Filed electronically with the Securities and Exchange Commission
on October 26, 1998.
File No. 33-22059
File No. 811-5565
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
----------
Post-Effective Amendment No. 12
----------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT No. 14
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Scudder Mutual Funds, Inc.
--------------------------
(Exact name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
----------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
Thomas F. McDonough
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
--------
X on November 1, 1998 pursuant to paragraph (b)
--------
60 days after filing pursuant to paragraph (a)(i)
--------
on _____________ pursuant to paragraph (a)(i)
--------
75 days after filing pursuant to paragraph (a)(ii)
--------
on ________________________ pursuant to paragraph (a)(ii)
-------- of Rule 485
If appropriate, check the following:
this post-effective amendment designates a new effective date
-------- for a previously filed post-effective amendment
<PAGE>
SCUDDER MUTUAL FUNDS, INC.
SCUDDER GOLD FUND
CROSS-REFERENCE SHEET
Items Required by Form N-1A
---------------------------
<TABLE>
<CAPTION>
PART A
- ------
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description of INVESTMENT OBJECTIVE AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
RISK FACTORS
FUND ORGANIZATION
5. Management of the Fund A MESSAGE FROM THE PRESIDENT
FUND ORGANIZATION--Investment adviser and Transfer agent
SHAREHOLDER BENEFITS--A Team Approach to Investing
DIRECTORS AND OFFICERS
5A. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital
Securities gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)-Scudder Automated Information Line,
Dividend reinvestment plan, T.D.D. service for the hearing
impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered FUND ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing shares, Share price,
Processing time, Minimum balances, Third party transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference - Page 1
<PAGE>
SCUDDER GOLD FUND
(continued)
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History FUND ORGANIZATION
13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVES
Policies AND POLICIES
PORTFOLIO TRANSACTIONS - Brokerage Commissions,
Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
DIRECTORS AND OFFICERS
REMUNERATION
15. Control Persons and Principal DIRECTORS AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information
17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS - Brokerage Commissions,
Practices Portfolio Turnover
18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and Capital
Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference - Page 2
<PAGE>
This prospectus sets forth concisely the information about Scudder Gold Fund, a
non-diversified series of Scudder Mutual Funds, Inc., an open-end management
investment company, that a prospective investor should know before investing.
Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated November 1, 1998, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Contents--see page 4.
NOT FDIC-
INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
[Logo]
Scudder
Gold
Fund
Prospectus
November 1, 1998
A pure no-load(TM) (no sales charges) mutual fund series which seeks maximum
return consistent with investing primarily in a portfolio of gold-related equity
securities and gold.
<PAGE>
Expense information
How to compare a Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Gold Fund (the "Fund").* By reviewing this
table and those in other mutual funds' prospectuses, you can compare the Fund's
fees and expenses with those of other funds. With Scudder's pure no-load(TM)
funds, you pay no commissions to purchase or redeem shares, or to exchange from
one fund to another. As a result, all of your investment goes to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE**
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended June 30, 1998.
Investment management fee 1.00%
12b-1 fees NONE
Other expenses 0.82%
-----
Total Fund operating expenses 1.82%
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$18 $57 $99 $214
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* This information also includes expenses of a wholly-owned subsidiary of
Scudder Mutual Funds, Inc., the capital of which is limited to 25% of the
Fund's assets. (See "Investment objective and policies--Investments.")
** You may redeem by writing or calling the Fund. If you wish to receive
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."
2
<PAGE>
Consolidated
financial highlights
The following table includes selected consolidated data for a share outstanding
throughout each period and other performance information derived from the
audited financial statements.If you would like more detailed information
concerning the Fund's performance, a complete portfolio listing and audited
financial statements are available in the Fund's Annual Report dated June 30,
1998 which may be obtained without charge by writing or calling Scudder Investor
Services, Inc.
<TABLE>
<CAPTION>
Years Ended June 30,
1998(a) 1997(a) 1996(a) 1995(a) 1994(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning ------------------------------------------------------------------
of period .............. $ 10.49 $ 15.34 $ 12.86 $ 12.64 $ 12.13
Income from investment ------------------------------------------------------------------
operations:
Net investment income
(loss) ................. .00 (.08) (.09) (.08) (.10)
Net realized and unrealized
gain (loss) on
investment
transactions ........... (3.70) (2.12) 4.28 1.02 .85
Total from investment ------------------------------------------------------------------
operations ............. (3.70) (2.20) 4.19 .94 .75
------------------------------------------------------------------
Less distributions:
From net investment income -- -- -- -- --
In excess of net
investment income ...... (.14) (2.39) (1.08) (.25) (.24)
From net realized gains on
investment
transactions ........... -- (.26) (.63) (.47) --
From paid-in capital ...... -- -- -- -- --
------------------------------------------------------------------
Total distributions ....... (.14) (2.65) (1.71) (.72) (.24)
------------------------------------------------------------------
Net asset value, end of ------------------------------------------------------------------
period ................. $ 6.65 $ 10.49 $ 15.34 $ 12.86 $ 12.64
- ----------------------------------------------------------------------------------------------
Total Return (%) .......... (35.45) (17.72) 36.91 7.50 6.35
Ratios and Supplemental
Data
Net assets, end of period
($ millions) ........... 132 164 173 126 130
Ratio of operating
expenses to average
daily net
assets (%) ............. 1.82 1.60 1.50 1.65 1.69
Ratio of operating
expenses before
expense reductions,
to average daily
net assets (%) ......... 1.82 1.60 1.50 1.65 1.69
Ratio of net investment
income (loss) to
average daily net
assets (%) ............. .04 (.62) (.61) (.69) (.81)
Portfolio turnover
rate (%) ............... 68.3 38.9 29.7 42.0 50.8
Average commission rate
paid (b) ............... $ .0138(e) $ .0213 $ .0309 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
1993(a) 1992(a) 1991 1990 1989(d)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning -------------------------------------------------------------------
of period .............. $ 9.19 $ 9.87 $ 10.21 $ 10.58 $ 12.00
Income from investment -------------------------------------------------------------------
operations:
Net investment income
(loss) ................. (.08) (.12) (.04) .07 (.06)
Net realized and unrealized
gain (loss) on
investment
transactions ........... 3.02 (.56) (.30) (.34) (1.36)
Total from investment -------------------------------------------------------------------
operations ............. 2.94 (.68) (.34) (.27) (1.42)
Less distributions: -------------------------------------------------------------------
From net investment income -- -- -- (.01) --
In excess of net
investment income ...... -- -- -- -- --
From net realized gains on
investment
transactions ........... -- -- -- (.03) --
From paid-in capital ...... -- -- -- (.06) --
-------------------------------------------------------------------
Total distributions ....... -- -- -- (.10) --
-------------------------------------------------------------------
Net asset value, end of -------------------------------------------------------------------
period ................. $ 12.13 $ 9.19 $ 9.87 $ 10.21 $ 10.58
- ------------------------------------------------------------------------------------------------
Total Return (%) .......... 31.99 (6.89)(c) (3.33)(c) (2.71)(c) (11.83)(c)**
Ratios and Supplemental
Data
Net assets, end of period
($ millions) ........... 90 31 33 17 9
Ratio of operating
expenses to average
daily net
assets (%) ............. 2.17 2.54 2.54 2.60 3.00*
Ratio of operating
expenses before
expense reductions,
to average daily
net assets (%) ......... 2.17 2.57 2.82 3.74 6.59*
Ratio of net investment
income (loss) to
average daily net
assets (%) ............. (.81) (1.34) (.59) .34 (1.06)*
Portfolio turnover
rate (%) ............... 59.2 57.5 71.4 80.6 34.5*
Average commission rate
paid (b) ............... $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after June 30, 1996.
(c) Total return would have been lower had certain expenses not been reduced.
(d) For the Period September 2, 1988 (commencement of operations) to June 30,
1989.
(e) Unaudited.
* Annualized ** Not annualized
3
<PAGE>
A message from the President
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $230 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares. We also manage the mutual funds in a special program for the American
Association of Retired Persons, as well as the fund options available through
Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise The
Japan Fund, and numerous other open- and closed-end funds that invest in this
country and other countries around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.
Funds or fund classes in the Scudder Family of Funds are offered without
commissions to purchase or redeem shares or to exchange from one fund to
another. There are no 12b-1 fees either, which many other funds now charge to
support their marketing efforts. All of your investment goes to work for you. We
look forward to welcoming you as a shareholder.
/s/Edmond D. Villani
Scudder Gold Fund
Investment objective
o maximum return consistent with investing primarily in a portfolio of
gold-related equity securities and gold
Investment characteristics
o convenient and cost-effective way to broaden an investment portfolio
o opportunity to participate in possible increases in the price of gold
Investors in the Fund must be willing to accept above-average risk and should
not consider the Fund a complete investment program.
Contents
Investment objective and policies 5
Why invest in the Fund? 6
Additional information about policies
and investments 7
Risk factors 9
Distribution and performance information 12
Fund organization 13
Transaction information 14
Shareholder benefits 18
Purchases 20
Exchanges and redemptions 21
Investment products and services 23
How to contact Scudder Back cover
4
<PAGE>
Investment objective and policies
Investment objective
Scudder Gold Fund (the "Fund"), a non-diversified series of Scudder Mutual
Funds, Inc. (the "Corporation"), seeks maximum return (principal change and
income) consistent with investing in a portfolio of gold-related equity
securities and gold. When making portfolio investments, the Fund will emphasize
the potential for growth of the proposed investment, although it may also
consider the income generating capacity of a stock as one factor among others in
evaluating investment opportunities.
Although the Fund is non-diversified under the Investment Company Act of 1940
(the "1940 Act"), it is designed as a convenient and cost-effective means for
investors to provide diversity to their investments and to participate in
possible increases in the price of gold. Investors in the Fund must be willing
to accept above-average risk compared to that available from larger companies
such as those in the Standard & Poor's 500 Stock Index. Investors should not
consider the Fund a complete investment program.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Investments
The Fund pursues its objective primarily through a portfolio of gold-related
investments. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in:
o equity securities (defined as common stock, investment-grade preferred
stock and debt securities that are convertible into or exchangeable for
common stock) of U.S. and foreign companies primarily engaged in the
exploration, mining, fabrication, processing or distribution of gold,
o gold bullion, and
o gold coins.
A company will be considered "primarily engaged" in a business or an activity if
it devotes or derives at least 50% of its assets, revenues and/or operating
earnings from that business or activity.
The remaining 35% of the Fund's assets may be invested in any precious metals
other than gold; in equity securities of companies engaged in activities
primarily relating to precious metals and minerals other than gold; in
investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals;
warrants; and in certain debt securities, a portion of the return on which is
indexed to the price of precious metals and money market instruments. In
addition, the Fund may make short sales against the box, engage in securities
lending and strategic transactions, which may include derivatives, enter into
repurchase and reverse repurchase agreements, and may invest in illiquid
securities and warrants.
Investment-grade preferred stock and debt securities are securities rated Baa or
higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or higher by
Standard & Poor's Corporation ("S&P"), or, if unrated, are deemed by the Fund's
investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"), to be of
equivalent quality.
The Fund has adopted an operating policy of limiting to 10% the portion of the
Fund's total assets that may be invested directly in gold, silver, platinum and
palladium bullion and in gold and silver coins. In addition, the Fund's assets
may be invested in wholly-owned subsidiaries of the Corporation that invest in
5
<PAGE>
gold, silver, platinum and palladium bullion and in gold and silver coins (see
"Risk factors--Precious metals").
When deemed appropriate by the Adviser, the Fund may temporarily invest up to
30% of its assets to maintain liquidity. For temporary defensive purposes, the
Fund may vary from its investment policies during periods when the Adviser
determines that it is advisable to do so because of conditions in the securities
markets or other economic or political conditions. During such periods, the Fund
may hold without limit cash, high quality cash equivalents (including foreign
money market instruments, such as bankers' acceptances, certificates of deposit,
commercial paper, short-term government and corporate obligations, and
repurchase agreements), obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities ("Government Securities"), and domestic
repurchase agreements. The Fund may also, for hedging purposes, invest up to 10%
of its assets in foreign currencies in the form of bank deposits (see "Risk
factors"). It is impossible to accurately predict how long such alternative
strategies may be utilized. To the extent the Fund holds cash or is not invested
in securities used to pursue its investment objective, the Fund will not achieve
its investment objective.
How investments are selected
The Adviser considers a variety of factors when making investments in securities
related to gold and other precious metals. Some of these factors may include the
ore quality of metals mined by a company, the company's mining, processing and
fabricating costs and techniques, and the quantity of unmined reserves. Other
factors that may be evaluated include a company's financial condition, potential
development of property, capital spending plans, quality of management, nature
of any affiliations, current and prospective tax liability, labor relations and
marketability of a company's equity or debt securities.
Bullion and coins in which the Fund invests will be bought from and sold to
institutions such as U.S. and foreign banks, regulated U.S. commodities
exchanges, exchanges affiliated with a regulated U.S. stock exchange, and
dealers who are members of, or affiliated with, a regulated U.S. commodities
exchange and who are qualified to provide an accepted certification of purity.
Coins will be purchased for their metallic value and not for their currency or
numismatic value. While bullion and coins do not generate income and may subject
the Fund to certain taxes, insurance, shipping and storage costs, the Adviser
believes that such investments could serve to moderate fluctuations in the value
of the Fund's shares. Historically, prices of precious metals have tended not to
fluctuate as widely as shares of companies engaged in precious metals-related
businesses.
The Fund generally invests in equity securities of established companies listed
on U.S. or foreign securities exchanges but may also invest in securities traded
over-the-counter. Investments include companies of varying size as measured by
assets, sales or capitalization. The Fund may invest in certain closed-end
investment companies holding foreign securities in accordance with the
limitations of the 1940 Act.
Why invest in the Fund?
The Fund is designed as a convenient and cost-effective means for investors to
provide diversity to their investment holdings and to participate in possible
long-term increases in the value of gold. By owning shares of the Fund,
investors can benefit from a professionally managed portfolio of gold and other
precious metals-related investments.
An investment in the Fund may appeal to both individuals and institutions for a
variety of reasons. First, gold can offer the potential for a return higher than
other investments for the
6
<PAGE>
long-term investor willing to accept above-average risk. Although gold bullion
normally provides no current income, in certain periods, precious metals such as
gold have generated capital returns (capital change) that compare favorably with
the total returns (capital change plus income) of other more traditional types
of investments, such as common stocks.
In 1969, central banks abandoned fixing the private market price of gold at $35
per ounce. Since then, gold as a tangible asset has not moved in close
correlation with other financial assets. Gold has been viewed as a hedge against
inflation, making it a potentially effective means for protecting the purchasing
power of long-term savings. Investors have also purchased gold investments to
diversify an existing portfolio of stocks, bonds and money market investments.
Investors may consider allocating some portion of their assets to gold or other
precious metals, thereby potentially reducing the volatility of their overall
investment portfolio. Investing in shares of the Fund is not intended to provide
a complete investment program for an investor, but should be considered part of
an overall investment plan.
In addition, investing directly in gold and gold related securities can be
expensive and inconvenient for many individuals. The Adviser is responsible for
all phases of investment research and portfolio management, as well as
acquiring, storing and insuring all direct precious metals holdings.
Additional information about policies and investments
Investment restrictions
The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Corporation's Board of Directors. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Fund's Statement of Additional Information.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes and by engaging in reverse repurchase
agreements and dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.
Common stocks
Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Despite the risk of price volatility,
however, common stocks have traditionally offered the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
invest its assets in repurchase agreements with selected domestic and foreign
banks and broker/dealers. Under a repurchase agreement, the Fund acquires
7
<PAGE>
securities, subject to the seller's agreement to repurchase them at a specified
time and price.
Illiquid securities
The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.
Short sales against the box
With respect to 30% of its assets, the Fund may make short sales of common
stocks if, at all times when a short position is open, the Fund owns the stock
or owns preferred stocks or debt securities convertible or exchangeable, without
payment of further consideration, into the shares of common stock sold short.
Short sales of this kind are referred to as short sales "against the box." The
broker/dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to the Fund. Arrangements may be made with the
broker/dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds. The Fund will segregate the common stock or
convertible or exchangeable preferred stock or debt securities in a special
account.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory
8
<PAGE>
requirements when implementing these strategies, techniques and instruments.
Strategic Transactions involving futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not to create leveraged exposure in the Fund. Please
refer to "Risk factors--Strategic Transactions and derivatives" for more
information.
Risk factors
Precious metals. The Fund "concentrates" (for purposes of the 1940 Act) its
assets in securities related to gold and gold bullion and coins, which means
that as a matter of fundamental policy, at least 25% of its assets will be
invested in these holdings at all times. In addition, the Fund reserves the
freedom to concentrate its assets in securities related to other precious metals
and in those metals directly. As a result, the Fund may be subject to greater
market fluctuation than a fund which has securities representing a broader range
of investment alternatives.
In addition to investing up to 10% of its total assets directly in precious
metals, the Fund may invest up to 25% of its assets in wholly-owned subsidiaries
of the Corporation which invest in gold, silver, platinum and palladium bullion
and in gold and silver coins. The subsidiaries will incur expenses for the
storage and insurance of precious metals purchased. However, the subsidiaries
may realize capital gains from the sale of metals and may pay distributions to
the Fund from such gains. Currently, Scudder Precious Metals, Inc. is the
Corporation's only subsidiary. There is currently no market for such company's
shares, and no market is expected to develop.
Investments in precious metals and in precious metals-related securities and
companies involve a relatively high degree of risk. Prices of gold and other
precious metals can be influenced by a variety of global economic, financial and
political factors and may fluctuate markedly over short periods of time. Among
other things, precious metals values can be affected by changes in inflation,
investment speculation, metal sales by governments or central banks, changes in
industrial and commercial demand, and any governmental restrictions on private
ownership of gold or other precious metals.
Gold or precious metals custody. Gold and other precious metals held by or on
behalf of the Fund may be held on either an allocated or an unallocated basis
inside or outside the U.S. Placing gold or precious metals in an allocated
custody account gives the Fund a direct interest in specified gold bars or
precious metals, whereas an unallocated deposit does not and instead gives the
Fund a right only to compel the counterparty to deliver a specific amount of
gold or precious metals, as applicable. Consequently, the Fund could experience
a loss if the counterparty to an unallocated deposit arrangement becomes
bankrupt or fails to deliver the gold or precious metals as requested. An
allocated gold or precious metals custody account also involves the risk that
the gold or precious metals will be stolen or damaged while in transit. Both
allocated and unallocated arrangements require the Fund as seller to deliver,
either by book entry or physically, the gold or precious metals sold in advance
of the receipt of payment.
Mining and exploration risks. The business of precious metals mining by its
nature involves significant risks and hazards, including environmental hazards,
industrial accidents, labor disputes, discharge of toxic chemicals, fire,
drought, flooding and other natural acts. The occurrence of any of these hazards
can delay production, increase production costs and result in liability to the
operator of the mines. A mining operation may become subject to liability for
pollution or other hazards against which it has not insured or cannot insure,
including those in respect of past mining activities for which it was not
responsible.
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Exploration for gold and other precious metals is speculative in nature,
involves many risks and frequently is unsuccessful. There can be no assurance
that any gold mineralisation discovered will result in an increase in the proven
and probable reserves of a mining operation. If reserves are developed, it can
take a number of years from the initial phases of drilling and identification of
mineralisation until production is possible, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish ore reserves properties and to construct mining and processing
facilities. As a result of these uncertainties, no assurance can be given that
the exploration programs undertaken by a particular mining operation will
actually result in any new commercial mining.
Non-diversification. The Fund is classified as non-diversified under the 1940
Act, which means that the Fund is not limited by the 1940 Act in the proportion
of its assets that it may invest in the obligations of a single issuer. The
investment of a large percentage of the Fund's assets in the securities of a
small number of issuers may cause the Fund's share price to fluctuate more than
that of a diversified fund.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.
Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for illiquid or restricted investments. Disposing of
illiquid or restricted investments may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible for the Fund to sell them
promptly at an acceptable price.
Foreign securities. Because of the Fund's policy of investing primarily in
securities of companies engaged in gold related investments, a substantial part
of the Fund's assets is generally invested outside the United States (including
the Cayman Islands, the domicile of Scudder Precious Metals, Inc.). In addition,
the Fund may make money market investments in the obligations of foreign banks.
Investments in foreign securities involve economic and political considerations
not typically found in U.S. markets. These considerations, which may favorably
or unfavorably affect the Fund's performance, include changes in exchange rates
and exchange rate controls (which may include suspension of the ability to
transfer currency from a given country), conversion difficulties and
uncertainties, costs incurred in conversions between currencies, non-negotiable
brokerage commissions, less publicly available information, different accounting
standards, lower trading volume and greater market volatility, the difficulty of
enforcing obligations in other countries, less securities regulation, different
tax provisions (including withholding on dividends paid to the Fund), war,
expropriation, political and social instability and diplomatic developments.
Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic markets. These considerations generally are more of a
concern in developing (or emerging) countries, in which the Fund also intends to
invest.
Investing in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace
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with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of the Fund is uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
those securities or, if the Fund has entered into a contract to sell a security,
in possible liability to the purchaser.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
Throughout the last decade many emerging markets have experienced, and continue
to experience, high rates of inflation. In certain countries inflation has at
times accelerated rapidly to hyperinflationary levels, creating a negative
interest rate environment and sharply eroding the value of outstanding financial
assets in those countries. Increases in inflation could have an adverse effect
on the Fund's non-dollar denominated securities.
For a more complete description of the risks of investing in emerging markets,
please refer to the Fund's Statement of Additional Information.
Correlation of gold and gold securities. The Adviser believes that the value of
the securities of firms that deal in gold will correspond generally, over time,
with the prices of the underlying metal. At any given time, however, changes in
the price of gold may not strongly correlate with changes in the value of
securities related to gold, which are expected to constitute the principal part
of the Fund's assets. In fact, there may be periods in which the price of gold
stocks and gold will move in different directions. The reason for this potential
disparity is that political and economic factors, including behavior of the
stock market, may have differing impacts on gold versus gold stocks.
Debt securities. Up to 35% of the Fund's assets may be invested in bonds rated
Baa by Moody's or BBB by S&P. Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics. Zero coupon
bonds (which do not pay interest until maturity) and pay-in-kind securities
which pay interest in the form of additional securities, may be more speculative
than securities which pay income periodically and in cash.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency.
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The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment income and
any net realized capital gains resulting from Fund investment activity in
December to prevent application of federal excise tax. Any dividends or capital
gains distributions declared in October, November or December with a record date
in such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. According to preference, shareholders may receive
distributions in cash or have them reinvested in additional shares of the Fund.
If an investment is in the form of a retirement plan, all dividends and capital
gains distributions must be reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income.
Long-term capital gains distributions, if any, are taxable as long-term capital
gains, regardless of the length of time shareholders have owned their shares.
Short-term capital gains and any other taxable income distributions are taxable
as ordinary income. Shareholders may be able to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified taxes paid by
the Fund to foreign countries.
The Fund sends detailed tax information to its shareholders about the amount and
type of its distributions by January 31 of the following year.
Shareholders should consult their tax advisers regarding specific questions as
to the federal and local tax consequences of investing in the Fund.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year, five
years and the life of the Fund as of a stated ending date. "Cumulative total
return" represents the cumulative change in value of an investment in the Fund
for various periods. All types of total return calculations assume that all
dividends and
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capital gains distributions during the period were reinvested in shares of the
Fund. Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses.
Fund organization
Scudder Gold Fund is a non-diversified series of Scudder Mutual Funds, Inc., an
open-end, management investment company registered under the 1940 Act. The
Corporation was organized as a Maryland corporation in March 1988.
The Fund's activities are supervised by the Corporation's Board of Directors.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Corporation is not required to hold and has no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Directors, changing
fundamental investment policies or approving an investment management contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Director as if Section 16(c) of the 1940 Act were
applicable.
Investment adviser
The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.
("Scudder"), to manage its daily investment and business affairs subject to the
policies established by the Board of Directors. The Directors have overall
responsibility for the management of the Fund under Maryland law.
On September 7, 1998, the businesses of Zurich Insurance Company ("Zurich")
(including Zurich's 70% interest in the Adviser) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") were combined to form a new
global insurance and financial services company known as Zurich Financial
Services Group. By way of a dual holding company structure, former Zurich
shareholders initially owned approximately 57% of Zurich Financial Services
Group, with the balance initially owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment management
agreement with the Adviser was deemed to have been assigned and, therefore,
terminated. The Board has approved a new investment management agreement with
the Adviser, which is substantially identical to the current investment
management agreement, except for the date of execution and termination. This
agreement became effective upon the termination of the then current investment
management agreement and will be submitted for shareholder approval at special
meetings currently scheduled to conclude in December 1998.
The Adviser receives monthly an investment management fee for its services which
fee equals approximately 1% of the Fund's average daily net assets on an annual
basis.
The Fund's management fee is payable monthly, provided that the Fund will make
such interim payments as may be requested by the Adviser not to exceed 75% of
the amount of the fee then accrued on the books of the Fund and unpaid.
The Fund's expenses are paid out of gross investment income and, to the extent
necessary, the Fund's net assets. Shareholders pay no direct charges or fees for
investment services.
Scudder Kemper Investments, Inc. is located at 345 Park Avenue, New York, New
York.
Year 2000 Issue
Like other mutual funds and financial and business organizations worldwide, the
Fund could be adversely affected if computer systems on which the Fund relies,
which primarily include those used by the Adviser, its affiliates or
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other service providers, are unable to correctly process date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the Fund's business and
operations. The Adviser has commenced a review of the Year 2000 Issue as it may
affect the Fund and is taking steps it believes are reasonably designed to
address the Year 2000 Issue, although there can be no assurances that these
steps will be sufficient. In addition, there can be no assurances that the Year
2000 Issue will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies generally.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records for the Fund.
Custodian
Brown Brothers Harriman & Co. is the Fund's custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
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The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Directors. Your new
account will have the same registration and address as your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption
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proceeds will be mailed to your bank. There will be a $5 charge for all wire
redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading.
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Net asset value per share is calculated by dividing the value of total Fund
assets, less all liabilities, by the total number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Directors. A shareholder may open an account with
at least $1,000, if an automatic investment plan of $100/month is established.
Scudder retirement plans and certain other accounts have similar or lower
minimum share balance requirements.
The Fund reserves the right, following 60 days written notice to applicable
shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid to the fund)
for any non-fiduciary account without an automatic investment plan in place
and a balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a reduction in value
has occurred due to a redemption, exchange or transfer out of the account.
The Fund will mail the proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. Shareholders with a combined household account balance
in any of the Scudder Funds of $100,000 or more, as well as group retirement and
certain other accounts will not be subject to a fee or automatic redemption.
Fiduciary and custodial accounts with balances below $100 are subject to
automatic redemption
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following 60 days written notice to applicable shareholders.
Please refer to "Exchanges and Redemptions-- Other Information" in the Fund's
Statement of Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind).
Shareholder benefits
Experienced professional management
Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder Gold Fund is managed by a team of investment 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 the
Adviser's offices across the United States and abroad. We believe our team
approach benefits Fund investors by bringing together many disciplines and
leveraging our extensive resources.
Lead Portfolio Manager Clay L. Hoes assumed responsibility for the Fund's
day-to-day management in 1997. Mr. Hoes joined the Adviser in 1996 as a mining
equity research analyst and portfolio manager before becoming the lead portfolio
manager in 1997. Prior to joining the Adviser, Mr. Hoes worked as a metals and
mining analyst since 1993. Mr. Hoes has over 10 years of metals and mining
research experience in the investment industry.
William J. Wallace, Portfolio Manager, has been a member of the Fund's team
since 1991 and also serves as a Portfolio Manager for Scudder Value Fund. Mr.
Wallace, who has over 17 years of investment experience, contributes expertise
in quantitative analysis.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and
18
<PAGE>
their terms are subject to change at any time by the Fund or the transfer agent.
In some cases, the transfer agent or Scudder Investor Services, Inc. may impose
additional conditions on telephone transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of no-load mutual funds with ongoing portfolio monitoring
and individualized service, for an annual fee of generally 1.25% or less of
assets. In addition, it draws upon the Adviser's more than 75-year heritage of
providing investment counsel to large corporate and private clients. If you have
$100,000 or more to invest initially and would like more information about
Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
19
<PAGE>
Purchases
<TABLE>
<CAPTION>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
<S> <C> <C>
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
o In Person Visit one of our Investor Centers to complete your application with the
help of a Scudder representative. Investor Center locations are listed
under Shareholder benefits.
- -------------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or
payable to "The with a letter of instruction including your account number and
Scudder Funds." the complete Fund name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--By
wire for details, including the ABA wire transfer number.
o In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center locations
are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares-- By
QuickBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
</TABLE>
20
<PAGE>
Exchanges and redemptions
<TABLE>
<CAPTION>
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
<S> <C> <C>
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated Information
Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax
- the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA 02107-2291 Braintree, MA 02184
- ------------------------------------------------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call 1-800-225-5163 from 8 a.m. to 8 p.m.
shares eastern time or to access SAIL(TM), Scudder's Automated Information Line, call
1-800-343-2890 (24 hours a day). You may have redemption proceeds sent to your
predesignated bank account, or redemption proceeds of up to $100,000 sent to your
address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash
Withdrawal payments periodically. Call 1-800-225-5163
Plan for more information and an enrollment form.
</TABLE>
21
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even if only
one spouse has earned income). Many people can deduct all or part of their
contributions from their taxable income, and all investment earnings accrue
on a tax-deferred basis. The Scudder No-Fee IRA charges you no annual
custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500
or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
22
<PAGE>
Investment products and services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. ***Only the Scudder Shares of
the Fund are part of the Scudder Family of Funds. ++Only the International
Shares of the Fund are part of the Scudder Family of Funds. +++ +++A no-load
variable annuity contract provided by Charter National Life Insurance Company
and its affiliate, offered by Scudder's insurance agencies, 1-800-225-2470.
#These funds, advised by Scudder Kemper Investments, Inc., are traded on the New
York Stock Exchange and, in some cases, on various foreign stock exchanges.
23
<PAGE>
<TABLE>
<CAPTION>
How to contact Scudder
Account Service and Information:
<S> <C>
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be
found in the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
</TABLE>
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
<PAGE>
SCUDDER GOLD FUND
An Investment Portfolio of Scudder
Mutual Funds, Inc.
A Pure No-Load(TM) (No Sales Charges) Mutual Fund
which Invests in Gold-Related Equity
Securities and Gold
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Scudder Gold Fund dated November 1, 1998,
as amended from time to time, a copy of which may be obtained without charge by
writing to Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES.............................................................1
General Investment Objective and Policies.......................................................1
Master/feeder Structure.........................................................................2
Investment Restrictions........................................................................15
PURCHASES...............................................................................................17
Additional Information About Opening an Account................................................17
Additional Information About Making Subsequent Investments by QuickBuy.........................17
Additional Information About Making Subsequent Investments By Telephone Order..................18
Checks.........................................................................................18
Wire Transfer of Federal Funds.................................................................18
Share Price....................................................................................19
Share Certificates.............................................................................19
Other Information..............................................................................19
EXCHANGES AND REDEMPTIONS...............................................................................19
Exchanges......................................................................................19
Redemption by Telephone........................................................................20
Redemption by QuickSell....................................................................... 21
Redemption-In-Kind.............................................................................21
Other Information..............................................................................22
FEATURES AND SERVICES OFFERED BY THE FUND...............................................................22
The Pure No-Load(TM) Concept...................................................................22
Internet access................................................................................23
Dividends and Capital Gains Distribution Options...............................................24
Scudder Investor Centers.......................................................................24
Reports to Shareholders........................................................................25
Transaction Summaries..........................................................................25
THE SCUDDER FAMILY OF FUNDS.............................................................................25
SPECIAL PLAN ACCOUNTS...................................................................................30
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations
and Self-Employed Individuals.............................................................30
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed
Individuals...............................................................................31
Scudder IRA: Individual Retirement Account....................................................31
Scudder Roth IRA: Individual Retirement Account...............................................32
Scudder 403(b) Plan............................................................................32
Automatic Withdrawal Plan......................................................................32
Group or Salary Deduction Plan.................................................................33
Automatic Investment Plan......................................................................33
Uniform Transfers/Gifts to Minors Act..........................................................33
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS...............................................................34
PERFORMANCE INFORMATION.................................................................................34
Average Annual Total Return....................................................................34
Cumulative Total Return........................................................................35
Total Return...................................................................................35
Comparison of Fund Performance.................................................................36
Taking a Global Approach.......................................................................39
Scudder's 30% Solution.........................................................................40
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
FUND ORGANIZATION.......................................................................................40
INVESTMENT ADVISER......................................................................................40
Personal Investments By Employees Of The Adviser...............................................43
DIRECTORS AND OFFICERS..................................................................................44
Responsibilities of the Board -- Board and Committee Meetings..................................46
Compensation of Officers and Directors.........................................................46
DISTRIBUTOR.............................................................................................47
TAXES...................................................................................................48
PORTFOLIO TRANSACTIONS..................................................................................51
Brokerage Commissions..........................................................................51
Portfolio Turnover.............................................................................52
NET ASSET VALUE.........................................................................................52
ADDITIONAL INFORMATION..................................................................................53
Experts........................................................................................53
Other Information..............................................................................53
FINANCIAL STATEMENTS....................................................................................54
DESCRIPTION OF S&P AND MOODY'S RATINGS..................................................................55
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies," "Additional information about
policies and investments," and "Risk factors" in the Fund's prospectus.)
General Investment Objective and Policies
Scudder Gold Fund (the "Fund"), a non-diversified series of Scudder
Mutual Funds, Inc. (the "Corporation"), seeks maximum return (principal change
and income) consistent with investing in a portfolio of gold-related equity
securities and gold. When making portfolio investments, the Fund will emphasize
the potential for growth of the proposed investment, although it may also
consider the income generating capacity of a stock as one factor among others in
evaluating investment opportunities.
Although the Fund is non-diversified under the Investment Company Act
of 1940, as amended (the "1940 Act"), it is designed as a convenient and
cost-effective means for investors to provide diversity to their investments and
to participate in possible increases in the price of gold. Investors in the Fund
must be willing to accept above-average risk compared to that available from
larger companies such as those in the Standard & Poor's 500 Stock Index.
Investors should not consider the Fund a complete investment program.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
Investments. The Fund pursues its objective primarily through a portfolio of
gold-related investments. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in:
o equity securities (defined as common stock, investment-grade
preferred stock and debt securities that are convertible into
or exchangeable for common stock) of U.S. and foreign
companies primarily engaged in the exploration, mining,
fabrication, processing or distribution of gold,
o gold bullion, and
o gold coins.
A company will be considered "primarily engaged" in a business or an
activity if it devotes or derives at least 50% of its assets, revenues and/or
operating earnings from that business or activity.
The remaining 35% of the Fund's assets may be invested in any precious
metals other than gold; in equity securities of companies engaged in activities
primarily relating to precious metals and minerals other than gold; in
investment-grade debt securities, including zero coupon bonds, of companies
engaged in activities relating to gold or other precious metals and minerals;
warrants; and in certain debt securities, a portion of the return on which is
indexed to the price of precious metals and money market instruments. In
addition, the Fund may make short sales against the box, engage in securities
lending and strategic transactions, which may include derivatives, enter into
repurchase and reverse repurchase agreements, and may invest in illiquid
securities.
Investment-grade preferred stock and debt securities are securities
rated Baa or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or
higher by Standard & Poor's Corporation ("S&P"), or, if unrated, are deemed by
the Fund's investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"),
to be of equivalent quality.
The Fund has adopted an operating policy of limiting to 10% the
portion of the Fund's total assets that may be invested directly in gold,
silver, platinum and palladium bullion and in gold and silver coins. In
addition, the Fund's assets may be invested in wholly-owned subsidiaries of the
Corporation that invest in gold, silver, platinum and palladium bullion and in
gold and silver coins (see "Risk factors -- Precious metals").
When deemed appropriate by the Adviser, the Fund may temporarily invest
up to 30% of its assets to maintain liquidity. For temporary defensive purposes,
the Fund may vary from its investment policies during periods when the Adviser
determines that it is advisable to do so because of conditions in the securities
markets or other economic or political conditions. During such periods, the Fund
may hold without limit cash, high quality cash equivalents (including
<PAGE>
foreign money market instruments, such as bankers' acceptances, certificates of
deposit, commercial paper, short-term government and corporate obligations, and
repurchase agreements), obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities ("Government Securities"), and domestic
repurchase agreements. The Fund may also, for hedging purposes, invest up to 10%
of its assets in foreign currencies in the form of bank deposits (see "Risk
factors"). It is impossible to accurately predict how long such alternative
strategies may be utilized. To the extent the Fund holds cash or is not invested
in securities used to pursue its investment objective, the Fund will not achieve
its investment objective.
How investments are selected. The Adviser considers a variety of factors when
making investments in securities related to gold and other precious metals. Some
of these factors may include the ore quality of metals mined by a company, the
company's mining, processing and fabricating costs and techniques, and the
quantity of unmined reserves. Other factors that may be evaluated include a
company's financial condition, potential development of property, capital
spending plans, quality of management, nature of any affiliations, current and
prospective tax liability, labor relations and marketability of a company's
equity or debt securities.
Bullion and coins in which the Fund invests will be bought from and
sold to institutions such as U.S. and foreign banks, regulated U.S. commodities
exchanges, exchanges affiliated with a regulated U.S. stock exchange, and
dealers who are members of, or affiliated with, a regulated U.S. commodities
exchange and who are qualified to provide an accepted certification of purity.
Coins will be purchased for their metallic value and not for their currency or
numismatic value. While bullion and coins do not generate income and may subject
the Fund to certain taxes, insurance, shipping and storage costs, the Adviser
believes that such investments could serve to moderate fluctuations in the value
of the Fund's shares. Historically, prices of precious metals have tended not to
fluctuate as widely as shares of companies engaged in precious metals-related
businesses.
The Fund generally invests in equity securities of established
companies listed on U.S. or foreign securities exchanges but may also invest in
securities traded over-the-counter. Investments include companies of varying
size as measured by assets, sales or capitalization. The Fund may invest in
certain closed-end investment companies holding foreign securities in accordance
with the limitations of the 1940 Act.
Master/feeder Structure
The Board of Directors has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Foreign Securities. Because of the Fund's policy of investing primarily in
gold-related investments, a substantial part of the Fund's assets is generally
invested in securities of companies primarily outside the United States,
wherever domiciled or operating (as well as in the Cayman Islands, the domicile
of Scudder Precious Metals, Inc.). Although the percentages of fund assets
invested outside the United States will vary, the Fund expects that a
substantial portion of its assets at any time will consist of non-U.S.
securities. Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
affect the Fund's performance favorably or unfavorably. As foreign companies are
not generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange (the "Exchange"), and securities of some foreign companies are
less liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets is less than that in the U.S.
market and at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance and settlement procedures and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
2
<PAGE>
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems either
could result in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Fixed commissions
on some foreign stock exchanges are generally higher than negotiated commissions
on U.S. exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the U.S. It may be more difficult for the Fund's agents to keep
currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries. Investments
in foreign securities may also entail certain risks such as possible currency
blockages or transfer restrictions, and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management.
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less government supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
In the course of investment in emerging markets, the Fund will be
exposed to the direct or indirect consequences of political, social and economic
changes in one or more emerging markets. While the Fund will manage its assets
in a manner that will seek to minimize the exposure to such risks, there can be
no assurance that adverse political, social or economic changes will not cause
the Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly, if the Fund
believes that appropriate circumstances exist, it will promptly apply to the SEC
for a determination that an emergency is present. During the period commencing
from the Fund's identification of such condition until the date of the SEC
action, the Fund's securities in the affected markets will be valued at fair
value determined in good faith by or under the direction of the Corporation's
Board of Directors.
Volume and liquidity in most foreign markets are less than in the U.S.
and securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect the Fund's investments in those countries. Moreover, individual
emerging
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market economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Income from securities held by the Fund could be reduced by a
withholding tax on the source or other taxes imposed by the emerging market
countries in which the Fund makes its investments. The Fund's net asset value
may also be affected by changes in the rates or methods of taxation applicable
to the Fund or to entities in which the Fund has invested. The Adviser will
consider the cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the taxes will not be subject to
change.
Many emerging markets have experienced substantial, and in some periods
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Foreign Currencies. Investments in foreign securities usually will involve
currencies of foreign countries. Moreover, the Fund temporarily may hold funds
in bank deposits in foreign currencies during the completion of investment
programs. Because of these factors, the value of the assets of the Fund as
measured in U.S. dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through strategic
transactions involving currencies. (See "Strategic Transactions and
Derivatives.")
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Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may not have a high
correlation with movements in the U.S. markets. The Fund's share price will
reflect the movements of both the different stock and bond markets in which it
is invested and of the currencies in which the investments are denominated; the
strength or weakness of the U.S. dollar against foreign currencies may account
for part of the Fund's investment performance. U.S. and foreign securities
markets do not always move in step with each other and the total returns from
different markets may vary significantly.
Because of the Fund's investment policies and the investment
considerations discussed herein and in the Prospectus, an investment in shares
of the Fund is not intended to provide a complete investment program for an
investor.
Mining and exploration risks. The business of gold mining by its nature involves
significant risks and hazards, including environmental hazards, industrial
accidents, labor disputes, discharge of toxic chemicals, fire, drought, flooding
and natural acts. The occurrence of any of these hazards can delay production,
increase production costs and result in liability to the operator of the mines.
A mining operation may become subject to liability for pollution or other
hazards against which it has not insured or cannot insure, including those in
respect of past mining activities for which it was not responsible.
Exploration for gold and other precious metals is speculative in
nature, involves many risks and frequently is unsuccessful. There can be no
assurance that any mineralisation discovered will result in an increase in the
proven and probable reserves of a mining operation. If reserves are developed,
it can take a number of years from the initial phases of drilling and
identification of mineralisation until production is possible, during which time
the economic feasibility of production may change. Substantial expenditures are
required to establish ore reserves properties and to construct mining and
processing facilities. As a result of these uncertainties, no assurance can be
given that the exploration programs undertaken by a particular mining operation
will actually result in any new commercial mining.
Illiquid Investments. Each Fund may invest a portion of its assets in securities
for which there is not an active trading market including securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 or which are otherwise not readily marketable. The
absence of a trading market can make it difficult to ascertain a market value
for illiquid investments. Disposing of illiquid investments may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for a Fund to sell them promptly at an acceptable price. Each Fund
may have to bear the extra expense of registering such securities for resale and
the risk of substantial delay in effecting such registration. Also market
quotations are less readily available. The judgment of the Adviser may at times
play a greater role in valuing these securities than in the case of unrestricted
securities.
Debt Securities. The Fund may invest in investment-grade debt securities
convertible into or exchangeable for common stock. Investment grade-debt
securities are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by
S&P or, if unrated, judged to be of equivalent quality as determined by the
Adviser. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. (See "DESCRIPTION OF S&P AND MOODY'S
RATINGS.")
Asset-Indexed Securities. The Fund may purchase asset-indexed securities which
are debt securities usually issued by companies in precious metals related
businesses such as mining, the principal amount, redemption terms, or interest
rates of which are related to the market price of a specified precious metal.
The Fund will only enter into transactions in publicly traded asset-indexed
securities. Market prices of asset-indexed securities will relate primarily to
changes in the market prices of the precious metals to which the securities are
indexed rather than to changes in market rates of interest. However, there may
not be a perfect correlation between the price movements of the asset-indexed
securities and the underlying precious metals. Asset-indexed securities
typically bear interest or pay dividends at below market rates (and in certain
cases at nominal rates). The Fund may purchase asset-indexed securities to the
extent permitted by law.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System, any foreign bank when the repurchase
agreement is fully secured by government securities of the particular
jurisdiction, or with any domestic or foreign broker/dealer which is recognized
as a reporting government securities dealer if the creditworthiness of the bank
or broker/dealer has been determined by the Adviser to be at least as high as
that of other obligations the Fund may purchase.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Purchaser (i.e., the Fund) acquires a security ("Obligation") and the
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seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities is kept at least equal to
the repurchase price on a daily basis. The repurchase price may be higher than
the purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on the date of repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the Obligation
itself. Obligations will be held by the Fund's custodian or in the Federal
Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at the risk of losing some or the entire principal and income
involved in the transaction. As with unsecured debt obligations purchased for
the Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation. However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Fund will be unsuccessful in seeking to impose on the seller a
contractual obligation to deliver additional securities.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
Warrants. The Fund may purchase warrants issued by domestic and foreign issuers
to purchase newly created equity issues consisting of common and preferred
stock, convertible preferred stock and warrants that themselves are only
convertible into common, preferred or convertible preferred stock. The equity
issue underlying an equity warrant is outstanding at the time the equity warrant
is issued or is issued together with the warrant. At the time the Fund acquires
an equity warrant convertible into a warrant, the terms and conditions under
which the warrant received upon conversion can be exercised will have been
determined; the warrant received upon conversion will only be convertible into a
common, preferred or convertible preferred stock.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
Short Sales Against the Box. The Fund may make short sales of common stocks if,
at all times when a short position is open, the Fund owns the stock or owns
preferred stocks or debt securities convertible or exchangeable, without payment
of further consideration, into the shares of common stock sold short. Short
sales of this kind are referred to as short sales "against the box." The
broker/dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to the Fund. Arrangements may be made with the
broker/dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds. The Fund will segregate the common stock or
convertible or exchangeable preferred stock or debt securities in a special
account with the Custodian.
Lending of Portfolio Securities. The Fund has the ability to lend portfolio
securities to brokers, dealers and other financial organizations. Loans of
portfolio securities will be collateralized by cash or liquid securities which
are
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maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. From time to time, the Fund may pay a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when Government Securities are used as
collateral. The Fund will adhere to the following conditions whenever its
portfolio securities are loaned: (a) the Fund must receive at least 100% cash
collateral or equivalent securities from the borrower; (b) the borrower must
increase such collateral whenever the market value of the securities rises above
the level of such collateral; (c) the Fund must be able to terminate the loan at
any time; (d) the Fund must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions on the loaned securities, and any
increase in market value; (e) the Fund may pay only reasonable custodian fees in
connection with the loan; and (f) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Corporation's Board of Directors must
terminate the loan and regain the right to vote the securities. Any gain or loss
in the market price of the securities loaned that might occur during the term of
the loan would be for the Fund's account. The Fund has no current intention to
loan portfolio securities.
Zero Coupon Bonds. The Fund may invest in zero coupon bonds which pay no
periodic interest payments and are sold at substantial discounts from their
value at maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon bonds are subject to greater market value
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest (cash).
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used without limit to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not to create
leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses
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as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 10% of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities, indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into futures contracts,
or purchase or sell put and call options on such futures, as a hedge against
anticipated changes in interest rates, currencies, precious metals or equity
markets for duration management and for risk management purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
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The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on futures involves payment of a premium
for the option without any further obligation on the part of the Fund. If the
Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
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The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
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The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash
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or liquid assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Foreign Securities. While the Fund generally emphasizes investments in companies
domiciled in the U.S., it may invest in listed and unlisted foreign securities
of the same types as the domestic securities in which the Fund may invest when
the anticipated performance of foreign securities is believed by the Adviser to
offer equal or more potential than domestic alternatives in keeping with the
investment objective of the Fund. However, the Fund has no current intention of
investing more than 20% of its net assets in foreign securities.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the the
"Exchange, and securities of some foreign companies are less liquid and more
volatile than securities of domestic companies. Further, foreign markets have
different clearance and settlement procedures and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges, although the
Fund will endeavor to achieve the most favorable net results on its portfolio
transactions. Further, the Fund may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the U.S. It may be more
difficult for the Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Payment for securities without delivery may be required in certain
foreign markets. In addition, with respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Investments in foreign securities may also
entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross
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national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund temporarily may hold funds in bank
deposits in foreign currencies during the completion of investment programs.
Accordingly, the value of the assets for the Fund as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs and
experience conversion difficulties and uncertainties in connection with
conversions between various currencies. Although the Fund values its assets
daily in terms of U.S. dollars, it does not intend to convert its holdings of
foreign currencies, if any, into U.S. dollars on a daily basis. It may do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through strategic
transactions involving currencies.
To the extent that the Fund invests in foreign securities, the Fund's
share price could reflect the movements of the stock markets in which it is
invested and the currencies in which the investments are denominated; the
strength or weakness of the U.S. dollar against foreign currencies could account
for part of the Fund's investment performance.
Investment Considerations. In non-U.S. markets, issuers often issue new shares
on a partially-paid basis. The aggregate purchase price is paid in installments
over a specified period, generally not more than nine months, during which time
the shares trade freely on a partially-paid basis. The Fund anticipates that it
may purchase partially-paid shares from time to time.
Foreign securities such as those purchased by the Fund may be subject
to foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
Because direct investments in precious metals do not generate income,
they may be subject to greater fluctuations in value than interest-paying and
dividend-paying securities. Investors should also be aware that gold coins trade
at approximately the current or spot price of the underlying gold bullion plus a
premium which reflects, among other things, fabrication costs incurred in
producing the coins. This premium has ranged from 2.5% to 15%. Any change in
this premium will affect the value of the Fund's shares.
Changes in portfolio securities are normally made on the basis of
investment considerations.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market price of the Fund's investments.
Investment Restrictions
The policies set forth below have been adopted by the Corporation with
respect to the Fund as fundamental policies and may not be changed without
approval of a majority of the outstanding voting securities of the Fund which,
under the 1940 Act and the rules thereunder and as used in this Statement of
Additional Information, means the lesser of (1) 67% or more of the shares
present at such meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy; or (2) more than 50% of
the outstanding shares of the Fund.
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The Fund has elected to be classified as a non-diversified series of an
open-end investment company.
The Fund may not:
(1) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests
in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
(2) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(3) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(4) purchase or sell physical commodities or contracts relating to
physical commodities, except for contracts for the future
delivery of gold, silver, platinum and palladium and gold,
silver, platinum and palladium bullion and coins;
(5) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time, except that
the Fund may concentrate in securities issued by wholly owned
subsidiaries of Scudder Mutual Funds, Inc. and securities of
companies that are primarily engaged in the exploration,
mining, fabrication, processing or distribution of gold and
other precious metals and in gold, silver, platinum and
palladium bullion and coins;
(6) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
and
(7) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
Other Investment Policies. The Directors of the Corporation have voluntarily
adopted certain policies and restrictions which are observed in the conduct of
the Fund's affairs. These represent intentions of the Directors based upon
current circumstances. They differ from fundamental investment policies in that
they may be changed or amended by action of the Directors without requiring
prior notice to or approval of shareholders.
As a matter of non-fundamental policy, the Fund currently does not
intend to:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(3) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(4) enter into futures contracts or purchase options thereon for
other than bona fide hedging purposes unless immediately after
the purchase, the value of the aggregate initial margin with
respect to such futures contracts entered into on behalf of
the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the
Fund's total assets; provided that in the
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case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing
the 5% limit;
(5) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(6) lend portfolio securities in an amount greater than 5% of its
total assets.
The 1940 Act limits the Fund's investment in other investment
companies. To the extent that the Fund invests in shares of other investment
companies, pursuant to the 1940 Act, additional fees and expenses in addition to
those incurred by the Fund may be deducted from such investments.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of the Funds assets will
not be considered a violation of the restriction. In order to permit sale of the
Fund's shares in certain states, the Corporation may make commitments more
restrictive than the investment restrictions described above with respect to the
Fund. Should the Corporation determine that any such commitment is no longer in
the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of the Fund's shares in the state involved.
PURCHASES
(See "Purchases" and "Transaction information" in the Fund's prospectus.)
Additional Information About Opening an Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of Scudder Kemper Investments, Inc. or of any affiliated organization and their
immediate families, members of the National Association of Securities Dealers,
Inc. ("NASD") and banks may, if they prefer, subscribe initially for at least
$2,500 through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the tax identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110, Account Number 9903-5552, ABA Number 011000028. The investor must give
the Scudder fund name, account name and new account number. Finally, the
investor must send the completed and signed application to the Fund promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, the Fund may hold the redemption proceeds for a period of
up to seven business days. If you purchase shares and there are
16
<PAGE>
insufficient funds in your bank account the purchase will be canceled and you
will be subject to any losses or fees incurred in the transaction. QuickBuy
transactions are not available for most retirement plan accounts. However,
QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Additional Information About Making Subsequent Investments By Telephone Order
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone or fax by members of the NASD, by banks and by established
shareholders (except by Scudder Individual Retirement Account (IRA), Scudder
Profit Sharing and Money Purchase Pension Plans, and Scudder 401(k) and Scudder
403(b) Planholders). Orders placed in this manner may be directed to any office
of the Distributor listed in the Fund's prospectus. An invoice of the purchase
will be mailed out promptly following receipt of a request to buy. Payment
should be attached to a copy of the invoice for proper identification. Federal
regulations require that payment be received within three (3) business days. If
payment is not received within that time, the shares may be canceled. In the
event of such cancellation or cancellation at the purchaser's request, the
purchaser will be responsible for any loss incurred by the Fund or the principal
underwriter by reason of such cancellation. If the purchaser is a shareholder,
the Fund shall have the authority, as agent of the shareholder, to redeem shares
in the account in order to reimburse the Fund or the principal underwriter for
the loss incurred. Net losses on such transactions which are not recovered from
the purchaser will be absorbed by the principal underwriter. Any net profit on
the liquidation of unpaid shares will accrue to the Fund.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Corporation reserves the right to cancel the purchase
immediately and the purchaser will be responsible for any loss incurred by the
Corporation, the Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Corporation will have the
authority, as agent of the shareholder, to redeem shares in the account to
reimburse the Fund or the principal underwriter for the loss incurred. Investors
whose orders have been canceled may be prohibited from or restricted in placing
future orders in any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange (normally 4 p.m. eastern time) on a selected day, your
bank must forward federal funds by wire transfer and provide the required
account information so as to be available to the Corporation prior to 4 p.m.
eastern time.
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by Brown
Brothers Harriman & Company (the "Custodian"), of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include: Columbus Day (the 2nd Monday in October), and
Veterans' Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
funds on behalf of the Fund.
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<PAGE>
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the purchase order in good order. Net asset value
normally will be computed as of the close of regular trading on each day the
Exchange is open for trading. Orders received after the close of regular trading
on the Exchange will be executed at the next business day's net asset value. If
the order has been placed by a member of the NASD, other than Scudder Investor
Services, Inc., it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") in Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Fund's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Directors and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Directors and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g., from exempt investors, certification of exempt status) may be
returned to the investor unless a correct, certified tax identification number
and certain other required certificates are supplied.
The Corporation may issue shares of the Fund at net asset value in
connection with any merger or consolidation with, or acquisition of the assets
of, any investment company or personal holding company, subject to the
requirements of the 1940 Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in the
Fund's prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain a signature guarantee as described under
"Transaction Information -- Redeeming shares -- By mail or fax" in the Fund's
prospectus.
18
<PAGE>
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Corporation and the Transfer Agent each reserves the right to
suspend or terminate the privilege of the Automatic Exchange Program at any
time.
There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares, and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding.
(See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Corporation employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Corporation does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Corporation will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Corporation and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from Scudder Investor Services, Inc. a prospectus of
the Scudder fund into which the exchange is being contemplated. The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
In order to request redemptions by telephone, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds are to be sent.
Shareholders currently receive automatically, without having to elect it, the
right to redeem up to $100,000 to their address of record. Shareholders may
request to have the proceeds mailed or wired to their predesignated bank
account.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption payments
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. A signature and a signature guarantee
are required for each person in whose name the account is
registered.
Telephone redemption is not available with respect to shares
represented by share certificates or shares held in certain retirement accounts.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
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<PAGE>
Note: Investors designating a savings bank to receive their
telephone redemption proceeds are advised that if the savings
bank is not a participant in the Federal Reserve System,
redemption proceeds must be wired through a commercial bank
which is a correspondent of the savings bank. As this may
delay receipt by the shareholder's account, it is suggested
that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire
transfer information with the telephone redemption
authorization. If appropriate wire information is not
supplied, redemption proceeds will be mailed to the designated
bank.
The Corporation employs procedures, including recording telephone
calls, testing a caller's identity, and sending written confirmation of
telephone transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Corporation does not follow such procedures, it may be liable for
losses due to unauthorized or fraudulent telephone instructions. The Corporation
will not be liable for acting upon instructions communicated by telephone that
it reasonably believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4:00 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange will begin their processing and be redeemed at the net asset value
calculated the following business day. QuickSell transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption-In-Kind
The Corporation reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Corporation and valued as they are for purposes of computing the Fund's net
asset value (a redemption-in-kind). If payment is made in securities, a
shareholder may incur transaction expenses in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Corporation does not impose a redemption or repurchase charge, although a wire
charge may be applicable for redemption proceeds wired to an investor's bank
account. Redemptions of shares of the Fund, including an exchange into another
series of the Corporation, if any, or another Scudder fund, may result in tax
20
<PAGE>
consequences (gain or loss) to the shareholder and the proceeds of such
redemptions may be subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, director or custodian of the Plan for the
requirements.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) the SEC may
by order permit such a suspension for the protection of the Corporation's
shareholders; provided that applicable rules and regulations of the SEC (or any
succeeding governmental authority) shall govern as to whether the conditions
prescribed in (b) or (c) exist.
Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Directors. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an IRA), if an
automatic investment plan (AIP) of $100/month ($50/month for an IRA) is
established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in the Fund, without establishing an AIP, will be assessed an annual
$10.00 per fund charge with the fee to be reinvested in the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $100,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder at the address
of record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.
FEATURES AND SERVICES OFFERED BY THE FUND
(See "Shareholder benefits" in the Fund's prospectus.)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.
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<PAGE>
Because funds in the Scudder Family of Funds do not pay any asset-based
sales charges or service fees, Scudder developed and trademarked the phrase pure
no-load(TM) to distinguish Scudder funds from other no-load mutual funds.
Scudder pioneered the no-load concept when it created the nation's first no-load
fund in 1928, and later developed the nation's first family of no-load mutual
funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder Family of Funds pure no-load fund over investing
the same amount in a load fund that collects an 8.50% front-end load, a load
fund that collects only a 0.75% 12b-1 and/or service fee, and a no-load fund
charging only a 0.25% 12b-1 and/or service fee. The hypothetical figures in the
chart show the value of an account assuming a constant 10% rate of return over
the time periods indicated and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
====================================================================================================================
Scudder No-Load Fund with
Pure No-Load(TM) Load Fund with 0.25% 12b-1
YEARS Fund 8.50% Load Fund 0.75% 12b-1 Fee Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- --------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- --------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
====================================================================================================================
</TABLE>
Investors are encouraged to review the fee tables and consolidated
financial highlights on pages 2 and 3 of the Fund's prospectus for more specific
information about the rates at which management fees and other expenses are
assessed and the actual rate of the Fund's return.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
22
<PAGE>
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders also may change their dividend option either
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
Contact Scudder" in the Fund's prospectus for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by Scudder
Investor Services, Inc. listed in the Prospectus. The Centers are designed to
provide individuals with services during any business day. Investors may pick up
literature or obtain assistance with opening an account, adding monies or
special options to existing accounts, making exchanges within the Scudder Family
of Funds, redeeming shares or opening retirement plans. Checks should not be
mailed to the Centers but should be mailed to "The Scudder Funds" at the address
listed under "How to contact Scudder" in the Prospectus.
Reports to Shareholders
The Corporation issues shareholders semiannual financial statements
(audited annually by independent accountants) including a list of investments
held and statements of assets and liabilities, statements of operations,
statements of changes in net assets and financial highlights.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
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<PAGE>
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Fund's prospectus.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital and, consistent therewith, to maintain the liquidity of
capital and to provide current income. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
- ----------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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TAX FREE
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder Corporate Bond Fund seeks a high level of current income
through investment primarily in investment-grade corporate debt
securities.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
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<PAGE>
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As
a secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Dividend & Growth Fund seeks high current income and long-term
growth of capital through investment in income paying equity
securities.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
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<PAGE>
Scudder Value Fund** seeks long-term growth of capital through
investment in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund** seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of medium-size companies with the potential for
sustainable above-average earnings growth..
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
GLOBAL EQUITY
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Value Fund seeks long-term capital appreciation
through investment primarily in undervalued foreign equity securities.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund*** seeks long-term growth of capital
primarily through a diversified portfolio of marketable foreign equity
securities.
Scudder International Growth Fund seeks long-term capital appreciation
through investment primarily in the equity securities of foreign
companies with high growth potential.
Scudder Global Discovery Fund** seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
- ----------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
27
<PAGE>
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts)
of Japanese companies.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.
Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.
Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund seeks long-term growth of capital on an
after-tax basis by investing primarily in established, medium- to
large-sized U.S. companies with leading competitive positions.
Scudder Tax Managed Small Company Fund seeks long-term growth of
capital on an after-tax basis through investment primarily in
undervalued stocks of small U.S. companies.
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. For more information, please call
1-800-225-5163.
SPECIAL PLAN ACCOUNTS
(See"Scudder tax-advantaged retirement plans," "Purchases--By Automatic
Investment Plan" and "Exchanges and redemptions--By Automatic
Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll
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<PAGE>
free, 1-800-225-2470. The discussions of the plans below describe only certain
aspects of the federal income tax treatment of the plan. The state tax treatment
may be different and may vary from state to state. It is advisable for an
investor considering the funding of the investment plans described below to
consult with an attorney or other investment or tax adviser with respect to the
suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
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<PAGE>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
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<PAGE>
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all shares of the Fund under the Plan have been liquidated or upon receipt
by the Corporation of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Corporation and its agents reserve the right to establish a
maintenance charge in the future depending on the services required by the
investor.
The Corporation reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
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<PAGE>
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information -- Dividends and capital
gains distributions" in the Fund's prospectus.)
The Corporation intends to follow the practice of distributing
substantially all of the Fund's net investment income, including any excess of
net realized short-term capital gains over net realized long-term capital
losses. The Corporation intends to follow the practice of distributing the
entire excess of the Fund's net realized long-term capital gains over net
realized short-term capital losses. However, if it appears to be in the best
interest of the Fund and its shareholders, the Fund may retain all or part of
such gain for reinvestment after paying the related federal income taxes on
behalf of the shareholders.
The Corporation intends to distribute the Fund's net investment income
and any net realized short-term and long-term capital gains resulting from Fund
investment activity in December to prevent application of a federal excise tax.
Both types of distributions will be made in shares of the Fund and confirmations
will be mailed to each shareholder unless a shareholder has elected to receive
cash, in which case a check will be sent. Distributions are taxable, whether
made in shares or cash (see "TAXES"). Any distributions declared in October,
November or December with a record date in such a month and paid during the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
PERFORMANCE INFORMATION
(See "Distribution and performance information -- Performance information" in
the Fund's prospectus.)
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year, five years and the life of the Fund, ended
on the date of the most recent balance sheet. Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by
computing the average annual compound rates of return of a hypothetical
investment over such periods, according to the following formula (average annual
total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = Average Annual Total Return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 investment made at the beginning of
the periods of one year or the life of the
Fund (or fractional portion thereof).
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<PAGE>
Average Annual Total Return for periods ended June 30, 1998*
One Year Five Years Life of the Fund (1)
-35.45% -3.63% -1.67%
(1) For the period September 2, 1988 (commencement of operations) to June
30, 1998.
* If the Adviser had not absorbed a portion of Fund expenses and had
imposed a full management fee, the average annual total return for the
life of the Fund would have been lower.
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of the Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by computing
the cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the
value, at the end of the applicable period,
of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Cumulative Total Return for periods ended June 30, 1998*
One Year Five Years Life of the Fund (1)
-34.45% -16.86% -15.28%
(1) For the period September 2, 1988 (commencement of operations) to June
30, 1998.
* If the Adviser had not absorbed a portion of Fund expenses and had
imposed a full management fee, the cumulative total return for the life
of the Fund would have been lower.
A comparison of the quoted non-standard performance offered for various
investments are valid only if performance is calculated in the same manner.
Since there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
The Fund's performance is affected by changes in the prices of gold and
other precious metals, the level of stock prices generally, by the Adviser's
selection of securities for the portfolio, by the Fund's expense ratio and other
factors.
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Because some of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar against these currencies
may account for part of the Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future performance.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments are valid only if performance is calculated in the same manner.
Since there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
Index and statistics published by the Small Business Administration.
Because some or all of the Fund's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations. In addition, the Fund's performance may also be
compared to the performance of broad groups of comparable mutual funds.
Unmanaged indices with which the Fund's performance may be compared include, but
are not limited to, the following:
The Europe/Australia/Far East (EAFE) Index
International Finance Corporation's Latin America Investable
Total Return Index
Morgan Stanley Capital International World Index
J.P. Morgan Global Traded Bond Index
Salomon Brothers World Government Bond Index
Nasdaq Composite Index
Wilshire 5000 Stock Index
From time to time, in marketing and other Fund literature, Directors
and officers of the Fund, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount
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of assets that the Adviser has under management in various geographical areas
may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interests rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
35
<PAGE>
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
Handy and Harman, a major New York-based gold fabricator and metal refiner that
issues public quotes on gold prices daily.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
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<PAGE>
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SmartMoney, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because
they assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity,
due partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
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Stocks in many foreign markets can be attractively priced. The global
stock markets do not move in lock step. When the valuations in one market rise,
there are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S. investments
strike the best balance between risk and reward.
Scudder's 30% Solution
The 30 Percent Solution -- A Global Guide for Investors Seeking Better
Performance With Reduced Portfolio Risk is a booklet, created by Scudder, to
convey its vision about the new global investment dynamic. This dynamic is a
result of the profound and ongoing changes in the global economy and the
financial markets. The booklet explains how Scudder believes an equity
investment portfolio with up to 30% in international holdings and 70% in
domestic holdings can improve long-term performance while simultaneously helping
to reduce overall risk.
FUND ORGANIZATION
(See "Fund organization" in the Fund's prospectus.)
The Corporation is a Maryland corporation organized in March 1988. The
Corporation currently offers shares of common stock of one investment fund which
represents interests in the Fund. The authorized capital stock of the
Corporation consists of 100 million shares of a par value of $0.01 each. Shares
are divided into series, one of which represents interests in the one investment
fund currently offered by the Corporation. Shares of each class have equal
rights as to voting, redemption, dividends and liquidation. Shareholders have
one vote for each share held. All shares issued and outstanding are fully paid
and nonassessable, transferable, and redeemable at net asset value of the
relevant fund at the option of the shareholder. Shares have no preemptive or
conversion rights.
The shares of the Corporation have noncumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors. Shareholders of the Corporation generally vote by class,
rather than in the aggregate, except with respect to the election of directors
and the selection of independent accountants.
The Articles of Incorporation provide that the Directors of the
Corporation shall not be liable for any action taken by them in good faith. The
By-Laws provide that the Corporation will indemnify Directors and officers of
the Corporation against liabilities and expenses actually incurred in connection
with litigation in which they may be involved because of their positions with
the Corporation. However, nothing in the Articles of Incorporation or the
By-Laws protects or indemnifies a Director or officer against any liability to
which he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
INVESTMENT ADVISER
(See "Fund organization -- Investment adviser" in the Fund's prospectus.)
Scudder Kemper Investments, Inc., an investment counsel firm, acts as
investment adviser to the Fund. This organization, the predecessor of which is
Scudder, Stevens & Clark, Inc., ("Scudder"), is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder entered
into an agreement with Zurich Insurance Company ("Zurich") pursuant to which
Scudder and Zurich agreed to form an alliance. On December 31, 1997, Zurich
acquired a majority interest in Scudder, and Zurich Kemper Investments, Inc., a
Zurich subsidiary, became part of Scudder. Scudder's name has been changed to
Scudder Kemper Investments, Inc.
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Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Value
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Global/International
Fund, Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc.,
Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, The Argentina Fund, Inc., The Brazil Fund, Inc.,
The Korea Fund, Inc., The Japan Fund, Inc. and Scudder Spain and Portugal Fund,
Inc. Some of the foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLinkSM Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLinkSM Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
continual studies of the factors that affect the position of various industries,
companies and individual securities. In this work, the Adviser utilizes certain
reports and statistics from a variety of sources, including brokers and dealers
who may execute portfolio transactions for the Fund and other clients of the
Adviser, but conclusions are based primarily on investigations and critical
analyses by the Adviser's own research specialists. However, the Adviser regards
this information and material as an adjunct to its own research activities. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of most favorable net
results to the Fund.
The transaction between Scudder and Zurich resulted in the assignment
of the Fund's investment management agreement with Scudder and that agreement
was deemed to be automatically terminated at the consummation of the
transaction. In anticipation of the transaction, however, the Directors approved
a new investment management agreement between the Fund and the Adviser on August
6, 1997. At the special meeting of the Fund's shareholders
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<PAGE>
held on October 27, 1997, the shareholders also approved the investment
management agreement. The investment management agreement became effective as of
December 31, 1997 .
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement with the Adviser, which is substantially identical to the investment
management agreement dated December 31, 1997, , except for the date of execution
and termination This agreement became effective on September 7, 1998 and will be
submitted for shareholder approval at a special meeting currently scheduled to
be held in December 1998.
The Agreement dated September 7, 1998, was approved by the Directors on
August 6, 1998. The Agreement will continue in effect until September 30, 1999
and from year to year thereafter only if their continuance is approved annually
by the vote of a majority of those Directors who are not parties to such
Agreement or interested persons of the Adviser or the Corporation, cast in
person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Corporation's Directors or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' written
notice and automatically terminates in the event of its assignment.
Under the Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objectives, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Fund's Articles, By-Laws, the
1940 Act, the Internal Revenue Code of 1986 (the "Code") and to the Fund's
investment objective, policies and restrictions, and subject, further, to such
policies and instructions as the Board of Directors of the Corporation may from
time to time establish.
Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Directors and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the Commission and other regulatory agencies; assisting in the preparation and
filing of the Fund's federal, state and local tax returns; preparing and filing
the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining the Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Fund's operating
budget; processing the payment of the Fund's bills; assisting the Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Directors.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York or Boston,
Massachusetts) of all Directors, officers and executive employees of the Fund
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
For these services, the Fund pays the Adviser an annual fee equal to
1.00% of the Fund's average daily net assets, payable monthly, provided the Fund
will make such interim payments as may be requested by the Adviser not to exceed
75% of the amount of the fee then accrued on the books of the Fund and unpaid.
The net investment advisory fees for the fiscal years ended June 30, 1998 and
1997 were $1,471,427 and $1,948,814 , respectively.
Under the Agreement the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the
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<PAGE>
Transfer Agent; the cost of preparing share certificates or any other expenses
of issue, sale, underwriting, distribution, redemption or repurchase of shares;
the expenses of and the fees for registering or qualifying securities for sale;
the fees and expenses of Directors, officers and employees of the Fund who are
not affiliated with the Adviser; the cost of printing and distributing reports
and notices to stockholders; and the fees and disbursements of custodians. The
Fund may arrange to have third parties assume all or part of the expenses of
sale, underwriting and distribution of shares of the Fund. The Fund is also
responsible for its expenses of shareholders' meetings, the cost of responding
to shareholders' inquiries, and its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Directors of the Fund with respect thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Fund, has the
non-exclusive right to use and sublicense the Scudder Marks as part of its name,
and to use the Scudder Marks in the Corporation's investment products and
services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense. Willkie Farr & Gallagher serves as counsel for the Fund and
also for Scudder Investor Services, Inc.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Fund that may have different
distribution arrangements or expenses.
None of the officers or Directors of the Fund may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Fund.
Personal Investments By Employees Of The Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
41
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Date of Birth, and Scudder Investor
Address Position with Fund Principal Occupation** Services, Inc.
- ------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Daniel Pierce (64)*@# President and Director Managing Director of Scudder Kemper Vice President and
Investments, Inc. Assistant Treasurer
Paul Bancroft III (68) Director Venture Capitalist and Consultant; --
79 Pine Lane Retired, President, Chief Executive
Box 6639 Officer and Director, Bessemer
Snowmass Village, CO 81615 Securities Corporation
Sheryle J. Bolton (52) Director CEO, Scientific Learning --
Scientific Learning Corporation, Former President and
Corporation Chief Operating Officer, Physicians
1995 University Ave Online, Inc. (electronic
Suite 400 transmission of clinical information
San Francisco, CA 94704 for physicians (1994-1995); Member,
Senior Management Team, Rockefeller
& Co. (1990-1993)
William T. Burgin (55) Director General Partner, Bessemer Venture --
83 Walnut Street Partners; General Partner, Deer &
Wellesley, MA 02181 Company; Director, James River
Corp.; Director, Galile Corp.,
Director of various privately held
companies
Thomas J. Devine (71) Director Consultant --
450 Park Avenue
New York, NY 10022
Keith R. Fox (44) Director President, Exeter Capital Management --
10 East 53rd Street Corporation
New York, NY 10022
William H. Luers (69) Director President, The Metropolitan Museum --
The Metropolitan of Art (1986 to present)
Museum of Art
1000 Fifth Avenue
New York, NY 10028
Kathryn L. Quirk (45)*+# Director, Vice Managing Director of Scudder Kemper Senior Vice President,
President and Investments, Inc. Chief Legal Officer and
Assistant Secretary Assistant Clerk
Joan E. Spero (54) Director President, The Doris Duke Charitable --
Foundation (1997 to present),
Undersecretary of State for
Economic, Business, and Agricultural
Affairs, (1993-1997)
42
<PAGE>
Position with
Underwriter,
Name, Date of Birth, and Scudder Investor
Address Position with Fund Principal Occupation** Services, Inc.
- ------- ------------------ ---------------------- --------------
Robert G. Stone, Jr. (75) Honorary Director Chairman Emeritus and Director, --
405 Lexington Avenue Kirby Corporation (inland and
39th Floor offshore marine transportation and
New York, NY 10174 diesel repairs)
Jerard K. Hartman (65) Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Clay L. Hoes(42)+ Vice President Vice President of Scudder Kemper --
Investments, Inc.
Thomas W. Joseph (59)@ Vice President Senior Vice President of Scudder Vice President,
Kemper Investments, Inc. Treasurer and Assistant
Clerk
Thomas F. McDonough (51)@ Vice President and Senior Vice President of Scudder Clerk
Secretary Kemper Investments, Inc.
John R. Hebble (40)@ Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
Caroline Pearson (36)@ Assistant Secretary Senior Vice President of Scudder --
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
</TABLE>
* Persons considered by the Fund and its counsel to be Directors who are
"interested persons" of the Adviser or of the Fund, within the meaning
of the 1940 Act, as amended.
** Unless otherwise stated, all the Directors and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
+ Address: 345 Park Avenue, New York, New York 10154
@ Address: Two International Place, Boston, Massachusetts 02110
# Mr. Pierce and Ms. Quirk are the sole members of the Executive
Committee, which may exercise substantially all of the powers of the
Directors when they are not in session.
The Directors and officers of the Fund also serve in similar capacities
with other Funds managed by the Adviser.
As of September 30, 1998 all Directors and officers of the Corporation
as a group owned beneficially (as the term is defined in Section 13(d) under the
Securities Exchange Act of 1934) less than 1% of the Fund's outstanding shares
on such date.
As of September 30, 1998, 4,415,826 shares in the aggregate, 21.37% of
the outstanding shares of the Fund, were held in the name of Charles Schwab & Co
Inc., 101 Montgomery St., San Francisco, CA 94104-4122, who may be deemed to be
the beneficial owner of certain of these shares, but disclaims any beneficial
ownership in such shares.
To the knowledge of the Corporation, as of September 30, 1998, no
person owned beneficially more than 5% of the Fund's outstanding shares except
as stated above.
43
<PAGE>
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Directors is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Directors" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of the Fund and other operational matters, including
policies and procedures designed to ensure compliance with various regulatory
requirements. At least annually, the Independent Directors review the fees paid
to the Adviser and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, the Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by the Fund's independent
public accountants and by independent legal counsel selected by the Independent
Directors.
All the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
The Independent Directors receive the following compensation from the
Fund: an annual director's fee of $3,500; a fee of $325 for attendance at each
board meeting, audit committee meeting or other meeting held for the purposes of
considering arrangements between the Corporation on behalf of the Fund and the
Adviser or any affiliate of the Adviser; $100 for all other committee meetings;
and reimbursement of expenses incurred for travel to and from Board Meetings. No
additional compensation is paid to any Independent Director for travel time to
meetings, attendance at directors' educational seminars or conferences, service
on industry or association committees, participation as speakers at directors'
conferences or service on special trustee task forces or subcommittees.
Independent Directors do not receive any employee benefits such as pension or
retirement benefits or health insurance. Notwithstanding the schedule of fees,
the Independent Directors have in the past and may in the future waive a portion
of their compensation.
The Independent Directors also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Director fee schedules. The
following table shows the aggregate compensation received by each Independent
Director during 1997 from the Corporation and from all of the Scudder funds as a
group.
<TABLE>
<CAPTION>
Scudder Mutual Funds, Inc.* All Scudder Funds
--------------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Corporation the Adviser(1) the Funds the Adviser(1)
---- --------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Paul Bancroft III, $1,267 $0.00 $156,922 $25,950 (20 funds)
Director
Sheryle J. Bolton, $1,267 $0.00 $86,213 $10,800 (20 funds)
Director
William T. Burgin, $5,841 $1,350 $85,950 $17,550 (20 funds)
Director
Thomas J. Devine, $8,900 $1,350 $186,598 $27,150 (21 funds)
Director
Keith R. Fox, Director $9,350 $1,350 $134,390 $17,550 (18 funds)
44
<PAGE>
Scudder Mutual Funds, Inc.* All Scudder Funds
--------------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Corporation the Adviser(1) the Funds the Adviser(1)
---- --------------- -------------- --------- --------------
William H. Luers, $1,267 $0.00 $117,729 $16,350 (20 funds)
Director
</TABLE>
(1) The Adviser paid the compensation to the Directors for meetings
associated with the Adviser's alliance with Zurich Insurance Company.
See "Investment Adviser" for additional information.
* Scudder Mutual Funds, Inc. consists of one mutual fund, Scudder Gold
Fund.
Members of the Board of Directors who are employees of the Adviser or
its affiliates receive no direct compensation from the Corporation, although
they are compensated as employees of the Adviser, or its affiliates, as a result
of which they may be deemed to participate in fees paid by the Fund.
DISTRIBUTOR
The Fund has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Fund's underwriting agreement dated
September 7, 1998 will remain in effect until September 30, 1999 and from year
to year thereafter only if its continuance is approved annually by a majority of
the members of the Directors who are not parties to such agreement or interested
persons of any such party and either by vote of a majority of the Board of
Directors or a majority of the outstanding voting securities of the Corporation.
The Directors most recently approved the underwriting agreement on August 6,
1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of the registration statement and prospectus and any amendments and
supplements thereto relating to the Fund, the registration and qualification of
Fund shares for sale in the various states, including registering the Fund as a
broker/dealer in various states, as required; the fees and expenses of
preparing, printing and mailing prospectuses (see below for expenses relating to
prospectuses paid by the Distributor), notices, proxy statements, reports or
other communications (including newsletters) to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of Fund shares and the
prospectuses accompanying such confirmations; any issuance taxes or any initial
transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives, the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the shares of
the Fund to the public and preparing, printing and mailing any other literature
or advertising in connection with the offering of shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and of any activity which is primarily intended to result in the sale
of shares of the Fund issued by the Corporation.
Note: Although the Fund does not currently have a 12b-1 Plan, the
underwriting agreement provides that the Fund would also pay
those fees and expenses permitted to be paid or assumed by the
Fund pursuant to a 12b-1 Plan, if any, were adopted by the
Fund, notwithstanding any other provision to the contrary in
the underwriting agreement, and the Fund or a third party will
pay those fees and expenses not specifically allocated to the
Distributor in the underwriting agreement.
As agent, the Distributor will offer the Fund's shares on a continuous
basis to investors in all states. The underwriting agreement provides that the
Distributor accepts orders for Fund shares at net asset value as no sales
commission or load is charged to the investor. The Distributor has made no firm
commitment to acquire shares of the Fund.
45
<PAGE>
TAXES
(See "Distribution and performance information -- Dividends and capital
gains distributions" and "Transaction information -- Tax information, Tax
identification number" in the Fund's prospectus.)
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute, and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
As a regulated investment company qualifying under Subchapter M of the
Code, the Fund is required to distribute to its shareholders at least 90 percent
of its investment company taxable income (including net short-term capital gain)
and generally is not subject to federal income tax to the extent that it
distributes annually its investment company taxable income and net realized
capital gains in the manner required under the Code.
Investment company taxable income generally is made of dividends,
interest, and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net capital gains (the excess of net long-term capital
gain over net short-term capital loss) are computed by taking into account any
capital loss carryforward of the Fund.
In addition, no more than 10% of the Fund's gross income may be from
nonqualifying sources, including income from investments in precious metals and
precious metals futures and options transactions. The Fund may therefore need to
limit the extent to which it makes such investments in order to qualify as a
regulated investment company.
The Fund is subject to a 4% nondeductible excise tax calculated as a
percentage of certain undistributed amounts of taxable income and capital gain.
The Fund has established distribution policies which should minimize or
eliminate the application of this tax.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between the shareholder's pro rata
share of such gains and the shareholder's tax credit.
Distributions of taxable net investment income and the excess of net
short-term capital gain over net long-term capital loss are taxable to
shareholders as ordinary income.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, regardless of the length of time the shares of the Fund
have been held by such shareholders. The Fund will designate the amount of each
distribution that will qualify for the 20% capital gains rate or the 28% capital
gains rate. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.
Distributions of taxable net investment income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of taxable net investment income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
Redemptions of shares, including exchanges for shares of another Scudder Fund,
may result in the recognition of gain or loss by the shareholder.
46
<PAGE>
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund may qualify for and make an election which would allow
shareholders to claim a credit or deduction on their federal income tax returns
for foreign taxes paid by the Fund. Should the Fund elect to do so, shareholders
would be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries. The Fund
will be qualified to make the election if more than 50% of the value of the
total assets of the Fund at the close of its taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by Section 904 of the Code. No deduction
for foreign taxes may be claimed by shareholders who do not itemize deductions
on their federal income tax returns, although any such shareholder may claim a
credit for foreign taxes and in any event will be treated as having taxable
income in respect to the shareholder's pro rata share of foreign taxes paid by
the Fund. For any year for which such an election is made, the Fund will report
to shareholders (no later than 60 days after the close of its fiscal year) the
amount per share of such foreign taxes that must be included in the
shareholder's gross income and will be available as a deduction or credit.
In addition, if the Fund fails to satisfy these holding period
requirements, it cannot elect under Section 853 to pass through to shareholders
the ability to claim a deduction for the related foreign taxes.
No gain or loss is recognized by the Fund upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e., long-term or short-term) will generally depend, in the
case of a lapse or sale of the option, on the Fund's holding period for the
option and, in the case of an exercise of the put option purchased by the Fund,
on the Fund's holding period for the underlying stock it sells pursuant to the
put option. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock in the Fund's portfolio. If the Fund writes a put or call
option, no gain or loss is recognized upon its receipt of a premium. If the
option lapses or is closed out, any gain or loss is treated as a short-term
capital gain or loss. If a purchaser exercises a call option written by the Fund
and such call option is exercised, the character of the gain or loss recognized
by the Fund will depend on the Fund's holding period for the underlying stock
sold pursuant to such exercise. The exercise of an equity put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts (including foreign currency futures contracts)
entered into by the Fund, certain forward currency contracts, and all listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indexes and
options on broad-based stock indexes) will be considered "Section 1256"
contracts under the Code. Absent an election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position will be
treated as 60% long-term and 40% short-term. Under present law, it does not
appear that any long term capital gains attributable to Section 1256 contracts
will be eligible for the 20% capital gains vote. Moreover, on the last trading
day of the Fund's fiscal year, all outstanding Section 1256 positions will be
marked to market (i.e. treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized. Under
certain circumstances, entry into a futures contract to sell a security held by
the Fund may constitute a short sale of that security for federal income tax
purposes, causing an adjustment in the Fund's holding period for that security.
The Fund's short sales against the box, if any, will be subject to
special provisions of the Code that may affect the character of gains and losses
realized by the Fund and the holding periods of securities held by the Fund, and
may accelerate the recognition of income to the Fund.
Under Section 988 of the Code, discussed below, foreign currency gains
or loss from foreign currency related forward contracts, certain futures and
similar financial instruments entered into or acquired by a Fund will be treated
as ordinary income or loss.
The Fund intends to invest up to 25% of its assets in a foreign
subsidiary of the Corporation which invests in gold, silver, platinum and
palladium bullion and in gold and silver coins. The Corporation intends that the
subsidiary be structured so that it will not be subject to tax in the U.S.
However, the Fund (or its shareholders) may be subject to tax on the income of
the subsidiary, regardless of whether the income is distributed to the Fund.
47
<PAGE>
The Fund may invest in shares of certain foreign corporations which may
be classified under the Code as passive foreign investment companies ("PFICs").
If the Fund receives a so-called "excess distribution" with respect to PFIC
stock, the Fund itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Fund held the PFIC shares. The Fund will be
subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Excess
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
Recently legislation was enacted which would allow the Fund to make an
election to mark to market its shares of these foreign investment companies that
would result in the Fund being treated as if it had sold and repurchased all of
its PFIC stock at the end of each year. This election is effective for taxable
years beginning after December 31, 1997. At the end of each taxable year to
which the election applies, the Fund would report as ordinary income the amount
by which the fair market value of the foreign company's stock exceeds the Fund's
adjusted basis in these shares. Ordinary mark to market losses may be recognized
to the extent of previously recognized mark-to-market gains. The effect of the
election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a fund level tax when distributed to
shareholders as a dividend. This election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked with the consent of the
IRS. Alternatively, the Fund may elect to include as income and gain its share
of the ordinary earnings and net capital gain of certain foreign investment
companies in lieu of being taxed in the manner described above. Under present
law, long-term capital gains included in income by the Fund pursuant to the
election described in the preceding sentence will not be eligible for the 20%
capital gains rate.
Backup withholding may be required if the Fund is notified by the IRS
or a broker that the taxpayer identification number furnished by the shareholder
is incorrect or that the shareholder has previously failed to report interest or
dividend income.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
A brief explanation of the form and character of the distribution
accompany each distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions
made for the previous year.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. domestic corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisors about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
The Adviser supervises allocation of brokerage.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
48
<PAGE>
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of execution services and the
receipt of research, market or statistical information. The Adviser will not
place orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of the Fund. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Directors review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
In the fiscal years ended June 30, 1998, 1997 and 1996 the Fund paid
brokerage commissions of $867,223, $455,167 and $128,087, respectively. For the
fiscal year ended June 30, 1998, $855,723 (98.67% of the total brokerage
commissions paid) resulted from orders placed, consistent with the policy of
obtaining the most favorable net results, with brokers and dealers who provided
supplementary research, market and statistical information to the Fund or the
Adviser. The total amount of brokerage transactions aggregated $258,186,528, of
which $226,100,451 (87.57%of all brokerage transactions) were transactions which
included research commissions.
Portfolio Turnover
The Fund's portfolio turnover rates (defined by the SEC as the ratio of
the lesser of sales or purchases of securities to the monthly average value of
the portfolio, excluding all securities with remaining maturities of less than
one year) for the two fiscal years ended June 30, 1997 and 1998, were 38.9% and
68.3%, respectively.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on theExchange on each day the Exchange is open for trading
(the "Value Time") The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Net asset value per share is determined by dividing the value of the total
assets of the Fund, less all liabilities, by the total number of shares
outstanding.
An exchange-traded equity security is valued at its most recent sale
price on such exchange as of the Value Time. Lacking any sales, the security is
valued at the calculated mean between the most recent bid quotation and the most
recent asked quotation (the "Calculated Mean") on such exchange as of the Value
Time. Lacking a Calculated Mean quotation, the security is valued at the most
recent bid quotation on such exchange as of the Value Time. An
49
<PAGE>
equity security which is traded on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system will be valued at its most recent
sale price on such system as of the Value Time. Lacking any sales, the security
is valued at the most recent bid quotation as of the Value Time. The value of an
equity security not quoted on the NASDAQ system, but traded in another
over-the-counter market, is its most recent sale price if there are any such
sales of such security on such market as of the Value Time. Lacking any sales,
the security is valued at the Calculated Mean quotation for such security as of
the Value Time. Lacking a Calculated Mean quotation , the security is valued at
the most recent bid quotation as of the Value Time.
Debt securities, other than money market instruments , are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money market
instruments purchased with an original maturity of sixty days or less, maturing
at par, shall be valued at amortized cost , which the Board believes
approximates market value. If it is not possible to value a particular debt
security pursuant to these valuation methods, the value of such security is the
most recent bid quotation supplied by a bona fide marketmaker. If it is not
possible to value a particular debt security pursuant to the above methods, the
Adviser may calculate the price of that debt security, subject to limitations
established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
Gold, silver, platinum and palladium bullion shall be valued based on
the London Fixing or, if there is no London Fixing available, the value of gold
and silver bullion shall be based on the last spot settlement as reported by the
Comex, a division of the New York Mercantile Exchange ("NYMEX"), and the value
of platinum and palladium bullion shall be based on the last spot settlement on
NYMEX, as supplied by a recognized precious metals dealer as of the time of
valuation; coins and precious metals other than gold, silver, platinum and
palladium bullion shall be valued at the calculated mean based on market
quotations or, if there are no such bid and ask quotations available
simultaneously, at the most recent bid quotation provided by a bona fide market
maker as of the time of valuation.
ADDITIONAL INFORMATION
Experts
The Consolidated financial highlights of the Fund included in the
Fund's prospectus and the Financial Statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance on the report of PricewaterhouseCoopers LLP, One Post
Office Square, Boston, Massachusetts 02109, independent accountants, and given
on the authority of that firm as experts in accounting and auditing. Effective
July 1, 1998, Coopers & Lybrand L.L.P. and Price Waterhouse LLP merged to become
PricewaterhouseCoopers LLP.
50
<PAGE>
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the Fund's objectives and policies,
and other factors, such as its other portfolio holdings and tax considerations
and should not be construed as recommendations for similar action by other
investors.
The Corporation sends to each shareholder of the Fund audited
semiannual and annual reports, each of which includes a list of the investment
securities held by the Fund. Shareholders may seek information regarding the
Corporation, including the current performance of the Fund from their Scudder
service representative. The CUSIP number of the Fund is 810904-10-2.
The Corporation employs Brown Brothers Harriman & Company, 40 Water
Street, Boston, Massachusetts 02109 as custodian for the Fund. Brown Brothers
Harriman & Company has entered into agreements with foreign subcustodians
approved by the Directors of the Corporation pursuant to Rule 17f-5 of the 1940
Act.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend paying agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee of $26 for each retail account and
$29 for each retirement account maintained for a participant. For the fiscal
years ended June 30, 1998, 1997 and 1996, Service Corporation charged the Fund
aggregate fees of $487,250, $483,408, and $287,010.
The Fund, or the Adviser (including any affiliate of the Adviser), may
pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays SFAC an annual fee equal to 0.025% of
the first $150 million of average daily net assets, 0.0075% of such assets on
the next $850 million, 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the fiscal years ended
June 30, 1998, 1997 and 1996, the amount charged to the Fund by SFAC aggregated
$67,605, $59,281, and $13,007.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Adviser, for such accounts. The Fund pays
Scudder Trust Company an annual fee of $29 per shareholder account. For the
fiscal years ended June 30, 1998 and 1997, Scudder Trust Company's fees amounted
to $19,391 and $19,318.
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement of the Corporation
relating to the Fund that has been filed with the SEC under the Securities Act
of 1933 and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. This
Registration Statement is available for inspection by the public at the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of Scudder
Gold, together with the Report of Independent Accountants and Consolidated
Financial Highlights in the Annual Report to the Shareholders of the Fund dated
June 30, 1998, are incorporated by reference and attached hereto, and are hereby
deemed to be a part of this Statement of Additional Information.
51
<PAGE>
DESCRIPTION OF S&P AND MOODY'S RATINGS
Description of S&P preferred stock and corporate bond ratings:
AAA -- Preferred stock and bonds rated AAA have the highest rating
assigned by S&P to a preferred stock issue or debt obligation. Capacity to pay
the preferred stock obligations, in the case of preferred stocks, and to pay
interest and repay principal, in the case of bonds, is extremely strong.
AA -- Preferred stock and bonds rated AA have a very strong capacity to
pay the preferred stock obligations, in the case of preferred stocks, and to pay
interest and repay principal, in the case of bonds, and differ from the highest
rated issues only in small degree.
A -- Preferred stock and bonds rated A have a strong capacity to pay
the preferred stock obligations, in the case of preferred stocks, and to pay
interest and repay principal, in the case of bonds, although they are somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than preferred stocks or bonds in higher rated categories.
BBB -- Preferred stock and bonds rated BBB are regarded as having an
adequate capacity to pay the preferred stock obligations, in the case of
preferred stocks, and to pay interest and repay principal, in the case of bonds.
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay preferred stock obligations or to pay interest and repay
principal for bonds in this category than for preferred stocks or bonds in
higher rated categories.
Description of Moody's preferred stock ratings:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
aaa and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
Description of Moody's corporate bond ratings:
Aaa -- Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa Group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain
52
<PAGE>
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
53
<PAGE>
Scudder
Gold
Fund
Annual Report
June 30, 1998
Pure No-Load(TM) Funds
A mutual fund which seeks maximum return consistent with investing primarily in
a portfolio of gold-related equity securities and gold.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Gold Fund
- --------------------------------------------------------------------------------
Date of Inception: 9/2/88 Total Net Assets as of Ticker Symbol: SCDGX
6/30/98: $132.1 million
- --------------------------------------------------------------------------------
o The prices of gold and most gold stocks declined in response to uncertainty
about possible future European Central Bank sales during the 12-month period
ended June 30, 1998.
o Scudder Gold Fund's total return during its most recent fiscal year ended June
30 was -35.45%. This return is in keeping with the -35.01% return of the Fund's
peers as compiled by Lipper Analytical Services, Inc.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE BAR CHART TITLE:
Total Returns for Gold and Gold Funds
Periods ended June 30, 1998
BAR CHART DATA:
- -----------------------------------------------------------------------------
Six months Twelve months
- -----------------------------------------------------------------------------
Gold bullion,London p.m. fix 2.10% -11.43%
Platinum, free market price -0.66 -15.25
Toronto Stock Exchange Gold Index -4.71 -26.82
Johannesburg (South Africa)
Stock Exchange Gold Index 8.81 -9.60
Lipper Average for Gold-Oriented Funds -8.98 -35.01
Scudder Gold Fund -9.65 -35.45
- -----------------------------------------------------------------------------
Table of Contents
3 Letter from the Fund's President 18 Financial Highlights
4 Performance Update 19 Notes to Financial Statements
5 Portfolio Summary 23 Report of Independent Accountants
6 Portfolio Management Discussion 24 Officers and Directors
9 Investment Portfolio 25 Investment Products and Services
15 Financial Statements 26 Scudder Solutions
2 - Scudder Gold Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Gold and gold stocks delivered sub-par performance for the 12 months ended
June 30, 1998, as uncertainty over future European Central Bank gold sales
continued to unsettle market participants. The extraordinary events surrounding
European monetary union and the large central bank gold sales that began in 1997
have, for the time being, disrupted gold's typical supply and demand
relationship. Scudder Gold Fund's return over its most recent fiscal year ended
June 30, 1998, was -35.45% while gold bullion and gold stocks (as measured by
Lipper Analytical Services, Inc.) declined -11.43% and -35.01%, respectively.
For more information about Scudder Gold Fund's market environment, strategy, and
outlook, please read the Portfolio Management Discussion beginning on page 6.
For those of you interested in our newest Scudder offerings, we would like
to take this opportunity to highlight two upcoming additions to our
international category, both of which are scheduled to begin operations on
September 1st. Scudder International Growth Fund will seek long-term capital
appreciation by investing primarily in the equity securities of foreign
companies with high earnings growth potential, and Scudder International Value
Fund will seek long-term capital appreciation by investing primarily in
undervalued foreign equity securities. These two funds are among the first
international funds in the industry to pursue long-term growth of capital in
both the growth and value styles of investing. Please see page 25 for more
information on Scudder products and services.
If you have any questions regarding Scudder Gold Fund or any other Scudder
fund, please do not hesitate to call Investor Relations at 1-800-225-2470. Or
visit Scudder's Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Gold Fund
3 - Scudder Gold Fund
<PAGE>
PERFORMANCE UPDATE as of June 30, 1998
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/98 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER GOLD FUND
- --------------------------------------------
1 Year $ 6,455 -35.45% -35.45%
5 Year $ 8,314 -16.86% -3.63%
Life of Fund* $ 8,472 -15.28% -1.67%
- --------------------------------------------
S & P INDEX
- --------------------------------------------
1 Year $ 13,017 30.17% 30.17%
5 Year $ 28,243 182.43% 23.06%
Life of Fund* $ 54,704 447.04% 19.03%
- --------------------------------------------
*The Fund commenced operations on September 2, 1988.
Index comparisons begin September 30, 1998.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended June 30
SCUDDER GOLD FUND
Year Amount
- ----------------------
9/88* $10,000
'89 $ 9,256
'90 $ 9,005
'91 $ 8,705
'92 $ 8,106
'93 $10,699
'94 $11,378
'95 $12,231
'96 $16,746
'97 $13,779
'98 $ 8,895
S & P 500 INDEX
Year Amount
- ----------------------
9/88* $10,000
'89 $12,012
'90 $13,994
'91 $15,026
'92 $17,044
'93 $19,369
'94 $19,642
'95 $24,760
'96 $31,196
'97 $42,026
'98 $54,704
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange, and Over-The-Counter market. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not reflect any
fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods Ended June 30
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 10.58 $ 10.21 $ 9.87 $ 9.19 $ 12.13 $ 12.64 $ 12.86 $ 15.34 $ 10.49 $ 6.65
INCOME DIVIDENDS.. $ -- $ .01 $ -- $ -- $ -- $ .24 $ .25 $ 1.08 $ 2.39 $ .14
CAPITAL GAINS
& OTHER
DISTRIBUTIONS..... $ -- $ .09 $ -- $ -- $ -- $ -- $ .47 $ .63 $ .26 $ --
FUND TOTAL
RETURN (%)........ -11.83 -2.71 -3.33 -6.89 31.99 6.35 7.50 36.91 -17.72 -35.45
INDEX TOTAL
RETURN (%)........ 20.11 16.45 7.37 13.39 13.61 1.40 26.07 26.00 34.72 30.17
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not maintained the
Fund's expenses, the average annual and cumulative total returns for the life of
Fund period would have been lower.
4 - Scudder Gold Fund
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1998
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
As a percentage of net assets
Equity Holdings 82%
Cash Equivalents, net 17%
Precious Metals 1%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
During a difficult period for gold
and gold stocks, the Fund held a
significant cash position and sold
gold bullion into rallies.
- --------------------------------------------------------------------------
QUALITY DISTRIBUTION
- --------------------------------------------------------------------------
Tier breakdown of the Fund's common stocks
Tier I
Premier gold producing companies 46%
Tier II
Major established gold producers 17%
Tier III
Junior gold producers with
medium cost production 13%
Tier IV
Companies with some gold
production on stream or in startup 5%
Tier V
Primarily exploration companies
with or without mineral reserves 19%
- ---------------------------------------
100%
- ---------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund emphasized Tier 1
stocks for liquidity purposes and
reduced exposure to Tier V
exploration stocks over its most
recent fiscal year.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(41% OF PORTFOLIO)
- --------------------------------------------------------------------------
1. FREEPORT MCMORAN COPPER & GOLD, INC.
Mining company
2. STILLWATER MINING CO.
Exploring U.S. palladium and platinum producing
3. NEWMONT MINING CORP.
International gold exploration and mining company
4. HOMESTAKE MINING CO.
Major international gold producer
5. ASHANTI GOLDFIELDS CO., LTD.
Leading gold producer
6. BARRICK GOLD CORP.
Gold exploration and production in North and
South America
7. ANGLO AMERICAN PLATINUM CORP.
World's largest pure platinum producer
8. EURO-NEVADA MINING LTD.
Large gold royalty company
9. BATTLE MOUNTAIN CANADA
Exploration and production development company in North and South America,
Australia and Indonesia
10. SUTTON RESOURCES LTD.
Mineral exploration and development company in Tanzania and Guyana
Scudder Gold Fund made a
partial shift into platinum and
palladium stocks -- including
Anglo American Platinum
Corp., the Fund's seventh
largest holding -- during the
period based on positive
fundamentals.
For more complete details about the Fund's investment portfolio,
see page 9. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5 - Scudder Gold Fund
<PAGE>
Portfolio Management Discussion
For an overview of the investment environment, strategy, and outlook for Scudder
Gold Fund, we are pleased to once again present an interview with Scudder Gold
Fund's lead portfolio manager Clay Hoes.
Q: How did Scudder Gold Fund perform over the past 12 months?
The difficulties for gold and gold stocks have continued. Scudder Gold Fund's
total return for the 12 months ended June 30, 1998, was -35.45%, compared with
the Lipper Gold Fund Index's return of -35.01% and gold bullion's decline of
- -11.43%.
Q: Over recent months, gold seems to have been locked in a trading range.
Yes, it's been in a trading range between $285 and $315 for the past six months.
When it's going to break out of this is uncertain. Gold was priced at $297 at
the close of the period. Within this range, you buy at $285 and you sell at
$315.
Q: To what extent does low global inflation play a part in gold's current
pricing?
Because there's limited global inflation, many people don't feel the need to
hold gold. But for those around the world who are concerned about currency
volatility, holding gold can be beneficial because gold is denominated in
dollars. If you've bought a security in yen and the yen declines your gold
dollars will go up. Of course, holders of Treasury securities can obtain a
similar benefit, with interest added.
Q: Is gold still a viable investment?
What I think needs to be explained is that gold isn't dead. When we have an
inflationary environment again, gold will resurface. Recent economic statistics
have shown that inflation has been occurring from a wage point of view versus
goods. A lot of goods are not inflationary at the moment, but wages are
inflationary. And I still subscribe to the 5% theory: If you're going to have
100% invested in the market via bonds and equities, you should have 5% of that
total in gold or gold stocks.
Q: Have gold stocks continued to track gold?
Yes. Because gold has traded down, gold-related equities have traded down. The
movement in gold-related products has been greater than in gold itself.
Q: What effect have the actions of the European Central Bank (ECB) had on gold?
When Wim Duisenberg, the head of the ECB, came out recently with an unofficial
comment (still to be voted on and ratified by the ECB's board of directors) that
the ECB would hold between 10% and 15% of their reserves in the form of gold,
the market reacted somewhat negatively because the consensus expectation was
that the bank would hold about 20% of its reserves in gold. This was a bit of a
disappointment, but not overly so, because a lot of that news had already been
built into gold's price.
More important, though, is what mechanism the ECB sets up to dispose of a
portion of its existing gold reserves. If the ECB holds 10%-15% of reserves in
gold, that adds up to between $5 and $7.5 billion in value, or 17 million
ounces. Presently, gold reserves held by the 11 ECB countries number about 366
million ounces. So 17 million ounces is a drop in the bucket. Each country will
contribute a formula-based number of ounces to the ECB, with the remainder to be
6 - Scudder Gold Fund
<PAGE>
held at each individual country's central bank. It's theirs, so at present they
can do with it what they want. In the near future it will be up to the ECB to
tell them how they can dispose of it. If the ECB is smart, they're going to make
it very difficult for countries to sell their additional reserves. If the
individual countries draw down their gold reserves, it will create a perception
that the Euro (which is partially backed by gold) is less stable and hence less
desirable to hold. So I believe they're going to want to have a fairly rigorous
system of disposal that the ECB can control.
I believe the gold market has been focusing on the relatively small percentage
of reserves to be held at the ECB. But, again, I don't believe the reserves held
by the individual countries will actually be available for sale because of the
harm that would cause the Euro. Hence, we think that the markets oversold on
Duisenberg's comments, and that gold should trade higher off the current range
once everyone has figured this out.
Q: Have there been other significant factors affecting supply over the past six
months?
High cost mines have continued to close, though at a slower rate than before.
Gold mining companies are steadily driving down costs by freezing wages, cutting
personnel, and making capital investments to improve productivity. In addition,
a number of companies have bought back their forward sales, which is a favorable
development because it creates a support level for gold prices. We also haven't
seen as many large hedge funds taking short positions in gold as we did in 1997.
Most of the negative news on gold seems to be built into its price already.
Q: What about demand? Has fabrication demand had any positive effect?
Fabrication demand for gold jewelry has been increasing as the price has been
falling. Without the central bank sales, demand would have outstripped supply.
Q: What has the Fund's strategy been in light of the difficult supply situation?
We've made some geographic shifts and some commodity changes. The Fund purchased
more South African stocks on the weak rand, and Australian stocks on the weak
Aussie dollar during the period. We also made a partial shift into platinum and
palladium, with a smaller shift into silver based on positive fundamentals.
In terms of allocation, as mentioned six months ago, we have moved primarily
into Tier I (premier gold producing companies) stocks for liquidity purposes and
substantially reduced Tier V exploration names. We're beginning to look more at
the exploration names though, because if the projects are worthwhile, now is the
time to get in, when everybody is flat on their back.
Q: Were there positive stories amid the bad news?
The Fund realized substantial gains from the sale of Crystallex of Venezuela.
Australian gold stocks such as Delta Gold and Acacia have also performed well.
Another bright spot for the Fund in Australia was Niugini Mining, which has a
brand new mine now producing gold at a rate of 750,000 ounces annually. The Fund
took a position in this property early on. The mine was brought on below budget,
7 - Scudder Gold Fund
<PAGE>
ahead of schedule, and at a greater capacity than anticipated -- the most
amazing start-up that I've ever witnessed.
Q: What is your outlook for gold?
The sentiment on gold over the past twelve months has been as negative as it
probably ever has been. I think most of the negativity is behind us. Gold should
continue to trade in its current range over the next several months as we await
the definitive ECB reserve formula. If the market perceives the formula as
"weak" -- not adequately protecting European reserves -- then we could see one
last sell-off. But the market could pick up significantly once investors believe
gold has reached its bottom. Other positive factors for gold would be any
weakness in the U.S. dollar or any faltering by the U.S. stock market. In the
meantime, Scudder Gold Fund will continue to look to diversify and to search for
long-term capital appreciation opportunities in advance of a turnaround in gold
prices.
Scudder Gold Fund:
A Team Approach to Investing
Scudder Gold Fund is managed by a team of Scudder Kemper Investments, Inc.
(the "Adviser") professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund's portfolio. They are supported
by the Adviser's large staff of economists, research analysts, traders, and
other investment specialists who work in our offices across the United States
and abroad. We believe our team approach benefits Fund investors by bringing
together many disciplines and leveraging our extensive resources.
Lead Portfolio Manager Clay L. Hoes assumed responsibility for the Fund's
day-to-day management in 1997. Mr. Hoes, who joined the Adviser in 1996, has
been involved in the investment industry since 1987 and has worked as a
portfolio manager since 1996. William J. Wallace, Portfolio Manager, has been
a member of Scudder Gold Fund's team since 1991 and also serves as a Portfolio
Manager for Scudder Value Fund. Mr. Wallace, who has over 17 years of
investment experience, contributes expertise in quantitative analysis.
8 - Scudder Gold Fund
<PAGE>
Investment Portfolio as of June 30, 1998
<TABLE>
<CAPTION>
Principal Market
Amount** Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 3.9%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at 5.75%,
to be repurchased at $5,130,819 on 7/1/1998, collateralized by a $4,996,000 -------------
U.S. Treasury Note, 7.5%, 10/31/1999 (Cost $5,130,000) ................................ 5,130,000 5,130,000
-------------
Short-Term Investments 5.4%
- ------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 7/1/1998 ......................................... 7,000,000 7,000,000
United States Treasury Bill, 7/30/1998 (f) .............................................. 60,000 59,775
United States Treasury Bill, 8/6/1998 (f) ............................................... 100,000 99,516
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Bonds (Cost $7,159,260) 7,159,291
- ------------------------------------------------------------------------------------------------------------------------------
Convertible Bonds 1.4%
- ------------------------------------------------------------------------------------------------------------------------------
Chile 0.7%
Dayton Mining Corp., 7%, 4/1/2002 ....................................................... 1,500,000 952,500
-------------
Canada 0.7%
Kinross Gold, 5.5%, 12/05/2006 .......................................................... CAD 1,500,000 830,757
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $2,601,119) 1,783,257
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 80.5%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia 6.9%
Acacia Resources, Ltd.* (Australian based Gold and mineral exploration and
production company) ................................................................... 2,000,000 2,135,381
Delta Gold NL* (Australian-based gold exploration and production company
primarily in Australia with important platinum property in Zimbabwe) .................. 1,400,000 1,720,720
Minorco Resources Corp., Ltd. (Exploration, mining and processing of metal and
industrial materials) ................................................................. 87,100 1,019,349
Newcrest Mining, Ltd.* (Australian-based gold production and global exploration
company) .............................................................................. 600,000 737,451
Normandy Mining* (Largest Australian gold production and global exploration
company) .............................................................................. 3,000,000 2,458,171
Resolute, Ltd. (Australian-based exploration and production of gold and other
minerals) ............................................................................. 600,000 365,001
Ross Mining NL (Australian-based exploration and production company in Soloman
Islands) .............................................................................. 500,000 238,989
Sons of Gwalia, Ltd. (Gold exploration and mining) ...................................... 200,000 496,600
-------------
9,171,662
-------------
Bolivia 0.3%
Corriente Resources, Inc.* (Exploration and development company) ........................ 303,000 195,610
Jordex Resources, Inc.* (Operator of two mines producing zinc, lead and silver) ......... 500,000 166,491
-------------
362,101
-------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9 - Scudder Gold Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Brazil 0.9%
Black Swan Gold Mines, Ltd.* (Gold development projects) ................................ 300,000 44,851
Black Swan Gold Mines, Ltd. Warrants* (expire 8/27/1998) (c) ............................ 100,000 0
Boliden, Ltd.* (Mining and processing of zinc, copper and gold) ......................... 200,000 1,087,289
Ourominas Minerals, Inc.* (Exploration company) ......................................... 400,000 14,950
Ourominas Minerals, Inc., Purchase Warrants* (expire 2/14/1999) (c) ..................... 250,000 0
-------------
1,147,090
-------------
Canada 5.7%
Aber Resources* (Diamond exploration and development in the Northwest
Territories of Canada) ................................................................ 40,000 353,369
Agnico-Eagle Mines, Ltd. (Silver and gold mining) ....................................... 30,000 166,151
Cross Lake Minerals* (Mineral exploration and development) .............................. 100,000 48,928
Dia Met Minerals, Ltd. Class A* (Diamond and gold exploration and development
in the Northwest Territories of Canada and other parts of the world) .................. 21,200 316,224
Euro-Nevada Mining, Ltd. (Large gold royalty company) ................................... 250,000 3,406,272
Emgold Mining Corp., Purchase Warrants* (expire 11/14/1998) (c) ......................... 100,000 0
Golden Knight Resources, Inc.* (Junior gold producer, with interest in Ghana) (e) ....... 800,000 451,225
Kinross Gold Corp.* (International gold mining company) ................................. 350,000 1,177,330
Redfern Resources, Ltd.* (Exploration company in British Columbia) ...................... 250,000 190,276
Repadre Capital Corp.* (Junior gold royalty company) .................................... 502,700 1,417,692
-------------
7,527,467
-------------
Chile 0.1%
Dayton Mining Corp.* (Junior company developing Chilean gold deposits) .................. 200,000 129,116
-------------
China 0.0%
Zen International Resources, Ltd.* (Exploration company) ................................ 220,000 44,851
-------------
Congo 0.3%
Banro Resources Corp., Warrants* (expire 10/24/1998) (c) ................................ 150,000 399,579
-------------
Ecuador 0.3%
Ecuadorian Minerals Corp.* (Exploration company) ........................................ 700,000 356,767
-------------
French Guiana 0.2%
Guyanor Resources S.A. "B"* (Company holding interests in mineral properties) ........... 140,000 171,248
International Roraima Gold Corp.* (Gold and mineral exploration and mining in
South America and Africa) (e) ......................................................... 825,000 67,276
International Roraima Gold Corp., Purchased Warrants* (expire 10/22/1998) (c) ........... 412,500 2,803
-------------
241,327
-------------
Ghana 6.3%
Ashanti Goldfields Co., Ltd. (GDR) (Leading gold producer) .............................. 553,027 4,493,344
Ashanti Goldfields Co., Ltd.* (Preference shares) (c) ................................... 154,701 309,402
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10 - Scudder Gold Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Golden Star Resources, Ltd.* (Junior exploration company) ............................... 16,000 33,162
Pioneer Group Inc. (Fund management company owning major gold producer) ................. 70,000 1,841,875
Ranger Minerals NL* (Gold producer and exploration company) ............................. 700,000 1,559,945
Tanganyika Gold NL* (Gold exploration company) .......................................... 937,500 81,473
-------------
8,319,201
-------------
Indonesia 6.5%
Augusta Gold Corp.* (Gold exploration company) .......................................... 200,000 17,668
Augusta Gold Corp., Inc. Warrants (expire 8/16/1998)* (c) ............................... 300,000 0
Freeport McMoRan Copper & Gold, Inc. "A" (Large gold and copper producer) ............... 560,000 7,980,000
Freeport McMoran Copper & Gold, Inc. "B" ................................................ 40,000 607,500
-------------
8,605,168
-------------
Kazakhstan 0.1%
Kazakhstan Minerals Corp.* (Mining company mining for copper, gold and other
minerals) ............................................................................. 75,000 21,750
Steppe Gold Resources, Ltd.* (Exploration company) ...................................... 700,000 111,787
-------------
133,537
-------------
Mexico 0.0%
Northern Crown Mines, Ltd.* (Junior gold and silver exploration company) ................ 150,000 13,251
Minefinders Corp., Ltd.* (Precious metals exploration and development) .................. 70,000 81,818
-------------
95,069
-------------
Namibia 0.5%
Namibian Minerals Corp.* (Diamond exploration and development company, offshore
Namibia) .............................................................................. 300,000 682,953
-------------
Niger 1.6%
Etruscan Resources Company* (Junior exploration company) ................................ 800,000 2,136,523
-------------
Peru 1.5%
Gitennes Exploration Inc. (Exploration company in Peru) ................................. 146,000 90,286
Gitennes Exploration Inc., Purchase Warrants* (expire 10/2/1998) (c) .................... 73,000 0
Minas Buenaventura (ADR) (Mining company in South America) .............................. 125,000 1,640,609
Southwestern Gold Corp.* (Multiple gold and gold/copper exploration properties) ......... 100,000 231,049
-------------
1,961,944
-------------
Philippines 0.1%
Climax Mining, Ltd.* (Gold exploration company in Australia and the Philippine
Islands) .............................................................................. 800,000 136,565
-------------
Sarawak 0.2%
Menzies Gold NL* (Junior exploration company) ........................................... 2,500,000 294,856
-------------
South Africa 6.9%
Anglo American Platinum Corp. (World's largest pure platinum producer) .................. 349,902 3,805,848
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11 - Scudder Gold Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Anglogold Limited (ADR) (Exploration and mining of gold) ................................ 53,000 1,073,250
Driefontein Consolidated Ltd. (ADR) (Gold mining and company in South Africa) ........... 200,000 1,025,000
Gold Fields Ltd.* (Gold exploration and mining on the African continent) ................ 150,000 632,378
Harmony Gold Mining Co., Ltd.* (Gold mining company in South Africa) .................... 200,000 826,307
Impala Platinum Holdings Ltd. (Platinum, nickel and copper mining) ...................... 200,000 1,703,204
-------------
9,065,987
-------------
Spain 1.2%
Rio Narcea Gold Mines Inc.* (Junior exploration company in Northern Spain) .............. 700,000 1,550,746
-------------
Tanzania 0.3%
Pangea Goldfields Inc.* (Junior exploration company) .................................... 400,000 391,424
-------------
United States 9.7%
Crown Resources Corp.* (Gold, silver, and mineral exploration company) .................. 274,000 1,198,750
Getchell Gold Corp.* (Expanding gold mining project in Nevada) .......................... 75,000 1,153,125
Lazare Kaplan International* (Diamond cutter and wholesaler) ............................ 30,000 316,875
Piedmont Mining Co.* (Gold and mining development company in the Carolinas) (e) ......... 914,000 100,540
Piedmont Mining Co.* (c) (d) ............................................................ 700,000 69,300
Romarco Minerals, Inc.* (Junior exploration company with mineral resource
properties in Nevada) ................................................................. 250,000 322,789
Stillwater Mining Co.* (Exploring U.S. palladium and platinum producing) ................ 300,000 8,137,500
Viceroy Resources Corp. (Gold producer in California) ................................... 500,000 781,489
X-Cal Resources* (Junior exploration company in Nevada) (d) ............................. 714,286 242,698
X-Cal Resources Units (expire 3/15/1999)* (c) (d) ....................................... 500,000 159,696
X-Cal Resources* (d) .................................................................... 1,000,000 339,778
-------------
12,822,540
-------------
Venezuela 0.3%
El Callao Mining Corp.* (Gold exploration and development company) ...................... 1,000,000 271,822
Tombstone Exploration Co., Ltd.* (Junior exploration company in Venezuela and
Honduras) ............................................................................. 750,000 122,320
-------------
394,142
-------------
West Africa 5.9%
Birim Goldfields Inc.* (Junior exploration company in Ghana) ............................ 150,000 49,947
Birim Goldfields Inc., Purchase Warrants* (expire 5/5/1999) (c) ......................... 75,000 510
High River Gold Mines Ltd.* (Gold exploration and development) .......................... 1,050,000 820,563
IAMGOLD* (Development and funding of precious metal money in South America and
West Africa) .......................................................................... 450,000 1,146,750
Leo Shield Exploration NL* (Gold exploration) ........................................... 1,488,794 97,038
Novagold Resources Inc. (Exploration and development of mineral properties) ............. 250,000 118,922
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12 - Scudder Gold Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nevsun Resources Ltd.* (Holder of interests in gold prospects, junior
exploration company in Ghana and Mali) ................................................ 345,000 445,449
Oliver Gold Corp.* (Exploration and development company with interests in gold
and gold-copper prospects in British Columbia) ........................................ 100,000 14,271
Samax Gold Inc.* (Gold exploration in Ghana and Tanzania) ............................... 599,000 2,177,738
Sutton Resources, Ltd.* (Mineral exploration and development company in Tanzania
and Guyana) ........................................................................... 500,000 2,837,145
-------------
7,708,333
-------------
International 24.7%
Barrick Gold Corp.* (Gold exploration and production in North and South America) ........ 200,000 3,837,500
Battle Mountain Canada (Exploration and production development company in North
and South America, Australia and Indonesia) ........................................... 496,000 2,898,712
Battle Mountain Gold Co. (Gold, silver and copper mining and processing in North
and South America, South Pacific, and Australia) ...................................... 350,000 2,078,125
DeBeers Consolidated Mines, Ltd. (ADR) (World's leading producer and marketer of
diamonds) ............................................................................. 100,000 1,750,000
DeBeers Consolidated Mines, Ltd. (Centenary Linked Shares) .............................. 80,000 1,405,734
First Quantum Minerals, Ltd.* (Diversified mining company) .............................. 350,700 536,220
Greenstone Resources, Ltd.* (Gold exploration and development in Central America) ....... 250,000 942,883
Homestake Mining Co. (Major international gold producer) ................................ 500,000 5,187,500
Indochina Goldfields Ltd.* (Gold and copper exploration and development in
Southeast Asia) ....................................................................... 100,000 105,331
Lihir Gold, Ltd.* (Gold exploration and development on Lihir Island in the New
Ireland Province of Papua New Guinea) ................................................. 1,000,000 1,235,293
Meridian Gold Inc.* (Exploration and development company) ............................... 450,000 932,690
Minorca Resources Ltd.* (Owner of varied mineral property claims) ....................... 300,000 122,320
Minorca Resources Ltd., Purchase Warrants* (expire 3/13/1999) (c) ....................... 25,000 0
Newmont Mining Corp. (International gold exploration and mining company) ................ 250,000 5,906,250
Niugini Mining Ltd.* (Gold exploration and mining in Queensland, Papua New
Guinea, Chile and Thailand) ........................................................... 1,200,000 1,787,761
Orvana Minerals Corp.* (Junior international exploration and development company) ....... 250,000 203,867
Placer Dome Inc. (International gold, silver and copper mining) ......................... 200,000 2,324,080
Queenstake Resources, Ltd.* (Junior international exploration company) .................. 200,000 42,132
Solitario Resources Corp.* (Precious and base metals exploration company
primarily in Argentina and Peru) ...................................................... 700,000 951,394
Trans Hex International, Ltd.* (Explores, develops and mines diamonds and
precious metals in Canada and emerging markets) ....................................... 350,000 80,867
Vengold Inc.* (Gold exploration and development company with interests in Papua
New Guinea, Venezuela and Indonesia) .................................................. 350,000 354,388
-------------
32,683,047
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $130,785,095) 106,361,995
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13 - Scudder Gold Fund
<PAGE>
<TABLE>
<CAPTION>
% of Market
Net Assets Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investment Portfolio (Cost $145,675,474) (a) ...................................... 91.2 120,434,543
Scudder Precious Metals, Inc.:
Platinum* (Cost $725,483) (b) ......................................................... 0.5 696,727
Other assets and liabilities ............................................................ 8.3 11,000,275
------ -------------
Net Assets .............................................................................. 100.0 132,131,545
====== =============
</TABLE>
* Non-income producing security or commodity.
** Principal amount is stated in U.S. dollars unless otherwise specified.
(a) The cost for federal income tax purposes was $163,848,403. At June 30,
1998, net unrealized depreciation for all investment securities based on
tax cost was $43,413,860. This consisted of aggregate gross unrealized
appreciation for all investments in which there was an excess of market
value over tax cost of $8,185,169 and aggregate gross unrealized
depreciation for all investment securities in which there was an excess of
tax cost over market value of $51,599,029.
(b) The cost of Platinum for federal income tax purposes was $725,483. At June
30, 1998, gross and net unrealized depreciation based on tax cost was
$28,756.
(c) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $941,290 (.71% of net assets). Their
values have been estimated by the Board of Directors 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 June 30, 1998 aggregated $1,862,798. These securities
may also have certain restrictions as to resale.
(d) Restricted Securities are securities which have not been registered with
the Securities and Exchange Commission under the Securities Act of 1933.
The aggregate fair value of restricted securities at June 30, 1998,
amounted to $811,472 which represents .61% of net assets. Information
concerning such restricted securities at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Security Shares Acquisition Date Cost ($)
-------- -------------------- ------------------ -----------------
<S> <C> <C> <C>
Piedmont Mining Co. 700,000 12/20/96 280,000
X-Cal Resources 1,000,000 12/18/96 731,663
X-Cal Resources 714,286 6/18/97 360,529
X-Cal Resources 500,000 3/19/98 193,969
</TABLE>
(e) Affiliated issuers (See Notes to Consolidated Financial Statements).
(f) At June 30, 1998, these securities have been pledged to cover initial
margin requirements for open futures contracts. At June 30, 1998, open
futures contracts purchased long were as follows:
<TABLE>
<CAPTION>
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Silver 5,000 oz. July 31, 1998 55 1,497,258 1,514,423
----------- -----------
Total unrealized appreciation on open futures contracts
purchased long ............................................... 17,165
===========
</TABLE>
Currency Abbreviations
----------------------------------------------------------------------
CAD Canadian Dollars
The accompanying notes are an integral part of the consolidated financial
statements.
14 - Scudder Gold Fund
<PAGE>
Financial Statements
Consolidated Statement of Assets and Liabilities
as of June 30, 1998
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market:
Unaffiliated issuers (identified cost $142,049,417) ................ $ 119,815,502
Affiliated issuers (identified cost $3,626,057) .................... 619,041
----------------
Total investments, at market (idenitified cost $145,675,474) ......... 120,434,543
Platinum, at market 1,950 oz. (identified cost $725,483) ............. 696,727
Cash ................................................................. 1,040
Foreign currency holdings, at market (identified cost $14,679) ....... 14,678
Receivable for Fund shares sold ...................................... 11,240,058
Dividends and interest receivable .................................... 132,340
Receivable for daily variation margin on open futures contracts ...... 55,550
Other assets ......................................................... 4,568
----------------
Total assets ......................................................... 132,579,504
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................... 36,507
Payable for Fund shares sold ......................................... 160,106
Accrued management fee ............................................... 104,340
Other payables and accrued expenses .................................. 147,006
----------------
Total liabilities .................................................... 447,959
-------------------------------------------------------------------------------------------
Net assets, at market value $ 132,131,545
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income ......... (7,582,297)
Net unrealized appreciation (depreciation) on:
Investment securities .............................................. (25,240,931)
Platinum ........................................................... (28,756)
Futures ............................................................ 17,165
Foreign currency related transactions .............................. (7,976)
Accumulated net realized gain (loss) ................................. (62,364,808)
Paid-in capital ...................................................... 227,339,148
-------------------------------------------------------------------------------------------
Net assets, at market value $ 132,131,545
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($132,131,545 / 19,861,886 shares of capital stock
outstanding, $.01 par value, 100,000,000 shares of capital ----------------
stock authorized) .................................................. $6.65
----------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15 - Scudder Gold Fund
<PAGE>
Consolidated Statement of Operations
year ended June 30, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $48,139) ................. $ 1,027,084
Interest (net of foreign taxes withheld of $1,829) ................... 1,708,512
----------------
2,735,596
Expenses:
Management fee ....................................................... 1,471,427
Services to shareholders ............................................. 636,904
Custodian and accounting fees ........................................ 177,735
Directors' fees and expenses ......................................... 47,652
Auditing ............................................................. 75,344
Reports to shareholders .............................................. 82,166
Registration fees .................................................... 64,049
Legal ................................................................ 96,191
Other ................................................................ 19,344
----------------
2,670,812
-------------------------------------------------------------------------------------------
Net investment income (loss) 64,784
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments - Unaffiliated issuers ................................... (45,510,841)
Investments - Affiliated issuers ..................................... (3,586,595)
Gold ................................................................. (1,252,102)
Futures .............................................................. (339,950)
Foreign currency related transactions ................................ (41,992)
----------------
(50,731,480)
----------------
Net unrealized appreciation (depreciation) during the period on:
Investment securities ................................................ (13,589,462)
Gold ................................................................. 801,154
Platinum ............................................................. (141,880)
Futures .............................................................. 17,165
Foreign currency related transactions ................................ 1,369
----------------
(12,911,654)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (63,643,134)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (63,578,350)
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16 - Scudder Gold Fund
<PAGE>
Consolidated Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended June 30,
Increase (Decrease) in Net Assets 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) ............................... $ 64,784 $ (1,213,425)
Net realized gain (loss) from investment transactions ...... (50,731,480) 8,272,276
Net unrealized appreciation (depreciation) on
investment transactions during the period ............... (12,911,654) (46,971,575)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .............................................. (63,578,350) (39,912,724)
---------------- ----------------
Distributions to shareholders:
In excess of net investment income ......................... (2,264,120) (32,213,271)
---------------- ----------------
From net realized gains from investment transactions ....... -- (3,509,513)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................. 749,811,359 449,808,600
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 2,054,132 32,732,697
Cost of shares redeemed .................................... (717,824,287) (415,853,422)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ............................................ 34,041,204 66,687,875
---------------- ----------------
Increase (decrease) in net assets .......................... (31,801,266) (8,947,633)
Net assets at beginning of period .......................... 163,932,811 172,880,444
Net assets at end of period (including accumulated
distributions in excess of net investment income ---------------- ----------------
of $7,582,297 and $13,939,198, respectively) ............ $ 132,131,545 $ 163,932,811
---------------- ----------------
<CAPTION>
Other Information
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 15,622,172 11,273,441
---------------- ----------------
Shares sold ................................................ 92,092,490 34,365,516
Shares issued to shareholders in reinvestment of
distributions ........................................... 282,938 2,401,703
Shares redeemed ............................................ (88,135,714) (32,418,488)
---------------- ----------------
Net increase in Fund shares ................................ 4,239,714 4,348,731
---------------- ----------------
Shares outstanding at end of period ........................ 19,861,886 15,622,172
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17 - Scudder Gold Fund
<PAGE>
Consolidated Financial Highlights
The following table includes selected data (a) for a share outstanding
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------
Net asset value, beginning of period ...................... $ 10.49 $ 15.34 $ 12.86 $ 12.64 $ 12.13
--------------------------------------------------------
Income from investment operations:
Net investment income (loss) .............................. .00 (.08) (.09) (.08) (.10)
Net realized and unrealized gain (loss) on investment
transactions ............................................ (3.70) (2.12) 4.28 1.02 .85
--------------------------------------------------------
Total from investment operations .......................... (3.70) (2.20) 4.19 .94 .75
--------------------------------------------------------
Less distributions:
In excess of net investment income ........................ (.14) (2.39) (1.08) (.25) (.24)
From net realized gains on investment transactions ........ -- (.26) (.63) (.47) --
--------------------------------------------------------
Total distributions ....................................... (.14) (2.65) (1.71) (.72) (.24)
--------------------------------------------------------
--------------------------------------------------------
Net asset value, end of period ............................ $ 6.65 $ 10.49 $ 15.34 $ 12.86 $ 12.64
--------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Total Return (%) .......................................... -35.45 -17.72 36.91 7.50 6.35
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................... 132 164 173 126 130
Ratio of operating expenses to average daily net
assets (%) .............................................. 1.82 1.60 1.50 1.65 1.69
Ratio of net investment income (loss) to average
daily net assets (%) .................................... .04 (.62) (.61) (.69) (.81)
Portfolio turnover rate (%) ............................... 68.3 38.9 29.7 42.0 50.8
</TABLE>
(a) Based on monthly average shares outstanding during the period.
18 - Scudder Gold Fund
<PAGE>
Notes to Consolidated Financial Statements
A. Significant Accounting Policies
Scudder Gold Fund (the "Fund") is a non-diversified series of Scudder Mutual
Funds, Inc. (the "Corporation"). The Corporation is a Maryland corporation,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Principles of Consolidation. The consolidated financial statements of the Fund
include the accounts of the Fund and Scudder Precious Metals, Inc., a
wholly-owned subsidiary of the Corporation, whose principal assets are precious
metals. All intercompany accounts and transactions have been eliminated.
Security Valuation. Portfolio 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, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on Nasdaq. 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 on
such market. If no sale occurred, the security is then valued at the mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations the most recent bid quotation shall be used.
Portfolio debt securities other than money market instruments with an original
maturity over sixty days are valued by pricing agents approved by the officers
of the Fund, which 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.
Precious Metals Valuation. Gold bullion will be valued on quotations obtained
from U.S. dealers and on the London afternoon gold price. Precious metals other
than gold will be valued on current prices provided by market makers.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at the
daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest income
and certain expenses at the rates of exchange prevailing on the respective
dates of such transactions.
19 - Scudder Gold Fund
<PAGE>
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased precious metals futures as a temporary substitute for purchasing
precious metals.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
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. The Fund paid no federal income taxes and no federal income tax
provision was required. At June 30, 1998, the Fund had a net tax basis capital
20 - Scudder Gold Fund
<PAGE>
loss carryforward of approximately $23,275,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until June 30, 2006, whichever occurs first. In addition, from November 1,
1997 through June 30, 1998, the Fund incurred approximately $27,220,000 in net
realized capital losses. As permitted by tax regulations, the Fund intends to
elect to defer these losses and treat them as arising in the fiscal year ending
June 30, 1999.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year 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. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax. The Fund uses the
identified cost method for determining realized gain or loss on investments for
both financial and federal income tax reporting purposes.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences relate primarily to investments in passive foreign investment
companies. 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.
Other. Investment security and precious metals transactions are accounted for on
a trade date basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. All premiums and discounts are amortized or accreted for both tax and
financial reporting purposes.
B. Purchases and Sales
For the year ended June 30, 1998, purchases and sales of investment securities
(excluding short-term investments) aggregated $119,520,338 and $78,849,656,
respectively. During the year ended June 30, 1998, purchases and sales of gold
aggregated $11,473,455 and $21,319,187, respectively.
The aggregate face value of futures contracts opened and closed during the
twelve months ended June 30, 1998 was $11,257,108 and $9,759,850, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Directors and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
21 - Scudder Gold Fund
<PAGE>
Under the Investment Management Agreement with Scudder Kemper, the Fund agrees
to pay to the Adviser a fee equal to an annual rate of 1% of the Fund's average
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 June 30, 1998, the
fee pursuant to these agreements aggregated $1,471,427.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent. For the year ended June
30, 1998, the amount charged to the Fund by SSC aggregated $487,250, of which
$37,045 is unpaid at June 30, 1998.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended June 30, 1998,
the amount charged to the Fund by STC aggregated $19,391, of which $1,627 is
unpaid at June 30, 1998.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
June 30, 1998, the amount charged to the Fund by SFAC aggregated $67,605, of
which $5,332 is unpaid at June 30, 1998.
The Fund pays each Director not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended June 30, 1998, Directors' fees and expenses aggregated $47,652.
D. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
E. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5%
of the voting securities. A summary of the Fund's transactions with companies
which are or were affiliates for the period ended June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Affiliate Purchases Sales Dividend Market
Cost ($) Cost ($) Income ($) Value ($)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Golden Knight Resources Inc. 1,336,405 4,985,092 -- 451,225
Piedmont Mining Co. -- 249,375 -- 100,540
International Roraima -- -- -- 67,276
-----------------------------------------------------------
1,336,405 5,234,467 -- 619,041
===========================================================
</TABLE>
22 - Scudder Gold Fund
<PAGE>
Report of Independent Accountants
Tax Information
To the Board of Directors of Scudder Mutual Funds, Inc. and the Shareholders of
Scudder Gold Fund:
In our opinion, the accompanying consolidated statement of assets and
liabilities, including the portfolio of investments, and the related
consolidated statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Scudder Gold Fund (the "Fund") at June 30, 1998, the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These consolidated financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
August 19, 1998
23 - Scudder Gold Fund
<PAGE>
Officers and Directors
Daniel Pierce*
President and Director
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; Chief Executive Officer
and Director, Scientific Learning
Corporation
William T. Burgin
Director; General Partner, Bessemer
Venture Partners
Thomas J. Devine
Director; Consultant
Keith R. Fox
Director; Private Equity Investor
William H. Luers
Director; President, The
Metropolitan Museum of Art
Kathryn L. Quirk*
Director, Vice President and
Assistant Secretary
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Jerard K. Hartman*
Vice President
Clay L. Hoes*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Treasurer
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
24 - Scudder Gold Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
25 - Scudder Gold Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
26 - Scudder Gold Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
27 - Scudder Gold Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
[LOGO]
<PAGE>
SCUDDER MUTUAL FUNDS, INC.
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for the period September 2, 1988 (commencement of
operations) to June 30, 1989 and for each of the nine years ended June 30, 1998.
Included in Part B of this Registration Statement:
Investment Portfolio as of June 30, 1998
Statement of Assets and Liabilities as of June 30, 1998
Statement of Operations for the year ended June 30, 1998
Statements of Changes in Net Assets for the two fiscal
years ended June 30, 1997 and 1998
Financial Highlights for the period September 2, 1988 (commencement of
operations) to June 30, 1989 and each of the
nine years ended June 30, 1998
Notes to Financial Statements
Report of Independent Accountants
Are filed herein.
Statements, schedules and historical information other than those listed above have been omitted since
they are either not applicable or are not required.
b. Exhibits:
1. (a) Articles of Incorporation dated March 17, 1988.
(Incorporated by reference to Post-Effective amendment No. 10 to
the Registration Statement.)
(b) Articles of Amendment dated October 12, 1990.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
2. (a) By-Laws dated March 18, 1988.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(b) Amendment to the By-Laws dated December 12, 1991.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(c) Amendment to By-Laws dated June 4, 1996. (Incorporated by reference
to Exhibit 2(c) to Post-Effective Amendment No. 9 to this
Registration Statement.)
(d) Amendment to By-Laws dated September 4, 1996. (Incorporated
by reference to Exhibit 2(d) to Post-Effective Amendment No. 9 to
this Registration Statement.)
3. Inapplicable.
4. Inapplicable
Part C - Page 1
<PAGE>
5. (a) Investment Advisory Agreement between the Registrant (on behalf of
Scudder Gold Fund) and Scudder, Stevens & Clark, Inc. dated August
22, 1988.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(b) Investment Management Agreement between the Registrant (on behalf
of Scudder Gold Fund) and Scudder, Stevens & Clark, Inc. dated
September 5, 1996.
(Incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 9 to the Registration Statement.)
(c) Investment Management Agreement between the Registrant (on behalf of
Scudder Gold Fund) and Scudder Kemper Investments, Inc. dated
December 31, 1997.
(Incorporated by reference to Exhibit No. 5(c)to Post-Effective
Amendment No. 11 to the Registration Statement.)
(d) Investment Management Agreement between the Registrant (on behalf
of Scudder Gold Fund) and Scudder Kemper Investments, Inc. dated
September 7, 1998 to be filed by amendment.
6. (a) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated August 22, 1988
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.).
(b) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated September 7, 1998 to be filed by amendment.
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and State Street Bank and
Trust Company.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.).
(a)(2) Fee schedule for Exhibit (8)(a)(1).
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(b)(1) Custodian agreement between the Registrant and Brown Brothers
Harriman & Co. dated April 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement.)
(b)(2) Fee schedule for Exhibit (8)(b)(1).
(Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement.)
9. (a)(1) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
Part C - Page 2
<PAGE>
(a)(2) Fee schedule for Exhibit (9)(a)(1).
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(a)(3) Service Agreement between Copeland Associates, Inc. on behalf of
Scudder Mutual Funds, Inc. and Scudder Gold Fund dated June 8, 1995.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(a)(4) Form of fee schedule for Exhibit 9(a)(1).
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(b)(1) COMPASS Service Agreement between the Registrant and Scudder Trust
Company dated January 1, 1990.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(b)(2) Fee schedule for Exhibit (9)(b)(1).
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(b)(3) COMPASS Service Agreement between the Registrant and Scudder Trust
Company dated October 1, 1995.
(Incorporated by reference to Exhibit 9(b)(3) to Post-Effective
Amendment No. 9 to this Registration Statement.)
(c)(1) Fund Accounting Services Agreement between the Registrant and The
First National Bank of Boston dated August 22, 1988.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(c)(2) Pricing Authorization Form (Exhibit B) for Exhibit 9(c)(1) dated
January 10, 1991.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(c)(3) Fund Accounting Services Agreement between the Registrant and
Scudder Fund Accounting Corporation dated March 28, 1995.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
10. Inapplicable.
11. Consent of Independent Accountants is filed herein.
12. Inapplicable.
13. Letter of Investment Intent Purchase Agreement (on behalf of Scudder
Mutual Funds, Inc.).
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
Part C - Page 3
<PAGE>
14. (a) Scudder Flexi-Plan for Corporations and Self-Employed Individuals.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(b) Scudder Individual Retirement Plan.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(c) Scudder Funds 403(b) Plan.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(d) Scudder Employer-Select 403(b) Plan.
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(e) Scudder Cash or Deferred Profit Sharing Plan under Section 401(k).
(Incorporated by reference to Post-Effective amendment No. 10 to the
Registration Statement.)
(f) Scudder Roth IRA plan.
(Incorporated by reference to Post-Effective amendment No. 11 to the
Registration Statement.)
15. Inapplicable.
16. Schedule for Computation of
Performance Quotation.
(Incorporated by reference to
Exhibit No. 16 to Post-Effective
Amendment No. 2 to this
Registration Statement.)
17. Article 6 Financial Data Schedule is filed herein.
18. Inapplicable.
</TABLE>
Power of Attorney for Joan E. Spero is filed herein.
Power of Attorneys for Paul Bancroft III, Sheryle J. Bolton, William H. Luers
and Kathryn L. Quirk are incorporated by reference to the Signature Page of
Post-Effective amendment No. 11.
Power of Attorney for William T. Burgin is incorporated by reference to the
Signature Page of Post-Effective amendment No. 10.
Power of Attorney for Keith R. Fox is incorporated by reference to the Signature
Page of Post-Effective amendment No. 9.
Power of Attorneys for Daniel Pierce and Thomas J. Devine are incorporated by
reference to the Signature Page of Post-Effective amendment No. 1.
Part C - Page 4
<PAGE>
Item 25 Persons Controlled by or under Common Control with Registrant.
- ------- -------------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of October 16, 1998).
- -------- ---------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Shareholders
-------------- ----------------------
<S> <C>
Shares of common stock 14,237
($0.01 par value)
</TABLE>
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
Directors and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
error or accidental omission in the scope of their duties.
Article Seven of Registrant's Articles of Incorporation
state as follows:
(1) To the fullest extent that limitation on the
liability of directors and officers is permitted by
the Maryland General Corporation Law, no director or
officer of the Registrant shall have any liability to
the Registrant or its stockholders for damages. This
limitation on liability applies to events occurring
at the time a person serves as a director or officer
of the Registrant whether or not such person is a
director or officer at the time of any proceeding in
which liability is asserted.
(2) The Registrant shall indemnify and advance expenses
to its currently acting and its former directors to
the fullest extent that indemnification of directors
is permitted by the Maryland General Corporation Law.
The Registrant shall indemnify and advance expenses
to its officers to the same extent as its directors
and to such further extent as is consistent with law.
The Board of Directors may by Bylaw, resolution or
agreement make further provision for indemnification
of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General
Corporation Law.
(3) References to the Maryland General Corporation Law in
this Article are to that law as from time to time
amended. No amendment to the charter of the
Registrant shall affect any right of any person under
this Article based on any event, omission or
proceeding prior to the amendment.
(4) No provision of the Articles of Incorporation of the
Registrant shall be effective to (i) require a waiver
of compliance with any provision of the Securities
Act of 1933, as amended, or the Investment Company
Act of 1940, as amended (the "1940 Act"), or of any
valid rule, regulation or order of the Securities and
Exchange Commission under those Acts or (ii) protect
or purport to protect any director of officer of the
Registrant against any liability to the Registrant or
its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 28.
Part C - Page 5
<PAGE>
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk,
Scudder Investor Services, Inc.* Director, Vice
President & Secretary, Scudder Fund Accounting
Corporation* Director, Vice President & Secretary,
Scudder Realty Holdings Corporation* Director &
Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.* Vice President, Director &
Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder,
Stevens & Clark of Canada, Ltd.*** Director, Vice
President and Secretary, Scudder Canada Investor
Services Limited*** Director, Vice President and
Secretary, Scudder Realty Advisers, Inc. x Director
and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark
Overseas Corporationoo Director and Secretary, SFA,
Inc.* Director, Vice President and Secretary, Scudder
Defined Contribution Services, Inc.** Director, Vice
President and Secretary, Scudder Capital Asset
Corporation** Director, Vice President and Secretary,
Scudder Capital Stock Corporation** Director, Vice
President and Secretary, Scudder Capital Planning
Corporation** Director, Vice President and Secretary,
SS&C Investment Corporation** Director, Vice
President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV
Investment Corporation** Director, Vice President and
Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
Part C - Page 6
<PAGE>
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C> <C>
William S. Baughman Vice President None
Two International Place
Boston, MA 02110
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Part C - Page 7
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
Thomas F. McDonough Clerk Vice President and
Two International Place Secretary
Boston, MA 02110
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Daniel Pierce Director, Vice President President and Director
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Director, Vice President
345 Park Avenue Legal Officer and Assistant Clerk and Assistant Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Part C - Page 8
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments, Inc., Two International Place, Boston,
Massachusetts, 02110. Records relating to the duties of the
Registrant's custodian are maintained by Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109.
Records relating to the duties of the Registrants' transfer
agent are maintained by Scudder Service Corporation, Two
International Place, Boston, Massachusetts, 02110.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertaking.
- -------- ------------
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of such Fund's latest
annual report to shareholders upon request and without charge.
Part C - Page 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, and the
Commonwealth of Massachusetts, on the 22nd day of October 1998.
SCUDDER MUTUAL FUNDS, INC.
By /s/Thomas F. McDonough
-----------------------------
Thomas F. McDonough,
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce
- ---------------------------------------
Daniel Pierce* President (Principal Executive October 22, 1998
Officer) and Director
/s/Paul Bancroft III
- ---------------------------------------
Paul Bancroft III* Director October 22, 1998
/s/Sheryle J. Bolton
- ---------------------------------------
Sheryle J. Bolton* Director October 22, 1998
/s/William T. Burgin
- ---------------------------------------
William T. Burgin* Director October 22, 1998
/s/Thomas J. Devine
- ---------------------------------------
Thomas J. Devine* Director October 22, 1998
/s/Keith R. Fox
- ---------------------------------------
Keith R. Fox* Director October 22, 1998
<PAGE>
/s/William H. Luers
- ---------------------------------------
William H. Luers* Director October 22, 1998
/s/Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk* Director, Vice President and Assistant October 22, 1998
Secretary
/s/Joan E. Spero
- ---------------------------------------
Joan E. Spero* Director October 22, 1998
/s/John R. Hebble
- ---------------------------------------
John R. Hebble* Treasurer (Chief Financial and October 22, 1998
Accounting Officer)
</TABLE>
*By: /s/Thomas F. McDonough
-------------------------------------------------------------------
Thomas F. McDonough,
Attorney-in-fact pursuant to powers of attorney for
Daniel Pierce and Thomas J. Devine contained in the
signature page of Post-Effective Amendment No.1 to
the Registration Statement filed February 22, 1989,
for Keith R. Fox contained in the signature page of
Post-Effective Amendment No. 9 to the registration
statement filed October 25, 1996, for William T.
Burgin contained in the signature page of
Post-Effective Amendment No. 10 to the Registration
Statement filed October 10, 1997 and for Paul
Bancroft III, Sheryle J. Bolton, William H. Luers and
Kathryn L. Quirk contained in the signature page of
Post-Effective Amendment No. 11 to the Registration Statement
filed September 1, 1998 and for John R. Hebble and Joan E.
Spero included in this Post-Effective Amendment.
2
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston, and Commonwealth of
Massachusetts on the 22nd day of October, 1998.
SIGNATURES
----------
Scudder Mutual Funds, Inc.
By /s/Thomas F. McDonough
----------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint Caroline Pearson, Kathryn L. Quirk,
Thomas F. McDonough and Sheldon A. Jones and each of them, severally, or if more
than one acts, a majority of them, her true and lawful attorney and agent to
execute in her name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/John R. Hebble
- --------------------------------------
John R. Hebble Treasurer October 22, 1998.
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston, and Commonwealth of
Massachusetts on the 22nd day of October, 1998.
Scudder Mutual Funds, Inc.
By /s/Thomas F. McDonough
----------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint Caroline Pearson, Kathryn L. Quirk,
Thomas F. McDonough and Sheldon A. Jones and each of them, severally, or if more
than one acts, a majority of them, her true and lawful attorney and agent to
execute in her name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Joan E. Spero
- --------------------------------------
Joan E. Spero Director October 22, 1998.
</TABLE>
<PAGE>
File No. 33-22059
File No. 811-5565
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 12
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 14
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER MUTUAL FUNDS, INC.
<PAGE>
SCUDDER MUTUAL FUNDS, INC.
Exhibit Index
Exhibit 11
Exhibit 17
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in Post-Effective Amendment No.12
to the Registration Statement on Form N-1A, of Scudder Gold Fund of our report
dated August 19, 1998 on our audits of the consolidated financial statements and
financial highlights of Scudder Gold Fund, which report is included in the
Annual Report to Shareholders for the year ended June 30, 1998 which is
incorporated by reference in the Post-Effective Amendment to the Registration
Statement.
We also consent to the references to our Firm under the captions "Experts" and
"Financial Statements."
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts PricewaterhouseCoopers LLP
October 19, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Gold
Fund Annual Report for the fiscal year ended June 30,1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Gold Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 145,675,474
<INVESTMENTS-AT-VALUE> 120,434,543
<RECEIVABLES> 12,140,393
<ASSETS-OTHER> 4,568
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,579,504
<PAYABLE-FOR-SECURITIES> 36,507
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 411,452
<TOTAL-LIABILITIES> 447,959
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 227,339,148
<SHARES-COMMON-STOCK> 19,861,886
<SHARES-COMMON-PRIOR> 15,622,172
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (7,582,297)
<ACCUMULATED-NET-GAINS> (62,364,808)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (25,260,498)
<NET-ASSETS> 132,131,545
<DIVIDEND-INCOME> 1,027,084
<INTEREST-INCOME> 1,708,512
<OTHER-INCOME> 0
<EXPENSES-NET> 2,670,812
<NET-INVESTMENT-INCOME> 64,784
<REALIZED-GAINS-CURRENT> (50,731,480)
<APPREC-INCREASE-CURRENT> (12,911,654)
<NET-CHANGE-FROM-OPS> (63,578,350)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,264,120)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 92,092,490
<NUMBER-OF-SHARES-REDEEMED> (88,135,714)
<SHARES-REINVESTED> 282,938
<NET-CHANGE-IN-ASSETS> (31,801,266)
<ACCUMULATED-NII-PRIOR> (13,939,198)
<ACCUMULATED-GAINS-PRIOR> (5,433,894)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,471,427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,670,812
<AVERAGE-NET-ASSETS> 147,052,034
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> (3.70)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 6.65
<EXPENSE-RATIO> 1.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
