a) (.68) (.43) (.18)
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 9.30 8.42 (4.10)
---------------------------------------------------------------------------------------------------------
Total from investment operations 8.62 7.99 (4.28)
---------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gain on investment transactions (2.38) -- --
---------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.93 $27.69 $ 19.70
---------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (D) 31.51 40.43 (17.85)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 108 27 6
---------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions (%) 2.96(e) 3.44 3.13*
---------------------------------------------------------------------------------------------------------
Ratio of operating expenses after expense reductions (%) 2.83(e) 2.83 2.83*
---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.90) (1.81) (1.87)*
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 64 41
---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the period April 16, 1998 (commencement of sales of Class B shares) to
October 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of any sales charges.
(e) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 2.95% and 2.83%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
21
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS C
YEARS ENDED OCTOBER 31
-------------------------------------------
2000 1999 1998(B)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $27.71 $19.70 $ 23.98
---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (a) (.68) (.43) (.17)
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 9.35 8.44 (4.11)
---------------------------------------------------------------------------------------------------------
Total from investment operations 8.67 8.01 (4.28)
---------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gain on investment transactions (2.38) -- --
---------------------------------------------------------------------------------------------------------
Net asset value, end of period $34.00 $27.71 $ 19.70
---------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (D) 31.73 40.41 (17.85)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 29 8 2
---------------------------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions (%) 2.91(e) 3.00 3.23*
---------------------------------------------------------------------------------------------------------
Ratio of operating expenses after expense reductions (%) 2.80(e) 2.80 2.80*
---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.89) (1.79) (1.88)*
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 64 41
---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) For the Period April 16, 1998 (commencement of sales of Class C shares) to
October 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of any sales charges.
(e) The ratios of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions were 2.90% and 2.80%,
respectively (see Notes to Financial Statements).
* Annualized
** Not annualized
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Global Discovery Fund (the "Fund") is a diversified
series of Global/International Fund, Inc. (the
"Corporation") which is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment
company and is organized as a Maryland Corporation.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Scudder Shares, generally not
available to new investors, are not subject to
initial or contingent deferred sales charges.
Certain detailed financial information for the
Scudder Shares is provided separately and is
available upon request.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other
class-specific expenses. Differences in class
expenses may result in payment of different per
share dividends by class. All shares of the Fund
have equal rights with respect to voting subject to
class-specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States of America which
require the use of management estimates. The
policies described below are followed consistently
by the Fund in the preparation of its financial
statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Fund, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Money market instruments purchased with an original
maturity of sixty days or less are valued at
amortized cost. All other securities are valued at
their fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
exchange rates at period end. Purchases and sales
of investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from accounting principles
generally accepted in the United States of America.
These differences primarily relate to investments
in passive foreign investment companies, and
certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain
(loss) on investment transactions for a reporting
period may differ significantly from distributions
during such period. Accordingly, the Fund may
periodically make reclassifications among certain
of its capital accounts without impacting the net
asset value of the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
from foreign securities may be recorded subsequent
to the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis. All discounts are
accreted for both tax and financial reporting
purposes.
--------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES During the year ended October 31, 2000, purchases
and sales of investment securities (excluding
short-term investments) aggregated $821,081,624 and
$638,735,408, respectively.
--------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. Under the Investment
Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), the Fund pays the Adviser a fee equal
to an annual rate of 1.10% of the Fund's average
daily net assets, computed and accrued daily and
payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the
Fund in accordance with its investment objectives,
policies and restrictions. The Adviser determines
the securities, instruments and other contracts
relating to investments to be purchased, sold or
entered into by the Fund. In addition to portfolio
management services, the Adviser provides certain
administrative services in accordance with the
Agreement. For the year ended October 31, 2000, the
fee pursuant to the Agreement amounted to
$9,046,223. Until February 29, 2000, the Adviser
and certain subsidiaries had agreed to maintain
expenses of the Fund as follows: Class A shares
2.01% of average daily net assets, Class B shares
2.83% of average daily net assets, and Class C
shares 2.80% of average daily net assets. Effective
March 1, 2000, the Adviser and certain subsidiaries
have agreed to maintain expenses of the Fund, until
February 28, 2001, as follows: Class A shares 1.98%
of average daily net assets, Class B shares 2.83%
of average daily net assets, and Class C shares
2.80% of average daily net assets.
DISTRIBUTION SERVICE AGREEMENT. In accordance with
Rule 12b-1 under the 1940 Act, Kemper Distributors,
Inc. ("KDI"), a subsidiary of the Adviser, receives
a fee of 0.75% of average daily net assets of
Classes B and C. Pursuant to the agreement, KDI
enters into related selling group agreements with
various firms at various rates for sales of Class B
and C shares. For the year ended October 31, 2000,
the Distribution Fee was as follows:
<TABLE>
<CAPTION>
TOTAL UNPAID AT
DISTRIBUTION FEE AGGREGATED OCTOBER 31, 2000
----------------------------------------------------------------------------
<S> <C> <C>
Class B $633,645 $252,241
Class C 177,829 20,236
$811,474 $272,477
</TABLE>
UNDERWRITING AGREEMENT AND CONTINGENT DEFERRED
SALES CHARGE. KDI is the principal underwriter for
Classes A, B and C. Underwriting commissions paid
in connection with the distribution of Class A
shares for the year ended October 31, 2000
aggregated $402,759, of which $373,638 was paid to
other firms.
In addition, KDI receives any contingent deferred
sales charge (CDSC) from Class B share redemptions
occurring within six years of purchase and Class C
share redemptions occurring within one year of
purchase. There is no such charge upon redemption
of any share appreciation or reinvested dividends.
Contingent deferred sales charges are based on
declining rates ranging from 4% to 1% for Class B
and 1% for Class C, of the value of the shares
redeemed. For
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
the year ended October 31, 2000, the CDSC for
Classes B and C aggregated $175,773 and $8,469,
respectively.
ADMINISTRATIVE SERVICE FEES. KDI provides
information and administrative services to Classes
A, B and C shareholders at an annual rate of up to
0.25% of average daily net assets for each such
class. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based upon the assets
of shareholder accounts the firms service.
For the year ended October 31, 2000, the
Administrative Service Fee was as follows:
<TABLE>
<CAPTION>
TOTAL UNPAID AT
ADMINISTRATIVE SERVICE FEE AGGREGATED OCTOBER 31, 2000
----------------------------------------------------------------------------
<S> <C> <C>
Class A $301,999 $ 26,674
Class B 211,315 99,702
Class C 58,099 30,825
$571,413 $157,201
</TABLE>
SHAREHOLDER SERVICES FEES. Kemper Service Company
("KSC"), an affiliate of the Adviser, is the
transfer, dividend-paying and shareholder service
agent for the Fund's Classes A, B and C shares. For
the year ended October 31, 2000, the amount charged
to Classes A, B and C by KSC aggregated $493,403,
$396,622 and $115,603, respectively, of which
$113,209, $102,639 and $23,703, respectively, is
not imposed and $36,915, $14,360 and $32,907,
respectively, is unpaid at October 31, 2000.
Scudder Service Corporation ("SSC"), a subsidiary
of the Adviser, is the transfer, dividend-paying
and shareholder service agent for the Scudder
Shares. For the year ended October 31, 2000, the
amount charged to the Scudder Shares by SSC for
shareholder services aggregated $697,580, of which
$113,445 is unpaid at October 31, 2000.
Scudder Trust Company ("STC"), a subsidiary of the
Adviser, provides recordkeeping and other services
in connection with certain retirement and employee
benefit plans invested in the Scudder Shares of the
Fund. For the year ended October 31, 2000, the
amount charged to the Scudder Shares by STC
aggregated $288,092, of which $25,314 is unpaid at
October 31, 2000.
FUND ACCOUNTING FEES. Scudder Fund Accounting
Corporation ("SFAC"), a subsidiary of the Adviser,
is responsible for determining the daily net asset
value per share and maintaining the portfolio and
general accounting records of the Fund. For the
year ended October 31, 2000, the amount charged to
the Fund by SFAC aggregated $765,719, of which
$133,763 is unpaid at October 31, 2000.
DIRECTORS' FEES. The Fund pays each of its
Directors not affiliated with the Adviser an annual
retainer plus specified amounts for attended board
and committee meetings. For the year ended October
31, 2000, the Directors fees and expenses
aggregated $34,401. In addition, a one-time fee of
$57,394 was accrued for payment to those Directors
not affiliated with the Adviser who are not
standing for re-election, under the reorganization
discussed in Note 6. Inasmuch as the Adviser will
also benefit from administrative efficiencies of a
consolidated board, the Adviser has agreed to bear
$28,697 of such costs.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following tables summarize capital share and
dollar activity in the Fund:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------------------- ---------------------------
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold
---------------------------------------------------------------------------------
Scudder Shares 7,852,273 $ 293,016,942 5,590,925 $ 133,793,434
Class A 17,122,035 628,071,187 12,149,520 303,252,844
Class B 2,648,775 96,608,721 892,185 22,521,387
Class C 1,166,370 41,753,007 314,217 7,779,371
28,789,453 $1,059,449,857 18,946,847 $ 467,347,036
Shares issued to shareholders in reinvestment of distributions
---------------------------------------------------------------------------------
Scudder Shares 1,005,922 $ 34,070,602 -- --
Class A 144,729 4,877,084 -- --
Class B 84,443 2,802,662 -- --
Class C 23,863 792,732 -- --
1,258,957 $ 42,543,080 -- --
Shares redeemed
---------------------------------------------------------------------------------
Scudder Shares (6,786,276) $ (250,450,250) (6,880,203) $(163,612,997)
Class A (14,821,388) (547,112,786) (10,768,400) (268,241,904)
Class B (536,216) (19,127,223) (189,471) (4,631,255)
Class C (622,446) (21,881,438) (155,289) (3,943,670)
(22,766,326) $ (838,571,697) (17,993,363) $(440,429,826)
Net increase (decrease)
---------------------------------------------------------------------------------
Scudder Shares 2,071,919 $ 76,637,294 (1,289,278) $ (29,819,563)
Class A 2,445,376 85,835,485 1,381,120 35,010,940
Class B 2,197,002 80,284,160 702,714 17,890,132
Class C 567,787 20,664,301 158,928 3,835,701
7,282,084 $ 263,421,240 953,484 $ 26,917,210
</TABLE>
--------------------------------------------------------------------------------
5 LINE OF CREDIT The Fund and several affiliated Funds (the
"Participants") share in a $1 billion revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated pro rata, based upon net assets,
among each of the Participants. Interest is
calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum
of 33 percent of its net assets under the
agreement.
--------------------------------------------------------------------------------
6 REORGANIZATION In early 2000, Scudder Kemper initiated a
restructuring program for most of its Scudder
no-load open-end funds in response to changing
industry conditions and investor needs. The program
proposes to streamline the management and
operations of most of the no-load open-end funds
Scudder Kemper advises principally through the
liquidation of several small funds, mergers of
certain funds with similar investment objectives,
the creation of one Board of Directors/ Trustees
and the adoption of an administrative fee covering
the provision of most of the services currently
paid for by the affected funds. Costs incurred in
connection with this restructuring initiative are
being borne jointly by Scudder Kemper and certain
of the affected funds.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF GLOBAL/INTERNATIONAL FUND, INC.
AND TO THE CLASS A, CLASS B AND CLASS C SHAREHOLDERS
OF GLOBAL DISCOVERY FUND:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights for the Class A, Class B
and Class C shares present fairly, in all material respects, the financial
position of Global Discovery Fund (the "Fund") at October 31, 2000, the results
of its operations, the changes in its net assets and the financial highlights
for the Class A, Class B and Class C shares for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
for the Class A, Class B and Class C shares (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2000, by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 21, 2000
28
<PAGE>
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
The Fund paid distributions of $1.69 per share from net long-term capital gains
during its year ended October 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$118,000,000 as capital gain dividends for its year ended October 31, 2000, of
which 100% represents 20% rate gains.
The Fund paid foreign taxes of $219,843 and earned $219,843 of foreign source
income during the year ended October 31, 2000. Pursuant to Section 853 of the
Internal Revenue Code, the Fund designates $0.01 per share as foreign taxes paid
and $0.01 per share as income earned from foreign sources for the year ended
October 31, 2000.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
29
<PAGE>
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
A Special Meeting of Shareholders (the "Meeting") of Kemper Global Discovery
Fund (the "fund"), a series of Global/International Fund, Inc., was held on July
13, 2000, at the office of Scudder Kemper Investments, Inc., Two International
Place, Boston, Massachusetts 02110. At the Meeting the following matters were
voted upon by the shareholders (the resulting votes for each matter are
presented below).
1) To elect Directors of the Global/International Fund, Inc.
<TABLE>
<CAPTION>
Number of Votes:
Director For Withheld
<S> <C> <C>
Henry P. Becton, Jr. 11,807,579 306,472
Linda C. Coughlin 11,794,646 319,406
Dawn-Marie Driscoll 11,808,614 305,438
Edgar R. Fiedler 11,796,328 317,723
Keith R. Fox 11,816,858 297,194
Joan E. Spero 11,799,609 314,442
Jean Gleason Stromberg 11,800,712 313,340
Jean C. Tempel 11,801,332 312,720
Steven Zaleznick 11,791,003 323,049
</TABLE>
2) To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the fiscal year ending October 31, 2000.
<TABLE>
<CAPTION>
Number of Votes:
Broker
For Against Abstain Non-Votes*
<S> <C> <C> <C>
11,788,783 125,069 200,200 0
</TABLE>
* Broker non-votes are proxies received by the fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
30
<PAGE>
NOTES
31
<PAGE>
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
HARRY P. BECTON, JR. THOMAS V. BRUNS M. ISABEL SALTZMAN
Director Vice President Vice President
LINDA C. COUGHLIN SUSAN E. DAHL HOWARD SCHNEIDER
President and Director Vice President Vice President
DAWN-MARIE DRISCOLL WILLIAM F. GLAVIN JOHN R. HEBBLE
Director Vice President Treasurer
EDGAR R. FIELDER WILLIAM E. HOLZER BRENDA LYONS
Director Vice President Assistant Treasurer
KEITH R. FOX JAMES E. MASUR CAROLINE PEARSON
Director Vice President Assistant Secretary
JOAN E. SPERO JOHN MILLETTE
Director Vice President and Secretary
JEAN GLEASON STROMBERG GERALD J. MORAN
Director Vice President
JEAN C. TEMPEL KATHRYN L. QUIRK
Director Vice President
and Assistant Secretary
STEVEN ZALEZNICK
Director
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL DECHERT
Ten Post Office Square South
Boston, MA 02109
.............................................................................................
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST
225 Franklin Street
Boston, MA 02110
.............................................................................................
INDEPENDENT AUDITORS PRICEWATERHOUSECOOPERS LLP
160 Federal Street
Boston, MA 02110
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
</TABLE>
DIRECTORS&OFFICERS
KEMPER FUNDS LOGO Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Global Discovery Fund prospectus.
KGDF - 2 (12/22/00) 4927
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
