[LOGO] Scudder
Investments(SM)
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BOND/GLOBAL
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Scudder Emerging
Markets Income Fund
Annual Report
October 31, 2000
The fund's primary investment objective is to provide investors with high
current income. As a secondary investment objective, the fund seeks long-term
capital appreciation.
<PAGE>
Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
9 Portfolio Management Discussion
17 Investment Portfolio
20 Financial Statements
23 Financial Highlights
25 Notes to Financial Statements
32 Report of Independent Accountants
33 Tax Information
34 Shareholder Meeting Results
35 Officers and Directors
36 Investment Products and Services
38 Account Management Resources
2
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Scudder Emerging Markets Income Fund
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Class AARP ticker symbol SEMKX fund number 176
Class S ticker symbol SCEMX fund number 076
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Date of o For the twelve-month period ended October 31, 2000, the Class
Inception: S shares of the fund provided a total return of 15.32%,
12/31/93 compared to a 14.99% return for the fund's unmanaged
benchmark, the J.P. Morgan Emerging Markets Bond Global
Total Net Constrained Index.
Assets as of
10/31/00 -- o While financial markets appear to be anticipating a slowdown
in the global economy, emerging market fundamentals continue
Class AARP: be positive, highlighted by numerous credit upgrades from
$0.4 million ratings agencies during the period.
Class S: o Over the past 12 months, emerging market debt has been one of
$139 million the best performing fixed-income markets.
o The focus of the fund continues to be on credit quality --
investing in countries that have improving economic Inception:
12/31/93 fundamentals. Recently, the fund has attempted to
take advantage of rising oil prices byincreasing its exposure
to countries that are net exporters of energy.
3
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Letter from the Fund's President
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Dear Shareholders,
During the twelve-month period ending October 31, 2000, credit fundamentals
continued to improve as economies gained strength around the world. Even Asia,
which was in economic turmoil not too long ago, has recovered to the point that
many of its debt securities now fairly reflect the momentum of these economies.
At the same time, Mexico, South Africa, and Turkey, among others, have received
credit upgrades from major bond-rating agencies. These improving fundamentals
are reflected in the stronger performance of the emerging market debt asset
class. However, volatility from developed country equity markets and concerns
over a slowdown in global growth continue to create some risk for emerging
market debt.
Over its most recent fiscal year ended October 31, 2000, the Class S shares of
the fund returned 15.32% as it continued to emphasize higher credit quality
issues, focusing on countries with improving economic fundamentals. The shift of
fund assets from Asia to Latin America that began in the latter part of 1999 has
proven beneficial, as countries in this region have shown signs of economic
reform, strengthening currencies, and greater economic momentum. Specifically,
economic fundamentals continue to improve in countries such as Brazil, which is
benefiting from a renewed commitment to fight inflation. Brazil was subsequently
4
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rewarded with an upgrade in its credit rating from Moody's Investors Service.
Mexico, meanwhile, continues to enjoy the benefits of its links with the U.S.
economy while maintaining a policy of prudent debt management and proactive
monetary policy. For more information about Scudder Emerging Markets Income
Fund's investment environment, strategy, and outlook, please read the interview
that begins on page 9.
As always, please call a Scudder Information representative at 1-800-225-2470 if
you have questions about your fund. Or visit Scudder's Web site at
www.scudder.com. Page 21 provides more information on how to contact Scudder.
Thank you for choosing Scudder Emerging Markets Income Fund to help meet your
investing needs.
Sincerely,
/s/ Lin Coughlin
Linda C. Coughlin
President
Scudder Emerging Markets Income Fund
5
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Performance Update
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October 31, 2000
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Growth of a $10,000 Investment
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A GRAPH IN THE FORM OF A LINE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
<TABLE>
<CAPTION>
Scudder Emerging Markets J.P. Morgan Emerging Markets J.P. Morgan Emerging Markets
Income Fund-- Class S Bond Global Constrained Index* Bond Index Plus*
<S> <C> <C> <C>
12/93** 10000 10000 10000
94 9646 8550 8678
95 9980 9396 9326
96 13951 13352 13475
97 15672 14851 14933
98 11345 13641 13424
99 13240 16283 16109
00 15269 18726 19407
</TABLE>
Yearly periods ended October 31
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Fund Index Comparison
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<TABLE>
<CAPTION> Total Return
Growth of Average
Period ended 10/31/2000 $10,000 Cumulative Annual
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Scudder Emerging Markets Income Fund-- Class S
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<S> <C> <C> <C>
1 year $ 11,532 15.32% 15.32%
5 year $ 15,299 52.99% 8.88%
Life of Fund** $ 15,269 52.69% 6.39%
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J.P. Morgan Emerging Markets Bond Global Constrained Index*
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1 year $ 11,499 14.99% 14.99%
5 year $ 19,930 99.30% 14.79%
Life of Fund** $ 18,726 87.26% 9.60%
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J.P. Morgan Emerging Markets Bond Index Plus*
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1 year $ 12,047 20.47% 20.47%
5 year $ 20,810 108.10% 15.77%
Life of Fund** $ 19,407 94.07% 10.18%
</TABLE>
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 J.P. MORGAN EMERGING MARKETS BOND GLOBAL CONSTRAINED INDEX TOTAL
RETURN (%)
Yearly periods ended October 31
<TABLE>
<CAPTION>
1994** 1995 1996 1997 1998 1999 2000
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<S> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) -3.54 3.46 39.78 12.34 -27.60 16.70 15.32
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Index Total
Return (%) -14.50 9.89 42.10 11.23 -8.15 19.37 14.99
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Net
Asset Value ($) 11.05 10.26 12.98 12.22 7.04 7.46 7.89
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Dividends ($) .51 1.11 1.19 1.10 1.01 .70 .71
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Capital Gains -- -- -- 1.18 1.50 -- --
Distributions ($)
</TABLE>
* The unmanaged J.P. Morgan Emerging Markets Bond Global Constrained
Index (EMBI Global Constrained) is a uniquely-weighted version of the
EMBI Global Index which tracks total returns for U.S.
dollar-denominated debt instruments issued by emerging markets
sovereign and quasi- sovereign entities: Brady bonds, loans, Eurobonds
and local market instruments. The EMBI Global Constrained Index limits
the weights of those index countries with larger debt stocks by only
including specific portions of those countries' eligible current face
amounts of debt outstanding. The unmanaged J.P. Morgan Emerging Markets
Bond Index Plus (EMBI+) tracks total returns for traded external
currency-denominated debt instruments in the emerging markets: Brady
bonds, loans, Eurobonds and U.S. dollar-denominated local market
instruments. During this reporting period, the Fund has adopted the
EMBI Global Constrained for its primary securities market index over
the EMBI+ as it is a more broadly diversified index that includes more
countries and securities. Index returns assume reinvested dividends
and, unlike Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on December 31, 1993.
On October 2, 2000, existing shares of the Fund were redesignated as
Class S shares. In addition, the Fund commenced offering Class AARP
shares. The total return information provided is for the Fund's Class S
shares. 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 the Fund's expenses, the total return
for the five-year and life-of-Fund periods would have been lower.
7
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Portfolio Summary
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October 31, 2000
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Diversification
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The fund is largely
invested in the income
markets of emerging
countries, with a cash
position of less than 5%.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Debt Obligations 96%
Cash Equivalents 4%
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100%
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Geographical
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(Excludes 4% Cash Equivalents) Economic fundamentals
continue to improve in
countries such as
Brazil, which is
benefiting from a
renewed commitment to
fight inflation.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Brazil 22%
Russia 16%
Mexico 15%
Argentina 12%
Bulgaria 7%
Venezuela 5%
Colombia 5%
Jamaica 4%
Turkey 3%
Other 11%
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100%
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Currency Exposure
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United States 100% The fund invests
primarily in
dollar-denominated
sovereign issues.
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Average Life
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(Excludes 4% Cash Equivalents) Fund assets are invested
in instruments with a
range of maturities.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
0 < 3 years 4%
3 < 5 years 7%
5 < 10 years 31%
10+ years 58%
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100%
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For more complete details about the Fund's investment portfolio, see page 17. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
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Portfolio Management Discussion
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October 31, 2000
In the following interview, lead portfolio manager Susan E. Dahl and portfolio
managers M. Isabel Saltzman and Jack Janasiewicz discuss Scudder Emerging
Markets Income Fund's strategy and the market environment for the twelve-month
period ended October 31, 2000.
Q: How did the fund perform over the twelve-month period ended October
31, 2000?
A: The Class S shares of the fund returned 15.32% during the period, as
we benefited from improving credit environments in several emerging
market economies, a shift in fund assets from Asia to Latin America,
and an increase in our exposure to countries that are net exporters of
energy. The J.P. Morgan Emerging Markets Bond Global Constrained Index
returned 14.99% during the same period. The fund's 30-day net
annualized yield was 10.33% as of October 31.
Q: Can you characterize the fund's performance and risk profile over
the long term?
A: There is no question that the fund is designed for investors who are
able to tolerate significant short-term share price volatility, as well
as a wide variance in total returns from year to year. While the fund
has provided positive total returns in five out of seven fiscal years
since it commenced operations on December 31, 1993, as you can see from
the table on page 3, the fund has a history of volatility in share
price and total return. In fact, annual total returns have varied from
a high of a positive 40% for fiscal year 1996, to a low of negative 28%
for 1998. This level of volatility should not be surprising in a fund
that invests in emerging market securities, since these markets have
not been as stable as those of many developed countries. While we
cannot guarantee future performance, we believe our emphasis on
countries with improving economic fundamentals should benefit the fund
over the long term. Still, given the inherent additional risk in
emerging markets, we believe investors should consider this fund as
just one part of their allocation to domestic and international
fixed-income funds.
9
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Q: How would you characterize the tone of the overall market during the
period?
A: Despite the corrections in the Dow Jones Industrial Average and
Nasdaq Composite Index this year, as well as pressures in the U.S.
high-yield and high-grade corporate bond markets, emerging market debt
has performed quite well. Economic fundamentals within the emerging
market universe have remained strong, and yields, when compared to
those in developed markets, have provided attractive investment
opportunities. Several emerging market countries received key upgrades
in their credit ratings from major firms such as Moody's Investors
Service and Standard & Poor's (S&P), a reflection of an overall
improvement in their economic situation. (Typically, when an issuer
receives a higher credit rating, the perceived credit profile of the
issuer has improved, causing the risk premium associated with the asset
to decline. As a result, the bond's yield to maturity will fall, being
offset by an increase in the price of the asset. This contributes
positively to the fund's total return.) Among countries receiving
upgrades were Mexico, which received an investment-grade rating from
Moody's in March; Brazil, which received a one-notch upgrade from
Moody's; and South Korea and Malaysia, both of which received a
one-notch upgrade from S&P to BBB -- the lowest of the investment-grade
ratings -- late last year.
However, the external, or developed, markets continue to create the
greatest risks to emerging markets. Volatility from developed equity
markets as well as fears of slowing corporate profits in the United
States are having the greatest negative influence on emerging market
yield spreads, that is, increasing the difference in yields between
emerging market debt and comparable maturity U.S. Treasury securities.
While the rising price of oil is beneficial for most major emerging
market economies, many of which are oil exporters, its effect on
developed economies throughout the world has resulted in increased
inflation concerns. Therefore, while external factors such as stock
market volatility in developed countries have
10
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increased interest rate spreads within our asset class, credit upgrades
and improving economies have helped emerging market debt become one of
the best-performing fixed-income asset classes during this period.
Q: What have been some of the key events around the globe over the
period?
A: For emerging market countries, the end of 1999 provided signs of a
strong economic recovery. Rising commodity prices (particularly oil),
fading concerns regarding the Y2K effects, and improving economic
fundamentals all provided a supportive environment for emerging market
bonds. The global backdrop was also favorable as the U.S. Federal
Reserve Board (the Fed) began injecting liquidity into the financial
markets and cutting interest rates in an attempt to increase investor
confidence as the Y2K rollover approached. As the Nasdaq soared to new
highs, and emerging market debt became more attractive, investors'
appetite for risk returned to global asset markets. The world as a
whole began to exhibit signs of balanced growth, with Europe
demonstrating sustainable growth with low inflation, Japan showing
signs of a recovery, while the Fed was set to slow U.S. growth.
After the new year, however, as the United States continued to exhibit
strong growth, concerns over inflation began to impact the bond
markets. Prices in U.S. credit markets began to weaken and the U.S.
Treasury curve began to invert, with yields on shorter-term debt
exceeding those of longer-term debt (partly due to government
announcements of buybacks of outstanding longer-term Treasury
securities). The increasing volatility of developed-country equity
markets began to impact emerging market debt towards the beginning of
the second quarter. Investors' aversion to risk returned to the credit
markets, putting "spread products" (i.e., debt instruments with higher
yields than comparable-maturity Treasuries) under pressure. By early
summer, after the Fed increased short-term interest rates several times
in an effort to
11
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moderate U.S. economic activity and slow inflation expectations, global
financial markets began anticipating lower price volatility, expecting
that the Fed had achieved a "soft landing" and that further interest
rate increases were no longer needed. Equity markets rallied against
this backdrop and emerging market debt followed suit, posting strong
returns over the subsequent months.
However, as the summer months came to a close, rising oil prices and
disappointing corporate earnings out of the U.S. put renewed pressure
on financial markets. So, in a matter of months, the focus of investors
had gone from concerns surrounding an overheating U.S. economy to a
global economic slowdown. In addition, flare-ups in the Middle East as
well as unsuccessful attempts at reversing the euro's slide added to
the noise keeping financial markets on edge.
Q: Please describe the fund's overall strategy and discuss how you have
been implementing it.
A: The focus of the fund continues to be on credit quality -- investing
in those countries that have improving economic fundamentals. This
strategy guided the fund as we shifted assets out of Asia and into
Latin America, which had begun exhibiting signs of economic growth,
fiscal reform, and strengthening currencies. In relation to Asia, we
felt Latin American bonds were priced more attractively, whereas prices
of Asian bonds fairly reflected the economic momentum they had regained
since the Asian financial crisis. As a result, we did not feel Asian
bonds offered as much upside potential as those from Latin America. We
added to Brazil, a country continuing to make significant grounds on
economic reform while at the same time demonstrating a renewed focus on
growth as well as its commitment to fighting inflation. The fund's
largest position during the first half of the period was in Mexico as
we sought to take advantage of an expected ratings upgrade to
investment grade. Mexico has demonstrated prudent debt management as
well as a proactive monetary and fiscal policy, so we felt that an
investment-grade rating was justified and that the fairly
12
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wide interest-rate spreads did not properly reflect the positive
fundamental environment. In the latter half of the period, the fund
began to focus on the rising price of energy and its impact on emerging
market countries. Specifically, we focused on net exporters of oil and
began to increase our exposure to countries such as Russia, Mexico,
Venezuela, Colombia, and, to a lesser extent, Ecuador. With over 80% of
its total exports coming from oil, Venezuela remains the purest play on
rising oil prices. While roughly 40% of Russia's exports are derived
from oil and natural gas, Mexico enjoys the best of both worlds -- the
benefits of rising oil prices as well as expectations of an S&P upgrade
to investment grade before year's end. Colombia and Ecuador, both of
which still have to make significant progress in terms of economic
growth and fiscal reform, are two of our smaller plays on the oil
theme.
Q: What investments have you made outside of Latin America?
A: In Eastern Europe, the fund increased its exposure to Russia as we
became more comfortable with the political climate. More important,
economic performance continues to improve, leading to rising financial
reserves, while the benefits of the government's continued commitment
towards structural and economic reform are beginning to show. The
credit outlook in Russia continues to improve and we would expect to
see an upgrade there in the near future. For much of the period, we
held what we felt was a comfortable position in Turkey but recently
reduced that exposure. Although the government had made significant
progress in reducing inflation while achieving outstanding results on
its privatization program, recently the privatization progress has lost
some of its momentum and increasing refinancing requirements have
become a concern. On the other hand, the fund has maintained its
exposure to Bulgaria. While we would like to see further progress on
the privatization front, Bulgaria is one of the few countries that does
not need to tap the capital markets
13
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this year for financing. Given the prudent economic policy that has
been practiced there, Bulgaria could be a candidate for a credit rating
upgrade in the next year.
Q: The fund has investments in Argentina. What has been happening
there?
A: This October was a very eventful month for Argentina. There was a
change in President de la Rua's cabinet that shifted the balance of
power in favor of the opposition Radical party. Shortly thereafter,
Vice President Alvarez resigned, raising concerns over the
governability of the country. Then, when the opposition party failed to
support the 2001 budget, the fragile coalition that President de la Rua
had woven began to show cracks. On the economic side, there has been a
lack of evidence that would indicate a sustainable growth path,
highlighted by the continued disappointment in tax receipts. Investor
confidence has begun to erode and bond prices have come under pressure
as interest rates have risen. However, speculation is increasing that a
possible financial assistance package from the International Monetary
Fund and other multilateral organizations could be in the works,
providing some short-term relief. In addition, the Argentine banking
system remains healthy and the deposit base continues to grow.
International reserves are estimated at roughly $25 billion -- close to
an all-time high. Against this backdrop, the fund has held a
conservative position in Argentina, owning short-duration, floating
interest-rate instruments as well as assets collateralized by U.S.
Treasury securities. Ultimately, investor confidence needs to be
restored. But until then, the fund will maintain its conservative
position in Argentina.
Q: What markets are you avoiding and why?
A: Asia is the one region that the fund has not been overly involved
with during the period. Earlier in the year, this was more a reflection
of the fact that we could find better values elsewhere, rather than
concern over economic fundamentals. Since the Asian financial crisis,
most of the
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Asian economies have regained their economic momentum. The recovery has
caused Asian bond interest-rate spreads to tighten in relation to
Treasuries, pushing prices up to the point where we felt the bonds had
become overvalued. Given the expected economic improvements elsewhere
within the emerging markets universe, we felt that we could find more
attractive investments outside of Asia. In addition, during the summer
months, the return prospects for Asian investment-grade credits were
capped as crossover buyers -- investors outside of the dedicated
emerging markets universe who opportunistically purchase emerging
market bonds -- were fed a steady diet of supply from the U.S.
high-grade markets. Without the demand created from these buyers, the
potential for significant price appreciation in Asia was limited. Also,
with countries such as South Korea and the Philippines being net oil
importers, concerns surrounding the effects of rising energy prices
weighed on the region.
Q: What is your outlook for emerging market debt over the coming
months?
A: While we expect emerging market fundamentals to continue to improve,
the developed external markets will continue to impact emerging market
debt. Volatility in developed countries has increased as world markets
anticipate a slowdown in global growth, while concerns persist over a
sustained increase in energy prices and its potential impact on
inflation. However, opportunities do exist within emerging markets. The
improving credit cycle is expected to continue, with additional credit
upgrades in countries like Brazil, Russia, and Mexico. From a
historical perspective, yields on emerging market bonds are very
attractive. Taking all these factors into account, our focus remains on
higher-credit-quality countries with improving fundamentals. While we
expect price volatility in the near term, we continue to search for
opportunities within the emerging market universe and remain poised to
take advantage of the improving economic fundamentals within our
markets.
The opinions expressed are those of the portfolio management team as of
October 31, 2000, and may not actually come to pass.
15
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Scudder Emerging Markets Income Fund: A Team Approach to Investing
Scudder Emerging Markets Income 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 Susan E. Dahl assumed responsibility for the
fund's investment strategy and day-to-day management in 1996. Ms. Dahl
has nine years of investment experience in emerging markets and joined
the fund team in 1994 and the Adviser in 1987.
Portfolio manager M. Isabel Saltzman assists with the development and
execution of investment strategy. Ms. Saltzman joined the Adviser in
1990 and has been involved in foreign finance and investing since 1979
and contributes special expertise in Latin America.
Portfolio manager Jack Janasiewicz joined the Adviser in 1994 and the
fund team in 2000. Mr. Janasiewicz has six years of investment industry
experience.
16
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Investment Portfolio as of October 31, 2000
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<TABLE>
<S> <C> <C>
Principal
Amount ($) Value ($)
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Short-Term Investments 4.3%
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Student Loan Marketing Association, 6.45%*, 11/1/2000
(Cost $5,990,000).................................. 5,990,000 5,990,000
----------------------------------------------------------------------------------
Bonds 95.7%
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Argentina 11.7%
Argentine Republic, 11.75%, 4/7/2009.................. 2,050,000 1,793,750
Argentine Republic, 11.375%, 1/30/2017................ 2,760,000 2,318,400
Argentine Republic, 12.125%, 2/25/2019................ 1,200,000 1,023,000
Argentine Republic, 12%, 2/1/2020..................... 2,670,000 2,306,209
Argentine Republic, Collateralized Par Bond, Series
L, Step-up Coupon, 6%, 3/31/2023................... 4,930,000 3,226,093
Argentine Republic, Floating Rate Bond, LIBOR
plus .8125% (7.625%), 3/31/2005.................... 6,404,400 5,595,845
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16,263,297
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Brazil 21.2%
Federative Republic of Brazil, 11.625%, 4/15/2004..... 450,000 454,500
Federative Republic of Brazil, 14.5%, 10/15/2009...... 1,220,000 1,302,350
Federative Republic of Brazil, 12.75%, 1/15/2020...... 4,665,000 4,326,788
Federative Republic of Brazil, 10.125%, 5/15/2027..... 6,150,000 4,643,250
Federative Republic of Brazil, 12.25%, 3/6/2030....... 2,850,000 2,465,250
Federative Republic of Brazil, 11%, 8/17/2040......... 5,272,000 4,046,260
Federative Republic of Brazil C Bond, 8%, 4/15/2014... 6,822,011 5,099,454
Federative Republic of Brazil, Collateralized
Discount Bond, Floating Rate Bond, LIBOR plus .8125%
(7.625%), 4/15/2024................................ 3,000,000 2,287,500
Federative Republic of Brazil, Eligible Interest,
Floating Rate Bond, LIBOR plus .8125% (7.625%),
4/15/2006.......................................... 5,024,800 4,578,849
Federative Republic of Brazil, "New" Money Bond,
Floating Rate Bond, LIBOR plus .875% (7.437%),
4/15/2009.......................................... 300,000 256,500
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29,460,701
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Bulgaria 6.2%
Republic of Bulgaria, Collateralized Floating Rate
Interest Reduction Bond, Series A, Step-up Coupon,
3%, 7/28/2012...................................... 2,890,000 2,059,125
Republic of Bulgaria, Collateralized Discount Bond,
Series A, LIBOR plus .8125% (7.75%), 7/28/2024..... 2,720,000 2,040,000
Republic of Bulgaria, Interest Arrears Bond, LIBOR
plus .8125% (7.75%), 7/28/2011..................... 6,090,000 4,537,050
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8,636,175
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The accompanying notes are an integral part of the financial statements.
17
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Principal
Amount ($) Value ($)
----------------------------------------------------------------------------------
Colombia 4.4%
Republic of Colombia, 7.625%, 2/15/2007............... 2,845,000 2,133,750
Republic of Colombia, 9.75%, 4/23/2009................ 2,975,000 2,372,563
Republic of Colombia, 11.75%, 2/25/2020............... 2,050,000 1,640,000
-------------
6,146,313
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Ecuador 1.8%
Republic of Ecuador, 12%, 11/15/2012.................. 1,475,000 999,313
Republic of Ecuador, Step-up Coupon, 4%, 8/15/2030.... 4,000,000 1,510,000
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2,509,313
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Jamaica 3.4%
Government of Jamaica, 10.875%, 6/10/2005............. 2,030,000 1,948,800
Government of Jamaica, 12.75%, 9/1/2007............... 2,800,000 2,758,000
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4,706,800
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Mexico 14.5%
Petroleos Mexicanos S.A., 9.5%, 9/15/2027............. 2,005,000 1,929,813
United Mexican States, 10.375%, 2/17/2009............. 2,850,000 3,028,125
United Mexican States, Collateralized Par Bond,
(Detachable Oil Priced Indexed Value Recovery
Rights), Series B, 6.25%, 12/31/2019............... 7,590,000 6,660,225
United Mexican States, Floating Rate Discount Bond
(Detachable Oil Priced Indexed Value Recovery
Rights), Series B, LIBOR plus .8125% (7.603%),
12/31/2019......................................... 1,100,000 1,115,125
United Mexican States, Floating Rate Discount Bond
(Detachable Oil Priced Indexed Value Recovery
Rights), Series D, LIBOR plus .8125% (7.925%),
12/31/2019......................................... 945,000 957,994
United Mexican States, Global Bond, 11.375%,
9/15/2016.......................................... 5,640,000 6,387,30
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20,078,582
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Morocco 2.4%
Kingdom of Morocco, Restructuring and Consolidation
Agreement, Tranche A, Floating Rate Bond, LIBOR
plus .8125% (7.75%), 1/1/2009...................... 3,747,758 3,269,919
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Panama 3.1%
Republic of Panama, 10.75%, 5/15/2020................. 1,525,000 1,494,500
Republic of Panama, Interest Reduction Bond, Step-up
Coupon, 4.5%, 7/17/2014............................ 3,505,000 2,768,950
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4,263,450
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The accompanying notes are an integral part of the financial statements.
18
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Principal
Amount ($) Value ($)
----------------------------------------------------------------------------------
Philippines 2.6%
Republic of the Philippines, 10.625%, 3/16/2025....... 4,850,000 3,673,875
-------------
Russia 15.3%
Russian Federation, 9.25%, 11/27/2001................. 2,350,000 2,294,188
Russian Federation, 11.75%, 6/10/2003................. 2,760,000 2,635,800
Russian Federation, 8.75%, 7/24/2005.................. 1,800,000 1,415,250
Russian Federation, 10%, 6/26/2007.................... 9,214,000 6,898,983
Russian Federation, 8.25%, 3/31/2010.................. 2,914,360 1,868,833
Russian Federation, Step-up Coupon, 2.5%, 3/31/2030... 16,050,000 6,048,844
-------------
21,161,898
-------------
South Africa 1.7%
Republic of South Africa, 9.125%, 5/19/2009........... 1,820,000 1,772,225
Republic of South Africa, 8.5%, 6/23/2017............. 650,000 568,750
-------------
2,340,975
-------------
Turkey 2.6%
Republic of Turkey, 12.375%, 6/15/2009................ 3,215,000 3,215,000
Republic of Turkey, 11.875%, 1/15/2030................ 350,000 341,250
-------------
3,556,250
-------------
Venezuela 4.8%
Republic of Venezuela, Collateralized Floating Rate
Interest Reduction Bond, Series A, LIBOR plus .875%
(7.625%), 3/31/2007................................ 2,630,924 2,170,512
Republic of Venezuela, Collateralized Floating Rate
Interest Reduction Bond, Series B, LIBOR plus .875%
(7.437%), 3/31/2007................................ 1,083,333 893,750
Republic of Venezuela, Debt Conversion Bond, Floating
Rate Bond, Series DL, LIBOR plus .875% (7.875%),
12/18/2007......................................... 4,285,724 3,578,580
-------------
6,642,842
-------------
----------------------------------------------------------------------------------
Total Bonds (Cost $135,678,172) 132,710,390
----------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $141,668,172) (a) 138,700,390
----------------------------------------------------------------------------------
</TABLE>
* Annualized yield at time of purchase; not a coupon rate.
(a)The cost for federal income tax purposes was $143,202,778. At October 31,
2000, net unrealized depreciation for all securities based on tax cost was
$4,502,388. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$1,105,113 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $5,607,501.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Investments in securities, at value (cost $141,668,172)......................... $ 138,700,390
Cash............................................................................ 1,668
Receivable for investments sold................................................. 3,614,579
Interest receivable............................................................. 3,023,664
Receivable for Fund shares sold................................................. 47,973
Due from Adviser................................................................ 29,780
----------------
Total assets.................................................................... 145,418,054
Liabilities
---------------------------------------------------------------------------------------------------
Payable for investments purchased............................................... 5,235,063
Payable for Fund shares redeemed................................................ 349,891
Accrued management fee.......................................................... 117,552
Accrued Directors' fees and expenses............................................ 74,400
Other accrued expenses and payables............................................. 229,929
----------------
Total liabilities............................................................... 6,006,835
----------------------------------------------------------------------------------------------------
Net assets, at value $ 139,411,219
----------------------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income............................................. 2,874,016
Net unrealized appreciation (depreciation) on investments....................... (2,967,782)
Accumulated net realized gain (loss)............................................ (101,643,264)
Paid-in capital................................................................. 241,148,249
----------------------------------------------------------------------------------------------------
Net assets, at value $ 139,411,219
----------------------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------------------
Class AARP
Net Asset Value, offering and redemption price per share ($417,125 / 52,887
shares of capital stock outstanding, $.01 par value, 100,000,000 shares -----------------
authorized).................................................................. $ 7.89
-----------------
Class S
Net Asset Value, offering and redemption price per share ($138,994,094 /
17,625,640 shares of capital stock outstanding, $.01 par value, 100,000,000 -----------------
shares authorized)........................................................... $ 7.89
-----------------
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Statement of Operations for the year ended October 31, 2000
---------------------------------------------------------------------------------------------------
Investment Income
---------------------------------------------------------------------------------------------------
Income:
Interest........................................................................ $ 20,761,741
----------------
Expenses:
Management fee.................................................................. 1,703,882
Services to shareholders........................................................ 523,816
Custodian and accounting fees................................................... 296,870
Administrative fee.............................................................. 76,091
Auditing........................................................................ 85,115
Legal........................................................................... 20,520
Directors' fees and expenses.................................................... 105,332
Reports to shareholders......................................................... 60,897
Registration fees............................................................... 19,379
Reorganization.................................................................. 30,445
Other........................................................................... 10,952
----------------
Total expenses, before expense reductions....................................... 2,933,299
Expense reductions.............................................................. (29,780)
----------------
Total expenses, after expense reductions........................................ 2,903,519
----------------------------------------------------------------------------------------------------
Net investment income 17,858,222
----------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
---------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments....................................... 16,596,969
Net unrealized appreciation (depreciation) during the period on investments..... (8,743,825)
----------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 7,853,144
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 25,711,366
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<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........................................................... $ 17,858,222 $ 17,385,886
Net realized gain (loss) on investment transactions............................. 16,596,969 (42,475,899)
Net unrealized appreciation (depreciation) on investment transactions during
the period.................................................................... (8,743,825) 54,251,644
--------------- ----------------
Net increase (decrease) in net assets resulting from operations................. 25,711,366 29,161,631
--------------- ----------------
Distributions to shareholders from:
Net investment income:
Class AARP.................................................................... -- --
--------------- ----------------
Class S....................................................................... (14,984,236) (17,161,638)
--------------- ----------------
Tax return of capital-- Class S................................................. -- (1,702,384)
--------------- ----------------
Fund share transactions:
Proceeds from shares sold....................................................... 73,657,558 99,257,682
Reinvestment of distributions................................................... 12,806,348 16,206,909
Cost of shares redeemed......................................................... (149,823,362) (147,457,888)
--------------- ----------------
Net increase (decrease) in net assets from Fund share transactions.............. (63,359,456) (31,993,297)
--------------- ----------------
Increase (decrease) in net assets............................................... (52,632,326) (21,695,688)
Net assets at beginning of period............................................... 192,043,545 213,739,233
Net assets at end of period (including undistributed net investment income of --------------- ----------------
$2,874,016 at October 31, 2000............................................... $ 139,411,219 $ 192,043,545
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
Class AARP
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------------------
2000(a)
------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.01
----------
------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------------------------------------
Net investment income (b) .05
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions (.17)
----------
------------------------------------------------------------------------------------------------------------------
Total from investment operations (.12)
------------------------------------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------------------------------------
Net investment income --
------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.89
----------
------------------------------------------------------------------------------------------------------------------
Total Return (%) (1.50)**
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) .42
------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 1.65*
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 7.45*
------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 338
------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)For the period from October 2, 2000 (commencement of sales of Class AARP
shares) to October 31, 2000.
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
23
<PAGE>
--------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
Class S (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years Ended October 31, 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.46 $ 7.04 $12.22 $12.98 $10.26
--------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
----------------------------------------------------------------------------------------------------------------------------
Net investment income (b) .83 .63 1.04 1.06 1.20
----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .31 .49 (3.71) .46 2.71
--------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.12 (2.67) 1.52 3.91
----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
----------------------------------------------------------------------------------------------------------------------------
Net investment income (.71) (.64) (1.01) (1.10) (1.19)
----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- -- (1.50) (1.18) --
----------------------------------------------------------------------------------------------------------------------------
Tax return of capital -- (.06) -- -- --
--------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Total distributions (.71) (.70) (2.51) (2.28) (1.19)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.89 $ 7.46 $ 7.04 $12.22 $12.98
--------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 15.32 16.70 (27.60) 12.34 39.78(c)
----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 139 192 214 324 305
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.72(d) 1.75 1.56 1.49 1.45
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.71(d) 1.75 1.56 1.49 1.44
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 10.50 8.82 9.97 8.03 10.05
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 338 327 240 410 430
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) On October 2, 2000, existing shares of the Fund were redesignated as Class
S.
(b) Based on monthly average shares outstanding during the period.
(c) Total returns would have been lower had certain expenses not been reduced.
(d) The ratio of operating expenses excluding costs incurred in connection with
the reorganization before and after expense reductions was 1.67% (see Notes
to Financial Statements).
24
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Emerging Markets Income Fund (the "Fund") is a non-diversified series of
the 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.
On October 2, 2000, the Fund commenced offering multiple classes of shares.
Existing shares of the Fund were redesignated as Class S and the Fund commenced
offering Class AARP shares. The two classes of shares provide investors with
different purchase options. Shares of Class AARP are especially designed for
members of AARP. 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 both classes, except
that each class bears certain expenses unique to that class such as
reorganization expenses (see Note F). Differences in class-level 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. Effective October 2, 2000, there are no class-specific expenses.
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. Portfolio debt securities
purchased with an original maturity greater than sixty days are valued by
pricing agents approved by the officers of the Corporation, whose quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
25
<PAGE>
--------------------------------------------------------------------------------
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
transactions.
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.
When-Issued/Forward Delivery Securities. The Fund may purchase securities with
delivery or payment to occur at a later date beyond the normal settlement
period. At the time the Fund enters into a commitment to purchase a security,
the transaction is recorded and the value of the security is reflected in the
net asset value. The value of the security may vary with market fluctuations. No
interest accrues to the Fund until payment takes place. At the time the Fund
enters into this type of transaction it is required to segregate cash or other
liquid assets at least equal to the amount of the commitment.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
At October 31, 2000, the Fund had a net tax basis capital loss carryforward of
approximately $100,109,000, which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
October 31, 2006 ($45,861,000) or October 31, 2007 ($54,248,000), the respective
expiration dates.
26
<PAGE>
--------------------------------------------------------------------------------
Distribution of Income and Gains. Distributions of net investment income, if
any, are made quarterly. 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 foreign denominated
investments and certain securities sold at a loss. As a result, net investment
income (loss) and net realized gain (loss) on investment transactions for a
reporting period may differ significantly from distributions during such period.
Accordingly, the Fund may periodically make reclassifications among certain of
its capital accounts without impacting the net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis. All discounts are accreted for both tax and financial
reporting purposes.
B. Purchases and Sales of Securities
For the year ended October 31, 2000, purchases and sales of investment
securities (excluding short-term investments) aggregated $526,694,291 and
$590,358,180, respectively.
C. Related Parties
As described in Note F, Scudder Kemper Investments, Inc. has initiated a
restructuring program for most of its Scudder no-load open-end funds. As part of
the reorganization, the Fund adopted a new Investment Management Agreement and
entered into an Administrative Agreement. Both of these agreements were
effective October 2, 2000. The terms of the newly adopted and the pre-existing
agreements are set out below.
Management Agreement. Under the Management Agreement (the "Agreement") with
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser"), 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
27
<PAGE>
--------------------------------------------------------------------------------
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. The management fee payable under the
Agreement was equal to an annual rate of 1.00% of the Fund's average daily net
assets, computed and accrued daily and payable monthly.
Effective October 2, 2000, the Fund, as approved by the Fund's Board of
Directors, adopted a new Investment Management Agreement (the "Management
Agreement") with Scudder Kemper. The Management Agreement is identical to the
pre-existing Agreement, except for the date of execution and termination and fee
rate. The management fee payable under the Management Agreement is equal to an
annual rate of 1.00% of the first $500,000,000 of the Fund's average daily net
assets and 0.95% of such net assets in excess of $500,000,000, computed and
accrued daily and payable monthly.
Accordingly, for the year ended October 31, 2000, the fee pursuant to the
Agreement and the Management Agreement amounted to $1,703,882, which was
equivalent to an annual effective rate of 1.00% of the Fund's average daily net
assets.
Administrative Fee. Effective October 2, 2000, the Fund, as approved by the
Fund's Board of Directors, adopted an Administrative Agreement (the
"Administrative Agreement") with Scudder Kemper. Under the Administrative
Agreement the Adviser provides or pays others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Scudder Kemper under its Management Agreement with the Fund, as described above)
in exchange for the payment by the Fund of an administrative services fee (the
"Administrative Fee") of 0.65% of average daily net assets. As of the effective
date of the Administrative Agreement, each service provider will continue to
provide the services that it currently provides to the Fund (i.e., fund
accounting, shareholder services, custody, audit and legal), under the current
arrangements, except that Scudder Kemper will pay these entities for the
provision of their services to the Fund and will pay most other Fund expenses,
including insurance, registration, printing and postage fees. Certain expenses
of the Fund will not be borne by Scudder Kemper under the Administrative
Agreement, such as taxes, brokerage, interest and extraordinary expenses, and
the fees and expenses of the Independent Directors (including the fees and
expenses of their independent counsel). For the period October 2, 2000 through
October 31, 2000, the Administrative Agreement expense charged to the Fund
amounted to $76,091, all of which is unpaid at October 31, 2000.
28
<PAGE>
--------------------------------------------------------------------------------
Service Fees. Scudder Service Corporation ("SSC"), a subsidiary of the Adviser,
is the transfer, dividend-paying and shareholder service agent for the Fund.
Prior to October 2, 2000, the amount charged to the Fund by SSC aggregated
$330,062, of which $27,801 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 Fund. Prior to October 2, 2000, the
amount charged to the Fund by STC aggregated $41,993, of which $10,292 is unpaid
at October 31, 2000.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. Prior to October 2,
2000, the amount charged to the Fund by SFAC aggregated $134,325, of which
$24,841 is unpaid at October 31, 2000.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. Prior to October 2, 2000, the
Special Servicing Agreement expense charged to the Fund amounted to $31,983.
Effective October 2, 2000, the above fees will be paid by the Adviser in
accordance with the Administrative Agreement.
Directors' Fees and Expenses. The Fund pays each Director not affiliated with
the Adviser an annual retainer, plus specified amounts for attended board and
committee meetings. For the year ended October 31, 2000, Directors' fees and
expenses aggregated $45,772. In addition, a one-time fee of $59,560 was accrued
by Class S prior to October 2, 2000 for payment to those Directors not
affiliated with the Adviser who did not stand for re-election, under the
reorganization discussed in Note F. Inasmuch as the Adviser will benefit from
administrative efficiencies of a consolidated Board, the Adviser has agreed to
bear $29,780 of such costs.
29
<PAGE>
--------------------------------------------------------------------------------
Other Related Parties. Effective October 2, 2000, Scudder Kemper has agreed to
pay a fee to AARP and/or its affiliates in return for advice relating to
investments by AARP members in Class AARP shares of the Fund. This fee is
calculated on a daily basis as a percentage of the combined net assets of the
AARP classes of all funds managed by Scudder Kemper. The fee rates, which
decrease as the aggregate net assets of the AARP classes become larger, are as
follows: 0.07% for the first $6,000,000,000 of net assets, 0.06% for the next
$10,000,000,000 of such net assets and 0.05% of such net assets thereafter. D.
Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States of America. These risks
include revaluation of currencies, high rates of inflation, repatriation
restrictions on income and capital, and future adverse political and economic
developments. Moreover, securities issued in these markets may be less liquid,
subject to government ownership controls and delayed settlements, and their
prices more volatile than those of comparable securities in the United States of
America.
E. Lines of Credit
The Fund and several Scudder 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.
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
30
<PAGE>
--------------------------------------------------------------------------------
are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, are presented as reorganization expenses in the
Statement of Operations of the Fund. In addition, after December 29, 2000, Class
S shares of the Fund will generally not be available to new investors.
G. Share Transactions
The following table summarizes shares of capital stock 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
----------------------------------------------------------------------------------------------------------
Class AARP*............. 53,026 $ 419,599 -- $ --
Class S**............... 9,126,001 73,237,959 13,712,051 99,257,682
$ 73,657,558 $ 99,257,682
Shares issued to shareholders in reinvestment of distributions
----------------------------------------------------------------------------------------------------------
Class AARP*............. -- $ -- -- $ --
Class S**............... 1,613,954 12,806,348 2,279,508 16,206,909
$ 12,806,348 $ 16,206,909
Shares redeemed
----------------------------------------------------------------------------------------------------------
Class AARP*............. (139) $ (1,159) -- $ --
Class S**............... (18,844,786) (149,822,203) (20,622,991) (147,457,888)
$ (149,823,362) $(147,457,888)
Net increase (decrease)
----------------------------------------------------------------------------------------------------------
Class AARP*............. 52,887 $ 418,440 -- $ --
Class S**............... (8,104,831) (63,777,896) (4,631,432) (31,993,297)
$ (63,359,456) $ (31,993,297)
</TABLE>
* For the period from October 2, 2000 (commencement of sales of Class AARP
shares) to October 31, 2000.
** On October 2, 2000, existing shares of the Fund were redesignated as Class S
shares.
31
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Board of Directors of Global/International Fund, Inc. and to the
Shareholders of Scudder Emerging Markets Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Scudder Emerging Markets Income Fund (the "Fund") at October 31, 2000,
the results of its operations, the changes in its net assets and the
financial highlights for each of the periods indicated therein, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance
with 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 the opinion
expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 18, 2000
32
<PAGE>
Tax Information (Unaudited)
--------------------------------------------------------------------------------
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.
33
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Emerging Markets
Income 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. 13,558,909 407,314
Linda C. Coughlin 13,551,311 414,912
Dawn-Marie Driscoll 13,558,838 407,386
Edgar R. Fiedler 13,565,456 400,767
Keith R. Fox 13,564,893 401,331
Joan E. Spero 13,556,326 409,898
Jean Gleason Stromberg 13,557,113 409,111
Jean C. Tempel 13,554,119 412,104
Steven Zaleznick 13,539,750 426,473
--------------------------------------------------------------------------------
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:
For Against Abstain Broker
Non-Votes*
--------------------------------------------------------------------------------
13,647,029 142,417 176,777 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.
34
<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
Susah E. Dahl*
o Vice President
William F. Glavin*
o Vice President
William E. Holzer*
o Vice President
James E. Masur*
o Vice President
Gerald J. Moran*
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.
35
<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
36
<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.
37
<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.
38
<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
39
<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.
AARP Investment
Program from Scudder
PO Box 219735
Kansas City, MO 64121-9735
1-800-253-2277
aarp.scudder.com
Scudder Funds
PO Box 219669
Kansas City, MO 64121-9669
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
